Following the Martin Committee's report, the government proposed banks design a Code of Banking Practice setting out 'good banking practices'. To achieve this, the banks needed to include a dispute resolution procedure that was expedient, within the financial means of customers and, above all, fair.
The 1993 Code was said to be a plainly worded document describing broad principles of good banking. The boundary was reduced to incorporate banking services that were narrowly defined under the Code and related only to bank deposits, loans and similar facilities.
The Code failed to give effect to the government's intention of setting high standards across a range of practices that banks were obliged to comply with. Even though the Code set out to improve banking standards, it was later criticised for lacking teeth due to its restricted application to all banking services and lack of enforceability.
This should have been identified and rectified following the 2001 review by Richard Viney, however, it wasn't. Viney said the early Code was not meant to be a draft of his revised version, it would only be used to provide recommendations for the Code (2003).
In Viney's perceptive words, 'it will remain for the banks to take necessary steps to arrange for the drafting of a new Code to give effect to agreed recommendations.'
Richard Viney's final 2001 report and recommendations led to practices set out in the 2003 Code, which were far more detailed than in the earlier 1993 version. Mr Viney included a range of initiatives still found in the present Code.
When the ABA published the 2003 version, they stated it was 'a major step forward by Australian banks in listening to community concerns and delivering change'.
Australian Bankers Association's CEO, David Bell, guaranteed Code (2003) 'meets and beats similar Codes in other countries such as the UK, Canada, New Zealand and Hong Kong. It stands out both in scope and specific customer benefits it provides'.
Despite initial hoopla, the Code (1996) failed to define dispute resolution procedures whilst, at the same time, it broadened the scope of a 'banking service' that the banks subsequently relied on to justify failure to investigate all complaints.
These failures meant banks had unfettered discretion interpreting the meaning of the word 'complaint' for breaches of practices set out in the Code. It allowed the banks to handpick complaints they were willing to investigate rather than having to investigate all allegations and complaints relating to contraventions of the Code.
THE 2003 CODE - (PUBLISHED 1 AUGUST 2003)
The Code (2003) embodied Richard Viney's recommendations in his Final Report in 2001. His recommendations for monitoring mechanisms and sanctions were detailed in his Final Response and led to the establishment of a Code Compliance Monitoring Committee and the appointment of expert monitors. This was set out in the Code, headed:
PART E: RESOLUTION OF DISPUTES, MONITORING AND SANCTIONS Clause 34 Monitoring and Sanctions:
The banks agree:
(a) To establish a Code Monitoring Committee comprising:
one person with relevant experience at a senior level in retail banking in Australia, to be appointed by member banks that adopted the code;
one person with relevant experience and knowledge as a consumer representative, to be appointed by the consumer and small business representatives on the Board of Directors of the Banking and Financial Ombudsman's Service, and;
one person with experience in industry, commerce, public administration or government service, appointed jointly by the BFSO and [the ABA member] banks that adopted the code to serve the Chairperson of the CCMC.
(b) The Code Compliance Monitor's functions will be:
to monitor banks compliance under this Code;
to investigate, and make a determination on, any allegation from any person that [subscribing banks] have breached the Code but the Code Compliance Monitor's will not resolve or make a determination on any other matter; and
to make any other aspects of this Code referred to the Monitor's by the Australian Bankers Association.
(c) To ensure the Code Compliance Monitors have sufficient resources and funding to carry out their functions satisfactorily and efficiently;
(d) To annually lodge with the Code Compliance Monitors (in a form acceptable to the Monitors) a report on each banks compliance with this Code;
(e) To empower the Code Compliance Monitors to conduct their own inquiries into banks compliance with the Code;
(f) To co-operate and comply with all reasonable requests of the Compliance Monitors in pursuance of their functions;
(g) To require the Code Compliance Monitors to arrange a regular independent review of their activities and to ensure a report of the review is lodged with ASIC and this review is to coincide with the periodic reviews in this Code (see clause 5);
(h) To empower the Code Compliance Monitors to carry out their functions and set operating procedures dealing with the following matters, first having regard to the operating procedures of FOS and then consulting with the FOS and the Australian Bankers Association:
receipt of complaints;
civil and criminal implications
time frames for acknowledging receipt of a complaint, its progress, responses from the parties to the complaint and for recording the outcome;
use of external expertise; and
fair recommendations, undertakings and reporting; and
(i) To empower the Code Compliance Monitors to name banks in connection with a breach of this Code, or in their report, where it can be shown banks have:
been guilty of serious or systemic non-compliance;
ignored the Code Monitors requests to remedy a breach or failed to do so within a reasonable time;
breached an undertaking given to the Code Monitors; or
not taken steps to prevent a breach re-occurring after having been warned that [a bank] might be named.
By its own provisions, Code (2003) 'sets standards of good banking practice for the banks to follow when dealing with persons who are, or who may become, individual and small business customers and their guarantors.'
Whilst this apparently provides widespread and real protection for customers of banks adopting the Code, use of discretionary words such as empower rather than duties of the Code Compliance Monitors undermines the integrity, honesty and independence of Code Compliance Monitoring Committee members.
This is evidenced in clause 34(i). It empowers but doesn't require Code Compliance Monitoring Committee members to carry out their functions. However, it also affords banks to use the courts when they have breached duties set out in the Code.
That said, the banks and Code Compliance Monitoring Committee members all knew that banks were required to comply with clause 2.1(d), which states that they 'agree to provide information to customers in plain language.' Any suggestion of banks relying on ambiguous wording in Code (2003) was therefore, in itself, a breach of Code.
Banks might argue however they can achieve the same result by gagging the Code Compliance Monitoring Committee members ability to name them in connection with breaches of the Code. Again, this is inconsistent with statements repeatedly made by the banks through the Australian Bankers Association's PR machine that the Code is a binding contract on banks that formally subscribe to the Code.
Senate Committee Report webpage (Sub No. 90): Click Here...