Select Committee on Treasury Written Evidence


Memorandum submitted by Keith Hollender

Keith Hollender was the originator of the Unclaimed Assets Register ("UAR") and has been closely involved in the subject of unclaimed assets for the last 10 years. The experience gained is considered particularly relevant to the inquiry. He is an Advisor to the Commission on Unclaimed Assets and is Managing Director, Investment & Professional Services, Experian.

1.  EXECUTIVE SUMMARY

  This memorandum addresses:

  —  The definition, identification and collection of unclaimed assets, and:

  —  The possible relevance of schemes in other countries.

  No comments have been submitted on the possible distribution and use of the funds. The body of the memorandum follows the paragraph headings of Treasury Press Notice no.19.

The views expressed in this memorandum are those of the writer.

1.1  A summary of the points presented follows:

  (a)  The 15 year dormancy period is generous compared with other countries and exceeds the period that the public would consider necessary;

  (b)  66% of the public are in favour of the concept;

  (c)  Identification of long term dormant account holders may be difficult due to lack of records;

  (d)  There would seem to be no reason to limit scope to dormant accounts. Extension to all asset areas would be compatible with other countries and may be considered fairer to the banks and societies;

  (e)  The figure of £400m is probably well below the actual value if deceased account holders are taken into account;

  (f)  Any legislation needs to be enforced by the appointment of a specific regulator;

  (g)  Collection and disbursement should be handled by separate bodies;

  (h)  All owners of unclaimed assets (not only those whose accounts have been inactive for 15 years) should be placed on a National Register;

  (i)  Institutions should be required to pro-actively trace their goneaways using the most advanced processes;

  (j)  Whether or not funds have been disbursed, true owners must always be able to reclaim their entitlements;

  (k)  Any reclaimed monies should be repaid out of the total fund;

  (l)  Consideration should be given to holding the funds "on trust" for the owners as happens in most other countries that operate laws of escheat.

2.  THE DEFINITION, IDENTIFICATION AND COLLECTION OF UNCLAIMED ASSETS2.1  Definition

  2.1.1  The definition of "dormant" is key to determining unclaimed balances. Banks and Societies argue that many people deliberately leave accounts open which they do not use on a regular basis. One reason for this may be the perceived difficulties of opening new accounts as a result of tighter money laundering rules. These accounts, the banks argue, should be treated as merely inactive.

  2.1.2  Where the account holder is still living at the address held by the bank/society (but does not respond to mailings) it may be reasonably claimed that he/she is aware of the account and is deliberately keeping it open. Indeed, tests on inactive accounts have shown that a relatively high proportion of accounts with no activity for up to 2-3 years have the owners correct address recorded by the institution. However, there are some flaws in this argument:

    i.     Not responding to mailings is one thing but returning statements marked "gone-away" seems odd.

    ii.    Re-activating an inactive account can require the same degree of anti-money laundering checking as opening a new account

    iii.    A survey carried out by Experian in August 2006 indicated that 33% of individuals (plus 10% "don't knows") claim to have an inactive account and must presumably, therefore, be aware of its existence. The same survey indicated that, on average, the public felt 9.5 years was a sufficient period of dormancy before funds were transferred. The figure of 15 years allows a significant cushion beyond this but is far longer than that applied in other countries, excepting Ireland.

    iv.    Most inactive accounts have been inactive for far longer than 2-3 years and sample analysis indicates that owners of the vast majority of these are now living at another address or possibly dead.

  2.1.3  There has been no indication that the definition would not apply to all bank and building society accounts including those in the name of a company or charity. There would seem to be no reason to exclude any accounts. However, it is important to understand that a major difficulty facing institutions will be the existence of records relating to long term dormant accounts. Original records may never have been computerised or have subsequently been lost. For this reason it may be sensible to consider agreeing a lump sum with the institutions in respect of these accounts.

2.2  Scope

  2.2.1  Most other countries that have adopted the laws of escheat, treat all unclaimed assets the same way. Only in Eire is the scheme limited to dormant accounts (subsequently extended to life policies). There would seem to be no logical reason to limit the scope, particularly in respect of the establishment of a register to permit the public to enquire as to what assets may be rightfully theirs. A separate dormant accounts register would be yet another entry point in addition to the NS&I and UAR. A more consumer friendly solution would be a single Register for all unclaimed assets.

  2.2.2  Some organisations have done more than others to find their "lost" customers/investors; a prime example being the insurers in respect of life policies, and more recently, occupational pension schemes. Most insurers are members of the UAR and take additional steps to trace lost policyholders ("goneaways").

2.3  Scale

  2.3.1  There is no definitive figure. The UAR has estimated that there is in excess of £15bn in unclaimed assets in the UK (the equivalent US figure is $300bn). This money has accumulated over a long period of time and is spread across all sectors of financial services.

  Indicative Source:

Life policies£1.5 bn
Pensions£3.5 bn
Dormant accounts£5.0 bn
Shares/dividends£3.0 bn
National Savings£2.0 bn


  2.3.2  The survey carried out last August by Experian indicated a figure of £2.8 billion in respect of all dormant bank and building society accounts belonging to living people. However, it is important to bear in mind that the majority of unclaimed assets probably belong to deceased persons, whose executors failed to identify the holdings at time of probate and the total figure almost certainly well exceeds £2.8bn. When the cut-off point is set at 15 years and deceased owners are excluded, the indicated value of dormant accounts was £301m. This should be seen in the context of the Irish situation where it has been suggested that the equivalent figure was £170m prior to tracing (and that in a country with a population of around 7% of that of the UK).

  2.3.3  The survey also indicated the average dormant bank or building society account in the UK holds around £182.

  2.3.4  Determining whether an asset is "unclaimed" requires different definitions. In the case of accounts, a long period of inactivity is probably sufficient. In the case of term investments (eg most life policies and National Savings Certificates), expiration of the term sets the marker but where savings and investments have no term (eg shareholdings), the definition is more difficult and reversion to a period of inactivity is the only reasonable guide.

  2.3.5  Many institutions will differentiate between unclaimed asset owners and "goneaways". The latter may simply not respond to mailings but, for example, continue to make direct debit policy premium payments.

2.4  Collecting the Proceeds

  2.4.1  Responsibility for the transfer of unclaimed assets in other countries tends to lie with the relevant government department. In California, for example it is the State Controller (California is reputed to hold $4.8 billion in unclaimed funds). In Ireland the Dormant Accounts Fund is managed by the National Treasury Management Agency (NTMA). The Minister for Social and Family Affairs has overall responsibility for payments from the fund and the Dormant Accounts Fund Disbursements Board has been appointed by the minister to oversee the use of the money in the account.

  2.4.2  Certainly in the various States of America, transfer of unclaimed balances is firmly enforced. The introduction of legislation in the UK will make it essential that similar robust enforcement procedures are adopted and a specific Regulator is appointed. The Regulator should have the power of audit and the ability to impose penalties on miscreant institutions.

  2.4.3  Redirecting funds owned by individuals (albeit "lost") to a third party is a publicly sensitive issue and although only 26% of the population appear opposed to the concept (recent survey), there will inevitably be opportunities for the media to sensationalise stories, either about banks failing to comply or funds being used for non-charitable purposes. Whilst the latter would not fall under the remit of the Regulator, attention will inevitably be focussed on that position.

  2.4.4  It is therefore likely that the role of regulator will be a high profile one requiring adept press handing abilities. Because of the sensitive nature of the subject, particularly in its early stages, it is essential that the Regulator is publicly appointed and accountable. Maximum transparency is a pre-requisite.

2.5  Collection v's Disbursement

  2.5.1  There are two quite distinct tasks here, each requiring different areas of expertise. Ensuring funds are correctly transferred is an on-going and key role. Selecting the appropriate distribution channels will require a detailed knowledge of the charity market and this role should be divorced from collection.

2.6  Requirements re Pro-active Tracing of Account Holders

  2.6.1  It is important to remember that this is not a one-off exercise of the transfer of the proceeds of accounts that have been inactive for 15 years. The process is rolling and although there is an initial "back-log" to address, the systems must be put in place to continually identify and trace inactive account holders. These methods should be no less rigorous than those adopted to trace absconding borrowers.

  2.6.2  It is also important to ensure that pro-active steps to trace are put in place as soon as an institution has reason to believe a person has moved or died and not only on the 15th anniversary of inactivity. Similarly, those account holders should be placed on the National Register even though their account proceeds have not been disbursed.

  2.6.3  Many in the financial services industry are already taking active steps to seek out their "goneaways". These steps include making use of electronic tracing services and placing the "hard core lost" on the Unclaimed Assets Register. The most advanced electronic tracing can usually locate 65-70% of persons from an out of date address quickly and cheaply.

2.7  Reclaiming Disbursed Assets

  2.7.1  Although the public are generally supportive of the concept of unclaimed money being used for charitable purposes (66% according to the August 2006 survey), this predicates an understanding that owners will always be able to recover their entitlements no matter when they re-surface. So far, the Government and the Commission on Unclaimed Assets have reasserted this as a cornerstone of the concept. Nevertheless, the press has been quick to cast doubts.

  2.7.2  It has already been indicated that a National Register of dormant account holders will be established. This register should include those whose account proceeds have already been disbursed (ie 15 years inactive) as well as those whose accounts have been flagged as inactive by the institution. The feasibility of such a register has been demonstrated by the success of the UAR. The Register will be a point of enquiry for members of the public and their legal representatives (and will inevitably be checked in every probate).

  2.7.3  Where an account owner resurfaces, the full amount due must be repaid once identity and entitlement have been proven. If the funds have already been disbursed, restitution could come from:

    —  The dormant account fund itself, or

    —  An insurance/indemnity policy, or

    —  The participating institutions.

  2.7.4  The key point is that the amount of money going into the fund will always exceed the amount being reclaimed. This appears to be the norm in the USA where unclaimed monies are usually held on trust for the rightful owners with the funds themselves being used to boost individual State cash flows. It would seem unnecessary to be too concerned about this issue.

3.  International Comparisons

  3.1  The UK Governments interest in the treatment of unclaimed assets was largely triggered by events in Ireland. That Government's "Dormant Accounts Act, 2001" came into effect in April 2002.

  3.2  Under the Act, financial institutions have to contact their clients if they have not effected a transaction on their account for 15 years or more. If the institution is unable to make contact, account proceeds are passed to the State. Funds in accounts that were not reclaimed by the end of March 2003 were transferred to a Dormant Accounts Fund managed by the National Treasury Management Agency (NTMA).

  3.3  In the two years prior the Act becoming live, the banks reputedly located 60% of their lost customers, thus reducing the total amount transferred by E150m (£100m).

  3.4  The process was extended to life policies under the "Unclaimed Life Policies Act, 2003" such that proceeds of all policies unpaid for 5 years beyond maturity must be transferred to the Fund.

  3.5  The underlying principle of the treatment of unclaimed money is similar to that operating in the US and other countries where the laws of Escheat apply. There, after a few years (c.7 in US), all funds are passed over to individual states to be held in trust for the true owners. In fact, the amount passing to the state(s) each year exceeds the amount claimed and the money makes a significant contribution to the funding of state expenditure.

  3.6  In New Zealand the dormancy period is 6 years which is similar to Australia whilst in Canada it is 10 years.

January 2007

REFERENCE

  i  The Unclaimed Assets register ("UAR")

The UAR was set up in 2000 with two objectives; to assist members of the public recover their lost or forgotten financial assets and assist financial institutions address the issue of unclaimed money. Companies from the life, pensions and unit trust sectors, as well as UK listed companies supply the UAR with records of those customers with whom contact has been lost. This information is held on a secure, ring-fenced database and updated regularly. Members of the public and probate solicitors seeking to ascertain entitlement to lost investments request searches. A search costs £18 (fixed fee, including VAT and a contribution to charity). If a potential match is made, the searcher is given contact details with the relevant financial company and asked to make contact. The company concerned will verify entitlement and make direct payment.

  Since inception the UAR has helped re-unite c.£500m. with rightful owners.

  As well as the consumer interface, Experian's UAR works closely with institutions to assist them pro-actively locate their lost clients ("goneaways"). The electronic tracing facility is usually successful in finding 60-70% of people. Many thousands of records are successfully processed and during 2006, for example, over 220,000 updated addresses were generated.

  The success of the UAR has demonstrated both the feasibility of a general register of unclaimed assets which can operate at relatively low cost levels, and the efficiencies of electronic tracing.





 
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