Select Committee on Treasury Eleventh Report


Membership rights

63. A set of specific issues arise in relation to dormant accounts in building societies. The first of these is membership rights. The Skipton Building Society (SBS) told us that the status of a building society member could not be likened to that of a bank deposit account holder. As owners of their society, members were typically entitled to various rights and benefits from membership that bank depositors did not enjoy. If building society accounts were to become dormant and be transferred to the Central Reclaim Fund, the SBS was concerned about whether account holders kept their membership rights. The SBS did not consider that the principle behind the Government's proposal—a scheme to protect the rights of account holders to reclaim their money at any time—was sufficient and argued that there was more at stake for building society members: [132]

    The government has failed to recognise these important differences between building societies and banks/PLCs in developing its proposals for this scheme.[133]

64. The Government consultation paper stated that the proposed scheme was not intended to affect an account holder's building society membership rights.[134] This gives neither a cast-iron commitment that membership rights will be retained nor an explanation of how such retention might be achieved. We recognise that building society members have more at stake than bank account customers in the Unclaimed Asset Scheme. It is not only their account which could be transferred to the Central Reclaim Fund, but also their membership rights. It is imperative that these membership rights are preserved in case the account holder reactivates their account at a later date. We welcome the Government's "intention" that membership rights be protected indefinitely, but call on the Government to ensure that these rights are enshrined in the legislation it intends to bring forward. The Government has already committed to drafting a statutory right for a customer to reclaim their dormant account. We recommend that this statutory right be broadened to include all rights linked to the dormant account, not merely the funds held within it.


65. On conversion from a building society to a PLC bank (demutualisation), members are compensated for their loss of mutual membership rights by receiving either shares in the new entity or cash. If any such demutualisation benefits are unclaimed for a specified period of time (often 10 or 12 years), perhaps because the member is 'dormant', then they can be retained by the ex-building society for its own purposes. The SBS argued that these unclaimed shares arising from demutualisations should be included in the Unclaimed Asset Scheme too:

They also referred to the fact that the 15 year definition stretches back to the 1990s, a period in which several large demutualisations occurred:[136]

    To me it is absolutely crazy that the account that is now dormant with the Halifax, say, will be captured by the scheme but the shares that were granted to the person who had the account at the time the Halifax converted will not be captured by the scheme and it just seems to me absolutely pointless to have a scheme which does that.

66. There does appear to be an apparent inconsistency in the proposed Unclaimed Asset Scheme with regards to the way that ownership rights are treated. An investment account at a building society entitles the investee to a share of ownership of the society. If that investment becomes dormant, so too does the ownership share, and both will be transferred to the Central Reclaim Fund. In the case of a demutualisation, however, unclaimed ownership shares that had previously been the property of a dormant building society member will have reverted to the (newly-created) bank, and will not be passed to the Central Reclaim Fund. The SBS pointed out how important it was that all institutions be treated equally under the Unclaimed Asset Scheme and argued that equality would require the inclusion of unclaimed demutualisation benefits:

    Equality of treatment is an important principle to apply to the scheme. It is therefore recommended that, to the extent that existing building society members are caught within the scope of the scheme, former members, whose benefits have crystallised in the form of "demutualisation benefits", are also in scope as PLC shareholders and/or account holders. Where unclaimed shares or unclaimed dividends remain after a specified period following a conversion these sums ought to be treated as unclaimed assets for the purposes of the proposed scheme.[137]

The BSA agreed that it would be consistent with the inclusion of building society share accounts within the proposed Unclaimed Asset Scheme to also include the unclaimed shares and dividends of banks and other listed companies.[138]

67. When a building society demutualises and converts into a bank, the newly-formed bank is permitted to use for its own purposes any unclaimed demutualisation benefits from dormant members, after the expiration of a certain period. By legally taking the property of dormant account holders, the banks have been retaining assets that might otherwise be eligible for inclusion in the Central Reclaim Fund, either for eventual reclaim or onward distribution to good causes. We urge the Government to take steps to ensure that any benefits unclaimed by dormant building society members in future demutualisations do not accrue to the financial institutions, but rather to the proposed Central Reclaim Fund. We urge the Government to find a way to protect the ongoing rights of building society members, even post-demutualisation, and a statutory provision to that effect should be considered. With regard to past demutualisations, we invite the relevant banks to donate an amount, equivalent to the current value of unclaimed demutualisation benefits claimed by them, to the Central Reclaim Fund for disbursement to good causes.

132   Ev 69 Back

133   Ev 69 Back

134   A UK Unclaimed Asset Scheme: a consultation, para 4.20 Back

135   Q 64 Back

136   Including Alliance & Leicester, Halifax, Northern Rock, The Woolwich and Birmingham Midshires  Back

137   Ev 69-70 Back

138   Ev 81 Back

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