Banking codes

On Monday an independent review of personal and business banking codes will begin, conducted by an independent consultant, Mike Young. The revised codes will be published in March 2008.

What are the banking codes?

The banking codes are intended to set good banking practice standards in UK financial institutions. The first Banking Code was introduced in December 1991 and was followed by the Business Banking Code in 2002.

The code is sponsored by the British Bankers Association, the Building Societies Association and Apacs, the UK payments association. Sponsors are responsible for ensuring that the code is kept up to date and relevant and that their members remain committed to it.

Mike Young, who will act as independent consultant throughout the review, wants to make sure the code remains the key source document telling customers what service standards they can expect from banks and telling banks what service they are expected to deliver.

The codes are voluntary for banks and building societies but their usage is monitored by the Banking Code Standards Board which is made up of financial institution representatives and independent members. Once an institution signs up to the code, decisions by the BCSB are binding.

The codes cover basic bank accounts, savings accounts, personal loans and overdrafts, card and payment services. Individual users can download a copy of the codes for their personal use from sponsors’ websites or from any high street bank or building society.

Most banks, building societies and card issuers subscribe to the code. You can check whether your provider subscribes at www.bankingcode.org.uk.

Who will be consulted in the review?

Young will write to major stakeholders such as government departments, regulators and consumer bodies during this period to obtain their views on how the codes should be changed.

But everyone can take part in the review. There is no qualifying criteria to participate and ideas will not be filtered based on who has sent them in.

If you are interested in taking part you can write or e-mail the sponsors who will pass the ideas on to the consultant.

E-mail: codereview@bba.org.uk or write to Mike Young at Banking Code Review, c/o British Bankers’ Association, Pinners Hall, 105-108 Old Broad Street, London EC2N 1EX

Submissions will be received up until 12 February 2007.

How will the review process work?

During the consultation period and for six weeks afterwards Young
will distil and analyse the ideas he has received. He will then hold a series of bilateral meetings and a number of round table meetings with all major stakeholders.

The meetings will establish what common ground there is between his priorities and those of the major stakeholders. Young then has to come up with a report with a series of recommendations, of which there is no size limit, that will be published. The sponsors then formulate a response to the report which will also be published.

What will the sponsors’ report contain?

Paul Ross, director of retail banking at the British Bankers’ Association, explains that if the sponsors disagree with anything in the independent consultant’s report they must provide good reasons for rejecting it.

“We look at the cost to benefit ratio,” he says. “If a recommendation was going to cost billions in systems changes to banks and the benefit to customers was minimal then we’d reject it. Similarly if there was a recommendation that would distort competition in the market then we’d be in a position to say it wasn’t worth taking on.

“But very rarely do we disagree. In the last review in 2004 there were very few recommendations that didn’t get taken on.”

How often are the codes reviewed?

The banking codes are reviewed every three years. The last review was conducted by Professor Elaine Kempson who has since been appointed the director of the Banking Code Standards Board.

What changes did the last review create?

Last time the code was revised one of the areas recommended for change was to put in place commitments around basic bank accounts. This meant that if a customer met certain qualifying standards for an account then a bank must offer one.

What sort of changes are expected?

Young will send out a consultation letter next week to major stakeholders which will make it clear that all aspects of the code are up for review. However he will also highlight some areas for special consideration such as credit assessment procedures and how customers with financial difficulties are dealt with.

Adrian Coles, director-general of the Building Society Association, believes that credit assessment will be scrutinised. “It’s a question of do banks and building societies do enough when granting loans to make sure they can be paid back,” he says.

For more information on the review or for details of how to participate contact one of the code sponsors or the code monitor: Banking Code Standards Board, www.bankingcode.org.uk; Apacs, www.apacs.org.uk; British Bankers Association, www.bba.org.uk; Building Societies Association, www.bsa.org.uk