2025 Banking Code of Practice - key changes affecting lenders and borrowers

The financial landscape is rapidly evolving, shaped by technology, consumer expectations, and global changes. These changes have significantly influenced banking practices and regulations, including the Banking Code of Practice 2025.

The Banking Code of Practice 2025, effective from 28 February 2025, introduces significant changes to the previous banking code with a view to strengthening protections for consumers, small businesses, and guarantors. Approved by the Australian Securities and Investments Commission (ASIC), the revised Code applies to individuals, small business customers and individuals who are guarantors that have been provided a banking service on or after 28 February 2025. The revised Code aims to improve accessibility, foster inclusivity, and promote ethical banking practices. This article addresses the key changes to the Code and the implications of those changes on both lenders and borrowers.

1. Expanded Definition of Small Business

The threshold for small businesses to qualify for protections under the Code has increased from $3 million to $5 million in total debt to all credit providers. This change ensures that more businesses can benefit from the protections offered under the Code. This includes undrawn amounts on existing loans and new loan applications.

Borrowers in this category should review their eligibility to take advantage of these safeguards.

2. Recognition of Vulnerability

The Code now explicitly acknowledges that anyone can face vulnerability at any time. The Code has expanded its definition to include characteristics such as medical conditions, financial difficulty, language barriers, cultural backgrounds and being from remote communities.

Banks are now required to provide appropriate guidance and referrals to assist customers maintain control of their finances and simplify the process of appointing third-party representatives to deal with banks on the customer’s behalf.

3. Inclusivity and Accessibility

Banks are now required to take reasonable measures to improve inclusivity and accessibility for all customers, including older customers, people with disabilities, Aboriginal and Torres Strait Islander customers, and those with limited English proficiency. This includes, where appropriate and practicable, organising free interpreter services and National Relay Services, and other external support.

4. Strengthened Protections for Guarantors

Banks are now required to meet with guarantors (separately from borrowers) and provide information to guarantors to ensure they understand their obligations and the financial risks involved before signing a guarantee. The guarantee will be limited to a specific amount and/or category of amounts such as the amount owing under a loan, and other liabilities such as interest and recovery of costs.

The guarantee will also be limited to the value of a specified property, other assets under a mortgage or other security at the time of recovery.

Banks must also explore alternative paths of recovery, before enforcing guarantees and taking steps to selling a guarantor’s primary residence.

5. Stricter Requirements for Selling Debt

The Code introduces more stringent requirements for banks when selling debt to third parties. Its aim is to ensure customers are treated fairly and transparently throughout the process.

6. Improved Management of Deceased Estates

The Code includes more prescriptive obligations for managing deceased estates. Its aim is to improve the process and provide clear guidance on managing accounts after a customer’s death and make this information publicly accessible.

Implications for Lenders and Borrowers

For Lenders the key implications of the new Code are:

• Compliance with stricter standards will require updated staff training and processes, especially those related to inclusivity, accessibility, and guarantor protections.

• Enhanced obligations for guarantor meetings and vulnerability support may increase operational costs.

• Required communication to customers about the changes to ensure they understand their rights and obligations under the new Code.

For Borrowers the key implications of the new Code are:

• Customers that fall into a vulnerable category and expect lenders to have an increased awareness and understanding of new protections as well as improved support mechanisms such as interpreter services and financial counselling.

• Guarantors can expect more involvement and engagement with a bank with the aim to fully understand the implications and alternatives available to them.

• Small businesses gain broader access to protections.

Penalties for Non-Compliance

The Banking Code Compliance Committee (BCCC) oversees adherence to the Code and has the authority to investigate breaches. If lenders fail to comply with the Code’s requirements, the BCC can impose strict and serious sanctions such as requiring a lender to rectify or take corrective action on the breach identified, require a lender to conduct a staff training program on the Code, issue a formal warning or report serious or systemic ongoing breaches to ASIC.  

In essence, the 2025 Banking Code reflects a stronger commitment to fairness, inclusivity, and customer support in Australia's banking industry. Both lenders and borrowers should familiarise themselves with these changes to fully benefit from the enhanced protections and support now available.

If you would like tailored advice on how the Code applies to you, please reach out to our specialist finance and capital team at Bartier Perry for assistance.

Authors: Gavin Stuart, Emma Boyce, Karunya Vetcha and Chantal Ryan