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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