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Q E A S

Queensland Economic Advocacy Solutions

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QEAS response to the Financial Services Royal Commission

A brief summary for business:

According to Commissioner Hayne the chief protection for small business borrowers has for some time been, and remains, the Banking Code.  Among other things, the Banking Code provides that, if a lender is considering providing a borrower ‘with a new loan, or an increase in a loan limit’, the lender will ‘exercise the care and skill of a diligent and prudent banker’.

Accordingly there are two key recommendations Commission Hayne has made that impact small business.

Firstly the National Consumer Credit Protection Act 2009 Act should not be amended to extend its operation to lending to small businesses.

However and secondly, the Australian Banking Association should amend the definition of ‘small business’ in the Banking Code so that the Code applies to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.

The context is this and it is quite important. Commissioner Hayne primarily believes the responsible lending issues identified during the Commission’s hearings will be resolved by banks applying the law as it stands.

The changes he recommends in relation to lending to small businesses are underpinned by two broader changes: one directed to improving the ways in which banking products work – by introducing a responsibility for product design, delivery and maintenance into the Banking Executive Accountability Regime (BEAR); and the second directed to making the promises made in the Banking Code more meaningful – by introducing statutory consequences for breaching key provisions of the Code.

QEAS thoughts here:

The biggest indication of what will happen for the immediate future of the Australian banking sector will come from how the Australian Labor Party responds to the Financial Services Royal Commissions’ recommendations.

This may have all the importance of a being a Royal Commission but in some respects it is just another report with recommendations. It will be how Government and more importantly the next Government responds to the Commission’s Final Report.  Both sides have immediately indicated that they will accept all 76 recommendations and take action on them (The Government's formal response can be found here). It is the actioning of these initial responses that will determine whether a real fix ensures that the litany of poor behaviours identified in Australia’s financial services industry will not be allowed to ever occur again.

Both the Coalition and the Opposition will have to strike the right balance between responding to the Commission’s recommendations but not to the extent where it tightens lending requirements that is counter productive to the economy and broader community.  Such a balance will no doubt focus on enforcing the existing laws as recommended by Commissioner Hayne.

As tempting as it will be to play politics the Federal Opposition has a chance to step up for the people of Australia.  They have an opportunity to rise above political point scoring and deliver well before a 'term in office'.

​The Final Report can be accessed here:

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