By David Turner

You’ve probably read a few posts this morning about the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s final report – particularly the extensive recommendations around mortgage broking.

However, there’s another recommendation in the report that, if adopted, will change the way the banking industry’s promises to its customers are regulated and enforced.

The Australian Banking Association’s Code of Banking Practice (the Code) is a voluntary industry code adopted by the largest players in the banking sector, including the Big Four. The Code is a set of promises by the banks about how they will deal with their customers, including what information the banks will give customers, how accounts will be managed, and how disputes will be resolved. The currently adopted version was released in 2013, but a new 2019 Code will replace it from 1 July this year.

Because the Code is currently a voluntary industry code of practice, it hasn’t been very clear which parts of it are enforceable by customers, or how those parts are enforced.  Courts in Australia have taken the view in the past that parts of the Code can form part of the contract between the customer and the bank, but those court cases are dependent on their particular facts, so that hasn’t been the clearest guidance.

But that looks set to change. The Royal Commission has recommended (recommendation 1.16, for those playing at home) that the ABA and ASIC cooperate in a process that will make parts of the Code become enforceable as statute, and has also recommended a change to the law to specify remedies available to customers as a result of a breach of those enforceable code provisions.

Not all of the Code will become legally enforceable; first, the ABA would have to identify which parts of the Code should be enforceable, and ASIC would then review those provisions put forward by industry. But once that process is complete, it would be much clearer to banks and customers – as well as the secondary debt market, where existing loans are purchased from banks – exactly what the banks’ obligations to their customers are.