On 6 February 2015, the Hong Kong Monetary Authority (HKMA), in conjunction with the Hong Kong Association of Banks (HKAB) and the DTC Association (DTCA) released a revised Code of Banking Practice (the “Code”). Originally introduced in 1997, this is the third major amendment to the Code. This latest reissue brings the Code in line with new international standards issued by the G20 nations, and in so doing should strengthen the protections on customers and the standards expected of banks. The Code is effective from 6 February 2015.
Although the Code has no statutory force and is expressed to be “voluntary”, authorized institutions (i.e. licenced banks, restricted licence banks and deposit taking companies supervised by the HKMA) are nonetheless expected to follow the Code and ensure that they do not breach its principles in their dealings with personal customers. Factors which may encourage authorized institutions to comply include (a) section 8 of the Control of Exemption Clauses Ordinance (which provides that companies dealing with consumers or on their standard business conditions cannot exclude liability or claim to be entitled to render contractual performance substantially different from that originally expected unless the relevant contractual term is reasonable) and (b) persistent breach possibly being a ground on which the HKMA may revoke or suspend authorization to carry on a banking or deposit taking business.
Some of the major changes are outlined below.
1. Subsidiaries and affiliated companies
For the first time, under Section 1.2, subsidiaries and affiliated companies of the authorized institutions offering banking services in Hong Kong are expected to comply with the Code, even if they’re not authorized institutions or licensed, regulated or supervised by any financial regulator in Hong Kong.
2. The new “General Conditions”
New Section 2 entitled “General Principles” incorporates the G20 High-Level Principles on Financial Consumer Protection. The high-level principles were established by the G20 group of nations for the OECD to develop a common set of guidelines for the provision of financial services. The principles are:-
3. Transparency over terms and conditions
Another focus of the amendments is transparency / disclosure of terms and conditions. For example new Section 5.2 of the Code requires institutions to provide the written terms and conditions of a banking service upon application by a prospective customer as far as possible, and, if not practicable, either to provide key terms of the product orally at the point of sale or advise where the written terms can be found. Section 5.4 stipulates that the terms and conditions should avoid complex legal and technical terms as much as possible and should be in a reasonable layout and easily readable font size. Any variation of the terms should be shown clearly and explained in plain language – see Section 5.10. Section 21.4 adds that for loans and overdrafts, the institution should set out a summary of the major terms and conditions in the form of a Key Facts Statement for customers. Similar requirements apply under Section 27.3 in relation to credit cards.
4. Provisions on credit cards
There have been significant revisions to the provisions on credit cards under Chapter 3.
The Code now outlines the circumstances under which credit cards should not be issued including where the card issuer considers that the customer will not have the ability to repay or where the customer is a minor unless he/she is able to show an ability to repay. There is also guidance on setting card limits particularly in relation to students and persons in default and a requirement to notify customers in advance of credit limit increases and to allow them to reject such increases (Section 26.1).
Further guidance is provided in relation to issue of cards in Section 26.2 – cards should only be issued on request, to replace lost, damaged or stolen cards or to replace/renew existing cards if the principal terms of the card are unchanged. If a card issuer proposes to make changes to a card’s terms, the changes must be highlighted and consent to the new card must be obtained from the customer (Section 26.3). Section 26.9 states that customers must be given 30 days to decide whether to accept a new card at no cost.
There are further new provisions on the following credit card related issues:
5. Other changes
Other noteworthy changes include:
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