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The Banking Code Compliance Committee has suggested that all banks should require brokers to provide assurances that prospective guarantors are fully informed before they enter into a guarantee.
A new report released by the Banking Code Compliance Committee (BCCC) has flagged that more could be done to protect those who become guarantors on loans.
Under the Banking Code, banks commit to obligations designed to safeguard people who act as guarantors for loans.
The BCCC aims to ensure guarantors experiencing vulnerability have greater support, along with increased understanding for those about to enter into a guarantee.
While the committee has said that significant progress has been made on improving protections for people who go guarantor on loans since the BCCC released its 2021 Guarantees Report, its 2023 Guarantees Follow-Up Report has flagged that several banks still do not require brokers to ensure guarantors are fully informed before entering into a guarantee.
Indeed, the 2023 report has suggested that more needs to be done by brokers and bank staff.
The BCCC found a “concerning” lack of governance over third parties such as solicitors and brokers.
It said one bank revealed that brokers accounted for approximately 95 per cent of its loan applications, but it could not “demonstrate sufficient governance over the channel”.
The report stated: “We understand banks may have limited influence over broker procedures but it is important to use appropriate governance measures where possible.
“Effective measures include the use of forms, checklists or attestations for brokers to confirm covering code awareness and obligations with prospective guarantors.
“Banks may also discuss with aggregators whether code training or consistent processes can be applied for brokers at the aggregator level.”
The research suggested that good practice would involve both brokers and proprietary lenders providing standardised information packs to prospective guarantors, along with requiring brokers or external legal firms to complete checklists or declarations that evidence compliance with the code obligations.
It also said banks should provide training on code guarantee obligations to both internal staff and relevant third parties such as brokers.
Indeed, the BCCC highlighted that one bank now requires brokers to interview prospective guarantors and had updated its application system to include a “mandatory broker attestation that aligns with specific code paragraphs”, which enables the bank to display greater compliance with code obligations and guarantees.
BCCC chair Ian Govey said the committee was hoping for all banks to follow the recommendations of the report, commenting that some banks had not acted on all of the BCCC’s 23 recommendations from 2021.
“This was somewhat disappointing given the good outcomes we know the recommendations can help deliver,” he said.
“We make our recommendations to improve and strengthen practices beyond minimal compliance with the Banking Code, which, in turn, helps to enhance compliance and consumer protection.
“Building on the progress will be important. That is why we have made further recommendations – continuous improvement is central to our focus, and we want to see banks strengthen their processes and controls on guarantees.”
The new recommendations to improve governance for the guarantee processes also aim to apply effective controls to ensure that processes related to guarantee obligations are effective and operating as intended and ensure processes, record management, and controls are applied consistently across retail and business banking units and across subsidiary brands.
The BCCC announced its follow-up review of its 2021 Loan Guarantee Report earlier this year when BCCC chief executive Prue Monument stated at the time: “The Banking Code obligations are a crucial safeguard to ensure guarantors understand the risks involved when providing a guarantee.
“It is important that people don’t feel pressured into going guarantor.
“In the worst cases, this can amount to financial exploitation, or what’s known as elder financial abuse.”
[Related: BCCC re-evaluates bank treatment of guarantors]
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