Revised Code of Banking Practice
What is the Code of Banking Practice?
The Code of Banking Practice has been around since 1992. It’s now in its sixth edition. The current Code came into force on 1 June 2018.
The Code says what customers can expect from their banks by setting out the principles of good banking practice. NZBA member banks agree to follow the Code as a minimum standard in how they relate to their customers. It is developed by the banking industry through NZBA in consultation with the public, industry stakeholders and the Banking Ombudsman.
The Code applies to banks’ relationships with all their customers except wholesale customers.
The Code is used by the Banking Ombudsman, along with bank terms and conditions, and the law, to assess and make recommendations in disputes between banks and their customers.
Why has NZBA adopted a fresh approach to the Code?
Over the years the Code moved away from its original purpose. The last edition of the Code was prescriptive and largely duplicated banks’ standard terms and conditions.
The Code also hadn’t kept up to date with changes in the way we now prefer to do our banking. The latest edition modernises both the content and structure of the Code.
The last edition of the Code was 51 pages long, prescriptive, read like bank terms and conditions, and easily got out of date in the face of banking innovation. The new edition adopts a high level principles-based approach that is easy to read.
What are the five principles of the proposed Code?
We have distilled the good banking practice principles underlying the previous edition and set out what banks will do to give their customers a good banking experience. Banks promise to:
- Treat customers fairly and reasonably
- Communicate with customers clearly and effectively
- Respect customers’ privacy and confidentiality and keep their banking systems as secure as they can
- Act responsibly when offering or providing customers with credit
- Deal effectively with customer concerns and complaints.
Does the revised Code reduce customers’ existing rights?
In no way does the Code reduce customers’ existing rights. It actually raises the bar for banks because now they’ll have to think more carefully about how their conduct meets the principles set out in the Code.
How is the principles-based approach preferable to the prescriptive approach?
The principles-based Code is intended to be more focused on customers and their needs. Prescriptive approaches tend to be more directed at banks.
The latest edition is easier to read and understand than the previous Code.
In setting out five principles of good banking practice, the Code allows greater flexibility for banks to help ensure they do the right thing by their customers. It also provides the Banking Ombudsman more flexibility in determining what good banking practice is in particular cases.
The principles-based approach avoids duplication of bank terms and conditions.
It also helps the Code keep up with banking innovation. The ways in which we’re banking are evolving in response to changing customer preferences. A principles-based Code helps to keep it current.
The Code makes it clear that banks will comply with all relevant legislation, and ensure that staff are trained to do so. This approach allows the Code to stay up to date with changing legal obligations for banks such as amendments to the Credit Contracts and Consumer Finance Act and the Financial Advisers Act.
How does the Banking Ombudsman determine what good banking practice is?
The Code sets out the principles of good banking practice. In case of a dispute between a customer and their bank, the Banking Ombudsman assesses how those principles have been applied.
As well as looking at the relevant law and bank terms and conditions, the Banking Ombudsman may seek the industry’s view on what is good banking practice in a particular case.
The Banking Ombudsman is not bound by any previous decisions because the relevant standards change and develop over time. The Ombudsman does however recognise that decisions should be as consistent as the circumstances of the case allow.
Why doesn’t the Code include customer obligations?
The Code focuses on what banks will do for their customers to provide a good banking experience. It does include some suggestions about what customers can do to help the bank best meet their needs.
Customer obligations are set out in bank terms and conditions, rather than the Code, as these often depend on the nature of the products and services banks provide. The Code avoids duplicating those bank terms and conditions.
What did the Code consultation process involve?
We sought public submissions on a draft Code on over a six week period in June and July 2017.
To promote the call for submissions we issued a media release, which resulted in several media stories. We also published an opinion piece.
We sought feedback on the Code review from key stakeholders including the Banking Ombudsman, Consumer NZ, Citizens Advice Bureau, the Commission for Financial Capability, Internet NZ, the NZ Federation of Family Budgeting Services, and organisations that are part of our Code of Banking Practice (Older and Disabled People) Focus Group.
In feedback stakeholders said they supported the fresh, high-level approach to the Code.
We worked closely with member banks to respond constructively to feedback received through the consultation process.