Banking committee commends banks for drop in breaches

The Banking Code Compliance Committee (BCCC) has reported a 38 per cent drop in breaches to its Banking Code of Practice (the code), as it urged banks to continue to improve systems and pursue better outcomes for customers.

The BCCC’s latest report on compliance, for the half year to June 2022, found 14 of the 18 banks subscribed to the code reported declines in breaches, including the four major banks.

Banks must provide data about their breaches, from customer complaints to the banking committee twice a year for the preceding six-month period.

The report found banks reported a total of 15,098 breaches for this reporting period. Of the total, they provided further details for a sample of 7,483 breaches that came from 3,165 incidents.

There were 1,843 breaches for ‘when you apply for a loan: chapter 17’, down 54 per cent, ‘guaranteeing a loan’ received 84 breaches (down 28 per cent), and lending to small business dropped 96 per cent to 14 breaches.

Chapter 17 of the code lays out a responsible approach to lending for individuals and small businesses.

The obligation chapter 17 requires banks “to exercise the care and skill of a diligent and prudent banker” when lending to individuals and small businesses.

Breaches included “one major bank reduced its credit checks so it could manage high volumes, between July 2019 to February 2020”, as the bank was concerned about meeting its obligations for responsible lending.

Another example included: “One major bank reviewed loan files of customers who are now in financial hardship to see whether it had met its responsible lending obligations”, the report found.

“The review found the bank failed to make reasonable inquiries of a customer’s liabilities, such as Buy Now Pay Later limits and undisclosed debt debits, when assessing their ability to service the credit they were approved for,” it said.

Despite the breaches observed, seven banks, including all four majors, reported a decrease in their responsible approach to lending.

Drop in breaches welcomed

BCCC chair Ian Govey said this was “a great result and indicates the work to improve systems and processes is producing the desired effects”.

The decline in breaches was due to more accurate reporting, resolving underlying issues, and improving systems, Mr Govey said.

Regulatory changes, such as ASIC’s internal dispute resolution, which broadened the definition of a complaint and led to banks revising their approaches to identifying and recording complaints, had helped the decline in breaches reported, Mr Govey noted.

“This is the first reporting period in which [Internal Dispute Resolution (RG 271)] has been fully operational. It offers banks an excellent opportunity to review complaints data and detect Code breaches that may not have otherwise been captured,” Mr Govey said.

“Given banks were working to meet the updated standards and requirements set by RG271, we anticipated the high number of breaches in the previous period.

“The subsequent reduction of breaches in this period is a positive development and suggests that the additional compliance measures and integration of changes have been effective.”

Despite the positive results the committee continued to stress the need for banks to remain vigilant, continue improving, and pursue better outcomes for customers.

[Related: New draft regulatory guide released on consumer remediation]