ABA Code and Clause 90 Update
As members are aware, the API has been working with API and PI Insurers for some time now to reach a position from which to move forward in respect of mitigating risks around the extension of the duty of care issue, within the Code and its supporting Guidelines. There has been extensive discussion around what might be able to be codified and what might sit in a guideline or indeed an agreement between Valuation firm and bank (PVA, Report and possibly, Standing Instructions), bank and customer (Loan Documentation and express written acknowledgement) and the guidelines themselves.
The Banking Code of Practice is drafted as a customer-facing, concise and plain english document. As such, The ABA and its members consider that any lengthy and legalistic tone is not consistent with our policy on drafting for the code.
In addition, members feel that obtaining appropriate written acknowledgments from customers should satisfy Newline’s requirement for the inclusion of ‘robust language’ addressing the issue of reliance in the course of the transaction, and would be a stronger risk mitigation measure than relying on inclusion of such provisions in the Code.
The ABA has undertaken consultation following recommendations from the API and PI market and will now consult with ASIC and other external stakeholders, based on the following position:
When we appoint external property valuers, investigative accountants and insolvency practitioners
This Chapter applies to standard form small business loans
When using external property valuers we will be fair and transparent
88. Our processes in relation to external expert valuations will be fair and transparent.
89. Our communication will be clear and we will explain the purpose of the valuation to the customer.
When we will provide you with a copy of a valuation
90. Where you have paid (or reimbursed us) for a valuation of a commercial or agricultural real property, we will provide you with a copy of that valuation and the related valuer instruction (except when enforcement proceedings have already commenced).
We may require you to acknowledge in writing that you accept our reasonable limitations on your use of the valuation before we provide it to you.
91. We will only appoint appropriately qualified and experienced valuers who are members of professional organisations which abide by a similar code of practice.
With respect to the use of language in the valuation report and in bank correspondence with customers, it is imperative that the language makes clear the terms on which the valuation is provided and we have been advised that these are certainly matters that ABA members are open to negotiating with valuers. The API is continuing this on an individual bank basis.
The ABA has further confirmed that its members also remain open to obtaining written acknowledgments from customers that valuations are provided subject to certain restrictions on their use, as reflected in our proposed amendment to include the words “We may require you to acknowledge in writing that you accept our reasonable limitations on your use of the valuation before we provide it to you” in the Code. These written acknowledgments from customers could include terms around non-reliance etc such as those proposed for inclusion in the Code.
The ABA has committed to getting the planned amendments approved ahead of commencement of the Code on 1 July and will now seek ASIC’s approval of the changes to paragraph 90 and Chapter 24 of the Code.
In relation to the proposed changes to wording in Valuation Reports going forward, the API recommends the below. For ABA members documentation, the API will consult on wording similar to the below:
To be in valuation reports from 1 July 2019 –
FOR ABA MEMBERS:
What should ABA members include in correspondence with their small business customers when enclosing valuation reports from 1 July 2019?
“When assessing a business loan application or extension of an existing credit facility we will consider a number of factors including the customer’s or potential customer’s:
To determine the value of the security we have commissioned an independent property valuation. That valuation report is attached and is provided in strict accordance with our obligations under Chapter 24 of the Banking Code of Practice. We specifically draw your attention to limitations and disclaimers contained in paragraph 90 of the Code, the disclaimer contained on the front page of the valuation report and all other limitations and disclaimers contained in the valuation report.
Should you have any queries in relation to the attached valuation report you should, in all circumstances, refer such queries directly to us."