An Inquiry by the the Banking Code Compliance Committee (BCCC) has found that while its subscriber banks had adequate written policies and processes to comply, banks:

• lacked effective record management practices;
• conducted inadequate or ineffective monitoring of compliance controls;
• dealt with non-compliant guarantees on a case-by-case basis and too heavily relied on legal advice when considering whether to enforce a non-compliant guarantee;
• lacked guarantee-related data capability.

The BCCC concluded that based on breach data, BCCC investigations and audit results, banks frequently failed to comply with their pre-guarantee Code obligations including the requirements to provide key disclosure information to prospective guarantors before accepting a guarantee and banks’ arrangements for a guarantee to be signed in an appropriate environment.

The BCCC also observed that while it is appropriate for the bank to obtain legal advice, it is also important that banks avoid an overly legalistic approach. Banks’ treatment of non-compliant guarantees must take into account the Guiding Principles that underpin the Code and banks’ obligations under clause 10 to engage with guarantors in a fair, reasonable and ethical manner.

The report contains 23 recommendations for improved practice, including practical examples to illustrate the recommendations.

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