At a glance
- The ABA’s updated banking code sets out new obligations for banks to meet with customers intending to act as guarantor to help them understand their obligations before accepting a guarantee.
- It includes a new vulnerable customer definition, acknowledging anyone can become vulnerable at any time in their life.
- There is a new commitment to organise or refer customers to free of charge support services such as interpreters, AUSLAN and National Relay Services and greater clarity on the types of support available to all customers, including financial difficulty options for small businesses.
- The code includes new improved provisions for managing deceased estates.
This latest update includes several key improvements aimed at strengthening consumer protections and ensuring banking services remain fair, transparent, and inclusive. It replaces the 2021 version, expanding the definition of what constitutes a small business and follows extensive consultation with consumers, small business organisations and regulators.
“The review has resulted in significant uplift of Banking Code provisions and includes additional protections for small business customers, guarantors, vulnerable customers and customers requiring additional support,” said Anna Bligh, CEO of the Australian Banking Association.
“The Banking Code of Practice is an important pillar of the financial services regulatory framework, setting a high standard of customer protections for Australians.”
The key changes approved by the Australian Securities and Investments Commission (ASIC) include several improvements to lending practices. Banks must now provide clearer information about loan application processes and expected timeframes for decisions. When assessing applications, they must consider the financial position and account for the conduct of the business.
In other reforms, banks can no longer include default clauses based on unspecified “material adverse changes” in standard form small business loan contracts. This protects businesses from arbitrary enforcement actions based on vague criteria.
Enhanced transparency for valuation process
The code requires more transparency about valuation processes. When using external property valuers, banks must communicate about the purpose of valuations and provide copies of valuations for commercial or agricultural properties that customers have paid for, except when enforcement proceedings are in progress.
Banks must act fairly and ethically manage potential conflicts of interest when appointing external accountants or insolvency practitioners. This provision is designed to protect struggling small businesses with the impartial appointment of external professionals.
“The Banking Code of Practice is an important pillar of the financial services regulatory framework, setting a high standard of customer protections for Australians.”
Anna Bligh, CEO, Australian Banking Association
Impact on accounting professionals
For accountants and financial advisers, the guidelines on guarantor rights and obligations provide clarity for advising clients considering personal guarantees for business loans.
Before accepting a guarantee, banks must now take reasonable steps to discuss obligations with a guarantor in person, via video conference or phone. Guarantors have a three-day cooling-off period after receiving information about the guarantee before banks can accept it.
By requiring banks to provide more information and time for consideration, the code could help prevent situations where business owners or their family members provide guarantees without fully understanding the risks.
The code requires banks to inform guarantors about any formal demand or default notice sent to borrowers and notify guarantors if borrowers experience financial difficulty resulting in loan changes.
Support for vulnerable customers
Banks must now organise or refer vulnerable customers to free support services such as interpreters, AUSLAN and National Relay Services. This includes small businesses, particularly those owned by people from diverse backgrounds or those facing financial hardship.
Banks have committed to taking extra care with customers experiencing vulnerability, respecting their need for privacy while making it simpler to appoint third-party representatives such as lawyers or financial counsellors.
The ABA said the code provisions are legally enforceable, making it a powerful tool for protecting small business interests. More transparent lending processes could help struggling firms more effectively navigate complex financial situations.
Finance professionals will play a significant role in helping clients understand both their rights under the code and their obligations to lenders. The more transparent processes around valuations, guarantees and financial difficulty enable accountants to provide more informed advice and create opportunities for earlier intervention when clients face challenges.
“This latest update of the code is the culmination of an extensive review and has been developed in consultation with consumer representatives, small business organisations and regulators,” Bligh said.
IPA Group CEO Andrew Conway will join regulators, top legal minds, international AML and accounting compliance experts at AML Edge 2025. They will examine the upcoming tranche 2 AML/CTF reforms, including risk assessments, client due diligence and reporting obligations at the event held at Watersedge, Sydney on 27 March. Visit here to register and find out more.
