Banking Code of Conduct: just imagine

The Dutch Banking Association (NVB) is drawing up a code of conduct for the financing of SME customers. This Code of Conduct for Small Business Financing (Code of Conduct) will come into effect on January 1, 2018.

A draft of the Code of Conduct is ready and at the beginning of October discussions were held with representatives of SMEs about the content. The chairman of the Dutch Dairy Farmers' Union (Harm Wiegersma) and the undersigned were also present. Will the Code of Conduct really change anything?

Background to the Code of Conduct
According to the NVB, the Code of Conduct has been drawn up with a view to the special position of SME customers vis-à-vis consumers on the one hand and larger companies on the other. It is good that this realization is now there. Where larger companies can offer more counterweight to the bank, consumers enjoy a high degree of protection through legislation and regulations.

In addition, there are also numerous consumer organizations and programs (such as Radar) that expose their problems. The SME customer is often alone. This while in practice the SME customer, just like a consumer, depends on what the bank imposes on him. Both the state of affairs at Deutsche Bank, which has shown many SME customers the door in the past, and the interest rate swap problem emphasize the need for more protection for the SME customer.

What can you expect from the Code of Conduct as an SME?
The Code of Conduct is a form of self-regulation by the banks. The Code of Conduct provides guidelines that they must use when granting credit to SME customers. For each phase (application, orientation and provision) it is described what the customer can expect from the bank.

Another new feature is that the Financial Services Complaints Institute (KiFiD) will also be open to SME customers on the basis of this Code of Conduct. To date, KiFiD is only open to consumers and there is a separate derivatives counter for entrepreneurs with disputes about an interest rate derivative. An important change is therefore that, in the long term, an SME customer who has a dispute with his bank about, for example, a surcharge or penalty interest can also turn to KiFiD to obtain an opinion about the dispute.

What could be done better in the Code of Conduct?
In practice, there are many discussions between the SME and the bank when it comes to the interest rates and costs that are charged. The person who is most critical and shouts the loudest often gets the most done. It is good that the Code of Conduct contains many provisions about the working method that can be expected of the bank in its role as a lender. But what could be better?

The Code of Conduct is for the banks and by the banks. It is an improvement, but of course there is always room for improvement. The SME customer has little insight into the rates charged by banks. The customer often has the feeling that he is left to the subjective judgment of his account manager and to (unknown) internal guidelines of the bank. Where the consumer can quite easily see and calculate where it is most advantageous, this is very opaque for the SME customer. The same applies to all kinds of costs that are passed on, such as handling costs and special management costs, but also storage rates.

Although provisions have been included in the Code of Conduct regarding the motivation of rates, it is in the interest of the SME customer that these costs and rates are actually in proportion to the financing and can be determined objectively. It would also be logical with regard to KiFiD, given its far-reaching role as a dispute-settlement body, that additional supervision requirements would be imposed to guarantee its independence. Moreover, it would be obvious that it would also have consequences for a bank if it flouted the Code of Conduct.

Just imagine: a code of conduct for banks that actually ensures that SME customers are treated better from now on, that would be great!

Marianne Adama

Marianne Adema is a lawyer at Adema Advocatuur and Advice. She specializes in financial law, agricultural law and real estate law. Adema assists many agricultural entrepreneurs and has an advisory and litigation practice. She is also a legal advisor on various wind turbine projects.

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