Select Committee on Treasury Eleventh Report


The proposed legislative framework
1.We welcome the Government's commitment to legislate to facilitate the use of unclaimed assets for the public good. However, we are unconvinced that the Government is correct to pursue a voluntary approach. A compulsory scheme has the overwhelming advantage of guaranteeing fairness and consistency between institutions. We urge the Government to reconsider the voluntary basis of its proposals. If the Government is still minded to continue with a voluntary scheme, we recommend that the forthcoming legislation be prepared so as to include reserve powers for Ministers to establish a compulsory scheme at a later date without recourse to further primary legislation, should a voluntary scheme prove unsuccessful. If a voluntary scheme is established, we recommend that the Government put in place arrangements to ensure information about institutions that are, and are not, participating in the scheme is publicly available. (Paragraph 13)
2.We welcome the Government's commitment to grant customers a legal right to their account funds in perpetuity. We also support proposals to maintain the customer interface with the customer's own bank or building society, rather than with the proposed Central Reclaim Fund, and we expect the scheme to be designed to ensure that customers will not face any additional inconvenience as a result of the scheme if they try to reactivate a dormant account. We are unconvinced that the Banking Code Standards Board has the proven track record of protecting the interests of consumers and sufficient independent authority to enable it to take the proportionate but firm action that might be necessary to regulate the scheme. If the Government is minded to leave regulation in the remit of the Banking Code Standards Board, we recommend that the legislation includes power for regulatory responsibility to be given to a statutory regulator in the future without the need for further primary legislation. Finally, we recommend that, in its response to this Report, the Government clarify the circumstances in which disputes relating to the scheme could be considered by the Financial Ombudsman Service. (Paragraph 19)
3.We welcome the Government's proposal that the Central Reclaim Fund will be regulated by the Financial Services Authority. (Paragraph 20)
4.We are not convinced that a voluntary scheme can work but, if it can work at all, it will only be through having a regime which is highly transparent. It is important that those institutions claiming to participate do so in a way that can be verified. Participating institutions should be subject to an annual certification of their involvement, signed by a nominated senior employee. Transfers of monies from the banks to the Central Reclaim Fund, and reclaims going the other way, must be audited by external auditors. The auditors' duties should include checking that all dormant accounts are being transferred and, where an institution claims an account is active despite an absence of transactions, the auditor should check that appropriate evidence is being retained. There should be credible sanctions for those institutions where the auditors discover a breach of their agency agreement with the Central Reclaim Fund. We also urge the Treasury to work with the banking industry in examining the prospects for publishing the stock and flows of dormant accounts as a note to the annual published accounts of the banks and building societies. (Paragraph 23)
5.The establishment of a statutory framework that enables financial institutions to extinguish their dormant account liabilities is of vital importance to the viability of the whole Unclaimed Asset Scheme. We note the Government's co-operation with banks and building societies in examining this issue in detail, and welcome the Government's commitment to bring forward legislation to resolve this issue. (Paragraph 24)
Defining and identifying dormant accounts
6.In setting the dormancy period, a balance needs to be struck between minimising reclaims from the Central Reclaim Fund, and maximising the funds for disbursement to good causes. The choice of 15 years as the dormancy period is higher than in most other jurisdictions that have set up unclaimed asset schemes. In drawing a parallel with the Irish scheme (which also uses a 15 year definition), the Economic Secretary used an incomplete comparator, because the Irish scheme has a very narrow view of customer activity. In contrast, the UK scheme is set to allow financial institutions not to pass to the Central Reclaim Fund those accounts on which, although no transaction has occurred, the bank has evidence of other customer activity. It is unlikely that a significant number of customers would renew contact with their bank between the tenth and fifteenth anniversary of inactivity. We therefore recommend that the Government reduce the proposed dormancy period from 15 to 10 years. (Paragraph 29)
7.The Government's proposals for defining dormant accounts have some merit. It is appropriate that financial institutions should be permitted to consider various forms of communication with their customers as evidence of activity, rather than relying merely on account transactions. If the scheme were to focus on transactions alone, this would inevitably lead to significant numbers of accounts being transferred inappropriately. However, certain safeguards must be in place to ensure that financial institutions are not granted 'carte blanche' in identifying dormant accounts, in order to prevent the withholding of genuine dormant funds from disbursement to good causes. We recommend that the Government:
  • publish a precise list of transaction types that it considers to be "customer-initiated" for the purposes of the scheme;
  • publish a list of other forms of communication that it considers to be evidence of non-dormancy;
  • require institutions withholding accounts from the Central Reclaim Fund for non-dormancy on the basis of non-transaction activities to retain evidence of such activities and make them available for external audit. (Paragraph 32)
8.We were encouraged by the suggestion that the banks are being conservative in their estimates. Based on the Irish experience, we consider that it is more likely that the current estimates of the scale of funds in dormant accounts will prove to be an underestimate than an overestimate, although the actual scale of funds transferred to the Central Reclaim Fund depends critically upon the success of efforts to reunite funds in dormant accounts with their rightful owners. This uncertainty is amplified by the proposed voluntary nature of the scheme, as we cannot say how many financial institutions will participate, nor how full and complete that participation will be. (Paragraph 36)
Scope of the scheme
9.If the Government considers that specific use for identified good causes is the best use for the dormant accounts held by others, the Government should apply the same principle to accounts held by NS&I. On the grounds of equity between financial institutions, we recommend that NS&I be brought into the scope of the Unclaimed Asset Scheme. If that scheme is to be voluntary, we recommend that the Government volunteer NS&I's participation. (Paragraph 40)
10.Life assurance is one particular product that has been included in unclaimed asset schemes in various other jurisdictions. Insufficient work has been conducted on the feasibility of including assets other than bank and building society accounts in the UK's proposed scheme to be able to recommend their inclusion. However, the eventual expansion of the scheme to incorporate other asset classes is fertile ground for discussion. To this end, we recommend that the Government consult with the insurance industry about the possibility of its involvement in the scheme at some stage in the future. (Paragraph 43)
Reunifying customers with dormant accounts
11.We welcome the plans of the banks and building societies for a reunification exercise prior to the advent of the Unclaimed Asset Scheme. The decision to use third-party search agents will necessarily be taken with a view to balancing the cost of these activities with the value of the dormant account and the probability of successful reunification. We accept that an important component of the efforts towards reuniting smaller accounts with their customers should be the proposed publicity scheme but we are not convinced that quarterly press releases will generate sufficient awareness of dormant accounts. We urge the industry to consider a more comprehensive campaign across various forms of media. Financial institutions should also write to their customers, notifying them of their dormant account's impending transfer to the Central Reclaim Fund, unless that institution has been advised that the account-holder is no longer at that address. We urge all banks and building societies to use every opportunity they can to employ these and other techniques in reuniting accounts before they are transferred to the Central Reclaim Fund. (Paragraph 52)
National Register of Unclaimed Assets
12.The existing reclamation arrangements run by the BBA, BSA and NS&I have had some success in reuniting dormant accounts with their customers. However, the multiplicity of search mechanisms may discourage some customers in reclaiming their dormant accounts and a single search facility would be a significant improvement in this area. We do not consider that the establishment of a comprehensive register of dormant accounts, requiring account details to be transmitted to a central repository, is desirable at this moment. Such a system would be costly and involve complex data security issues. We were impressed by the proposal set out by the Commission on Unclaimed Assets for a single interface that would not hold account data itself. The great merit of this proposal would be that both costs and data transfer could be minimised. We urge the Government to investigate how such an interface could be adopted in order to unify the existing systems run by the BBA, BSA and NS&I. (Paragraph 62)
Building societies
13.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. (Paragraph 64)
14.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. (Paragraph 67)
15.There is an inconsistency between the Government's insistence that an Unclaimed Asset Scheme ought to be voluntary in nature, and its insistence that the overall aims of distribution ought to be determined by the Government without further consultation. We regret the Government's decision to make its choices on funding priorities without meaningful prior consultation with relevant stakeholders. (Paragraph 71)
16.We find the concept of using gearing to multiply the potential impact of unclaimed assets attractive when compared to more traditional grant-giving distribution methods. We have been told that the Social Investment Bank needs minimum funding of £330 million over five years for it to be viable, but we do not, at present, see any sign of the Government committing resources to social investment of this scale. We believe that the Government cannot will the ends if it does not will the means. We want the Government to allocate sufficient resources to a Social Investment Bank funded in part through unclaimed assets. (Paragraph 81)
17.  We recommend that, in its response to this Report, the Government clarify whether building societies adopting the local disbursement option will be required to have regard to the wider objectives of the Government for funds made available from (Paragraph 86)

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