Fourth time lucky? Parliamentary inquiry again calls for small business banking code of conduct

A parliamentary inquiry into the banking sector has recommended the adoption of a small business code of conduct by the Australian Bankers Association.

This is the fourth time since 2009 that a parliamentary inquiry has recommended the ABA adopt a small business code of conduct.

In the report entitled “The Post GFC Banking Sector” the parliamentary enquiry noted that the ABA had failed to act on previous recommendations.

“Given the arguments from the sector about the cost and burden of added regulation in general, the committee is of the view that if banks genuinely have these concerns, they have both the obligation and opportunity to demonstrate that the banking sector takes concerns about small business finance issues seriously and is willing to proactively develop a stronger self-regulated solution,” the enquiry found.

“Failure by the ABA and the banks to act on this recommendation may strengthen the case for more prescriptive government regulation in this area.”

The chief executive of the ABA, Steven Munchenberg, has undertaken to read the report but is not making any promises past that.

“The code of banking practice already applies to small businesses but we will consider with ABA member banks whether any further measures are needed,” Munchenberg said in a statement.

However, the lack of a small business code of conduct for Australian banks means that Australia is lagging behind the UK Bankers’ Association, Canadian Bankers’ Association and the Irish banking regulator which all have specific codes of practice for small business lending in addition to a more general code of banking practice.

Paul Drum, head of policy at CPA Australia, told SmartCompany there are gaps in current ABA’s Code of Banking Practice in relation to small business – particularly in comparison to similar codes in Canada and the UK – that could be corrected by an expansion of the Code or in a separate code of practice.

“Such a move would provide the framework for banks to provide more certainty in their relationships with small business,” he says.

CPA Australia has also repeatedly raised the need for a banking code of practice for small business in a number of discussions and submissions to government and parliamentary inquiries.

“The importance of improving the relationship between lenders and business is a critical economic issue given the significant reliance small business has on bank financing, to fund growth, innovation and investment in plant and equipment,” Drum says.

“If this key component of the nation’s economy is to best position itself for the challenges and opportunities of the Asian century then a healthy lending relationship with banks is an absolute must. “

Peter Strong, executive director of the Council of Small Business Australia, also backed the call for a code of conduct.

“Four times is too many times not to have a result. Let’s do it,” he says.

Strong has been working closely with the ABA and with COSBOA’s new policy representative, a secondee from the National Australia Bank, and so expressed optimism that it would be fourth time lucky and the ABA would finally come to the party.

“It’s a good recommendation and we will convert it as we are in a lot of a dialogue with the ABA and they have put together their own advisory group for small business,” he says.

“There is never a guarantee of anything, but because the ABA has put this committee together it shows all the banks are very keen and acknowledge that they need to do better in the small business sector in communications and product development.”