Memorandum submitted by the Skipton Building
Society
1. Skipton Building Society welcomes the opportunity
to contribute to the Treasury Select Committee's inquiry into
unclaimed assets.
EXECUTIVE SUMMARY
2. We consider that it is appropriate for lost
account monies to stay in the Society to be used for the benefit
of all members, rather than to be taken out of the Society. However,
in the event of any transfer of funds out of the Society and paid
over to the central fund, the impact on membership rights is to
be clearly understood and appropriate indemnities provided to
both the Society and the investing member.
3. It is inappropriate and inconsistent
with legislation to assume that building society retail investors
(who are thereby members of that society) are the same as bank
customers (who are unlikely to have a shareholding relationship
with that organisation).
4. Equality of treatment is important and,
should this be taken fully into account, there is scope for extension
of the scheme which would further boost the funds available for
charitable use.
INTRODUCTION
5. Skipton is the seventh largest UK building
society. We are dedicated to mutuality and are run for the benefit
of our members. We are one of the leading financial services providers
with assets of over £10 billion.
6. As a mutual organisation we exist to
serve the best interests of our customers and members. Even though
institutions' participation in the proposed scheme is intended
to be voluntary we consider that there are important principles
that need to be understood and established.
DETAILED COMMENTS
Definition of Unclaimed Assets
7. Whilst the principle of utilising "unclaimed
assets" as proposed by the Treasury is accepted we consider
that the current scope fails to recognise the motivation for investing
in a building society and the status of building society investing
customers.
8. By way of background, a building society,
as a mutual, exists for the purpose of raising funds from its
investing customers (known as shareholding members) which can
then be used to provide mortgages to its borrowing customers (known
as borrowing members). A building society is owned by, and run
for the benefit of, these members.
9. The decision to invest in a building
society is often made due to the long term security that is offered,
the knowledge that the initial capital invested is entirely safe
and the feeling that as profits made will be reinvested in the
society, it's the ultimate benefit to members that underpins all
business decisions. The profile of a Skipton investor is very
much one of long term investment with very few transactions—indeed
in some instances the term of investment discourages such activity.
10. There is a clear inconsistency with
the Government's stated aim of encouraging personal savings if,
at the same time, it launches a scheme that discriminates against
investing customers in building societies.
11. The suggestion by the Treasury, in its draft
unclaimed assets consultation document, that it is a feature of
modern life that people "often lose track" of "small"
investments or that accounts may become dormant through a lack
of financial capability or customer awareness of how to run an
account is patronising. It fails to recognise the relatively small
sums of disposable income or savings available to invest or the
frequency with which any further payments may be made, if at all.
The reputation of building societies as institutions which exist
to serve their members rather than external shareholders encourages
long term savings with no expectation that customer initiated
activity is either a requirement or an expectation.
12. The Treasury will need to square up these
conflicting messages.
13. The importance of membership in a building
society does not appear to have been considered by the Treasury.
Legislation has required investors and borrowers with building
societies to become members—there can be no personal deposits
without becoming a member. Having forced this distinction the
government has failed to recognise these important differences
between building societies and banks/PLCs in developing its proposals
for this scheme.
14. As members of a building society our
investors are more than just customers; unlike depositors with
a bank they can voice their opinions on the way the building society
is run and have a right to vote. A further value of membership
is the potential to benefit from a distribution of profit, such
as the payments made to Skipton members in 2000 following its
sale of its subsidiary Dealwise.
15. The Treasury's draft consultation document
fails to take this unique position into account—building
society membership can not be likened to the status of a bank
deposit account holder. We do not consider that the principle
of the scheme to "protect the rights of account holders to
reclaim their money at any time" is enough.
16. If, as the draft scheme requires, a member's
"dormant account" is to be transferred then it is assumed
that the membership rights until then would be lost. Even if this
was to be avoided and they were retained as "notional"
members the status of a member with a zero balance is artificial.
Indeed, existing building society rules usually require at least
a £1 balance before there can be investing membership and
no member has a vote unless he/she has at least £100 invested.
This last point is a legislative provision. Any building society
would need to consider with care how it could recognise any such
"notional" relationship without impairing any benefits
to which the remainder of the society's membership may otherwise
be entitled.
17. Consultation with our members prior to any
participation in a scheme as currently proposed would be essential.
We would invite the Treasury Select Committee to obtain from the
Treasury absolute clarity on the retention or otherwise of membership
status and rights in relation to building societies and seek a
commitment that the central reclaim fund will provide appropriate
indemnities to both institutions and customers.
Scope for Extension of the Scheme
18. The Treasury Select Committee has asked
for comments on the coverage of the proposed unclaimed assets
scheme. The current scope of the scheme is directed towards deposits
in bank and building society accounts. We recognise that there
are other forms of unclaimed asset—in particular we consider
that by making the assumption that account holders of building
societies are the same as deposit account holders of banks, the
Treasury has overlooked a further source of funds from PLC shareholders.
19. As referred to above a building society
is owned by, and run for the benefit of, its members. In a similar
way a bank (PLC) is owned by and run for the benefit of its shareholders
(who are less likely to be deposit account holders in that institution).
20. Shareholders of banks/PLCs also hold
assets capable of falling within the scope of the proposed scheme.
These assets take the form of unclaimed "demutualisation
benefits".
21. On a conversion from a building society/mutual
to a PLC the qualifying members become entitled to "demutualisation
benefits", in the form of shares or cash, as compensation
for the loss of mutual membership rights and status. Although
each conversion will have its own conditions, the principle is
established that the PLC can sell unclaimed shares or take unclaimed
dividends after a period of years (eg 10 years for Standard Life
and 12 years for Bradford and Bingley) from the date of conversion
for general corporate purposes.
22. Unlike PLCs, building societies do not
take lost account monies into profit and pay them over as dividends
to shareholders. As mutual institutions any unclaimed assets within
building societies are currently used for the benefit of all members—helping
to reduce the interest rates payable on mortgage products and
to increase the rates paid on savings accounts.
23. 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.
24. It is understood that the Treasury is proposing
that legislative changes will be introduced, prior to the implementation
of the scheme, to extinguish the liability of institutions to
dormant account holders so that the liability can be derecognised
for accounting purposes if certain conditions are met. It is assumed
that this legislative change could be extended to address the
treatment of unclaimed shares or dividends.
February 2007
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