Banks inquiry to hear from regulator

Megan Neil

The corporate regulator will get its turn to tell the banking royal commission about the rules applying to small businesses.

Two senior Australian Securities and Investments Commission executives will be the final witnesses at the banking royal commission's small business hearing.

They are expected to be questioned about the banking industry's code of practice and the November 2016 extension of unfair contract terms legislation to small businesses.

The Australian Banking Association has given its revised Code of Banking Practice to ASIC for approval.

But ASIC and the ABA disagree about the definition of a small business and therefore the threshold that must be met for businesses to gain the protections and entitlements of the new small business section of the code.

The ABA wants the code to apply to small businesses with loans up to $3 million, compared to the $1 million limit under unfair contract legislation.

But ASIC favours - and others including the small business ombudsman back - the $5 million limit recommended by the code's independent reviewer.

After the unfair contract term reforms, ASIC and the small business ombudsman reviewed small business loan contracts of up to $1 million offered by the four major banks.

The Commonwealth Bank, ANZ, National Australia Bank and Westpac last year agreed to make a number of changes to their small business loan contracts to eliminate unfair terms.

The big four banks also agreed to extend the unfair contract term protections from the $1 million required by legislation to loans of up to $3 million.

There is expected to be a closing statement from counsel assisting the commission when the two-week small business hearing ends on Friday.