A year ago, the banking royal commissioner Kenneth Hayne handed over his final report into the banking sector to Treasurer Josh Frydenberg, refusing a photographer’s request to shake his hand. However, still to this day over 40 pieces of Hayne-related legislation sit on the Prime Minister’s table.
While some changes have been made, the Australian Small Business and Family Enterprise Ombudsman Ms Carnell said on Monday that the banks still have much to learn, especially in regard to their relationship with the small business community.
“Banks and financial institutions still have a long way to go if they are serious about repairing their relationship with small businesses,” Ms Carnell says.
“Even a year on from the banking royal commission, banks and other large financial institutions are more focused on passing on their punishment to small businesses.”
By punishment, Ms Carnell is referring to the many small businesses in the financial planning industry that have faced financial ruin in the aftermath of the banking royal commission, with hundreds of planners now bearing the brunt of restructures and fire sales by banks and wealth funds.
“Many of these small business owners are facing the prospect of losing their homes, families and livelihoods as these financial institutions and banks bulldoze their way through their exit strategies,” warned Ms Carnell.
Equally, she opined, the new-look Banking Code of Practice, in effect from March this year, fails to sufficiently protect small business borrowers.
“The ABA claims it has implemented the royal commission recommendations but it has not acted on all of the recommendations including one that is critical to small business,” Ms Carnell said.
“Commissioner Hayne recommended that the definition of a small business should be businesses that apply for a loan up to $5 million and have fewer than 100 employees.
“Despite our repeated efforts, the code only protects small businesses with up to $3 million in total debt to all credit providers.”
She explained that essentially a large number of small businesses, particularly those “capital-intensive” businesses – agriculture, building and manufacturing – are not covered by the code.
Of particular concern, however, is a new addition to the code under paragraph 115 (b), which in effect allows banks to take action against the small business guarantor before enforcing recovery against the security provided by the small business borrower, Ms Carnell noted.
“This is totally unacceptable and has the potential to be seriously detrimental to the small business borrower and their ability to secure guarantors,” said Ms Carnell.
“While the code has been improved, the number of get-out-of-jail clauses for the banks still dilute the protections for small businesses.
“We will continue to push for a better framework for a balanced relationship between banks and their small business customers,” she assured.
Just last week, the ASBFEO urged AMP to the mediation table, following concerns that many financial planners could be facing financial ruin on the back of AMP’s announced exit from the advice space.
The road ahead
In the government’s response to Hayne’s final report, it committed to taking action on all 76 recommendations, and according to the Treasurer’s recent statement, the government is on track to meet the accelerated timetable outlined in its implementation roadmap.
According to this roadmap, the government should by mid-2020 have implemented or legislated more than 50 commitments, close to 90 per cent, while the remaining recommendations should be introduced by the end of the year.