Select Committee on Treasury Written Evidence

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.


  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.


  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.


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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