Select Committee on Treasury Written Evidence

Memorandum submitted by the Balance Charitable Foundation for Unclaimed Assets

  This submission is made by the Trustees of the Balance Foundation. The Balance Foundation, established in 2003, has put together a mechanism which has over the last three years enabled a number of investment banks and brokers to release in the region of £8m in unclaimed assets to good causes to date, with more fund releases in the pipeline.


  1. The Balance Foundation has demonstrated that unclaimed assets in the financial sector can be applied to good causes whilst at the same time protecting the ongoing rights of the original owners of the assets.

  2. Whilst any solution requires consideration of a number of complex and inter-related legal, regulatory and accounting factors, the issues are not insurmountable. The Balance Foundation has from the outset focussed on achieving a voluntary rather than legislative solution. Goodwill and a common desire to make better use of financial assets for the benefit of all has been a powerful motivator in achieving results.

  3. The Balance solution has been successfully applied to one group of unclaimed assets, but the Trustees take the view that the basic principles could be adapted and applied across numerous types of financial assets, ideally continuing with voluntary participation, but applying enabling legislation where necessary. Unclaimed assets will always arise, but in the future all new financial products and services should have a mechanism available to resolve this potential issue effectively.

  4. Any solution must protect the interests of the customer but, providing this is achieved, the distribution of the assets to good causes should not be restricted or delayed. In the opinion of the Balance Foundation it is essential that whatever distribution method is agreed, there should be no delays in the application of the newly released funds to good causes. To tie the funds up in a bureaucratic organisation could be seen as betraying the objective of going through the release in the first place.


Identifying and collecting unclaimed assets

  1. The Balance initiative grew out of an awareness that many financial institutions maintain accounts and policies or hold assets for customers whose identity or whereabouts is unknown. In many cases, these unclaimed assets are likely to remain unclaimed indefinitely. The Balance Foundation focussed particularly on unclaimed balances which had arisen in the broker/dealer operations of investment banks during institutional trading on behalf of clients. For a variety of reasons, trades had given rise to amounts which had not been resolved, despite the institutions' best endeavours.

  2. The rules governing the treatment of client money are set out in the Handbook which the FSA is required to publish under the Financial Services and Markets Act 2000. The Client Money rules ensure that clients can have confidence when dealing with an institution that the funds they place there are "ring-fenced" from the other assets and liabilities of the institution. The Client Money rules require proper segregation of funds at all times, so that in an insolvency of a financial institution, Client Money funds will be protected from the claims of the institution's other creditors and so be available for settlement of claims by clients. As primary regulator, the FSA controls the manner and timing of transfer of funds designated as Client Money without the agreement of the customer: the rules governing this process are restrictive and this had led to a number of investment banks holding unclaimed cash in their Client Money accounts which they were unable to reconcile back to the original client.

  3. Balance, working with the regulators, investment banks and brokers in the City, professional advisers and insurance specialists, put together a proposal which would allow institutions with unclaimed Client Money assets to apply to the FSA for permission to release those assets, subject to satisfaction of certain conditions. A key part of this proposal was the availability of a bespoke insurance policy to protect the ongoing rights of the customer after the assets were released to charity.

  4. With the assistance of its advisers, Balance proposed to the FSA a modification to the Client Money rules. Balance argued that if unclaimed assets had been outstanding for at least three years and had not yet been reunited with their rightful owners, then, provided that the client's ongoing rights to claim were recognized by the institutions and protected with the benefit of insurance, they should be able to be applied to charitable causes. Balance emphasised the clear public benefit in releasing to charitable purposes moneys which would otherwise be expected to remain sterilised for an indefinite period, especially as the proposed course of action would only have a nominal impact on clients' interests, given the availability of insurance protection.

  5. In March 2004, following Balance's representations, the FSA policy committee endorsed the necessary policy change. The FSA confirmed that it would consider, on a case by case basis, applications for waivers to permit the release of unclaimed assets from the Client Money rules. There were two provisos: that all affected clients should be written to once more and given further opportunity to claim funds; and that before any release of funds, insurance should be put in place which would be available if valid claims were subsequently made by the original owners of the released funds. Since this policy change Balance has worked closely with a number of leading financial institutions to assist them in releasing their unclaimed client money assets via this route.

Achieving reconciliation, before and after distribution

  6. In the experience of the Balance Foundation, banks have historically made great efforts to reunite their clients with their funds. For many reasons, an institution's records can be corrupted or lost over time; these can include changes in recording of data from manual to computerised systems and the loss of the "corporate memory" held by individuals, particularly on changes of ownership of the institutions concerned. With the greater use of automated processing of transactions, the incidence of unreconciled balances has lessened in recent years; however it is still the case that clients lose touch with an institution and it can prove extremely difficult to trace them. Generally, the outstanding balances at institutions with which Balance has worked have been at least six years' old and all efforts by the institution to resolve them had failed. Often the amounts owed to individual clients were very small, so that the client was unlikely to pursue the claim, and even if the institution had, in an attempt to finalise matters, issued cheques to their clients, these would often remain uncashed.

  7. For banks participating in the Balance initiative, on sending the final notification letter to clients, there has generally been a rate of response in the region of 15-20%. Even then, the owner has often not pursued the claim once the institution sought further information in support. When the institution has an idea of the size of assets to be released, the insurance is put in place and funds released. The insurance has a "first loss deductible" to cover the risk of initial claims, and institutions will generally hold these funds back in order to meet any initial claims. Thereafter the insurance would take over to meet claims above this level. As far as Balance is aware there have been minimal levels of claims amongst banks which have participated in the initiative to date.

Applying the scheme to other unclaimed assets

  8. Although Balance has focussed its attention on the release of unclaimed assets subject to client money rules and held by investment banks and brokers, other areas where the principles of the initiative could apply were considered. As far as retail banks are concerned, there seems no reason why a proposal along the lines of the Balance initiative, with insurance to protect the rights of customers, could not be applied. The only major concern would be the potential impact of any release of assets on the institutions' accounts caused by the revised accounting rules brought in by IFRS in 2005. This would clearly need to be resolved before any retail bank could countenance participation. This issue has, Balance understands, been the focus of much of the discussion in the working party convened by the Treasury with the retail banks and building societies.

  9. One particular area of unclaimed assets which the Balance team did explore in more detail related to unclaimed insurance policies. There are a number of types of insurance policy under which the benefits, when the policy matures, are held by an insurance company until the entitled person makes their claim. Inevitably, some policy holders will have over time forgotten about the existence of the policy and lost contact with the insurer. From discussions with a number of leading insurance companies, Balance believes there are substantial assets which could potentially be categorised as unclaimed and which could therefore be subject to a reunification exercise and then be put to use for good causes. Balance of course acknowledges that the legal, regulatory and accounting issues would be different and would need to be explored in detail in order to confirm that any such release programme would be possible.

The distribution and use of unclaimed assets

  10. Funds which have been released under the Balance initiative to date by investment banks and brokers are estimated to be in the region of £8m. It is a requirement of the Balance initiative that funds can only be applied in support of charitable causes. Many of the institutions which Balance has dealt with have significant charitable foundations in their organisations and well established grant making programmes which have been given a considerable boost with the addition of the funds from releasing unclaimed assets. Balance established its own grant making foundation to facilitate the distribution of unclaimed assets in cases where a bank did not wish to deal with the distribution itself. Also, in recognition of the important role which Balance has played in enabling banks to release assets, Balance has in many cases been given a percentage of the funds released by institutions for application to its own grant giving programme.

  11. In considering its overall grant making policy and objectives, Balance approached a wide range of consultees from the voluntary sector, including both umbrella bodies and individual charities. A number of one to one discussions were held with voluntary sector organisations, including NCVO, the Institute of Fundraising and the Social Enterprise Coalition, and Balance convened round table meetings. The main themes emerging from the consultation process were a desire to see any new grant maker demonstrating a clear focus for its policies, a simple and efficient grant process and clear guidelines for reporting on outcomes.

  12. The Trustees decided to establish a focused grants programme which would demonstrate Balance's effectiveness as a grant giving organization in a short time frame and also show the value of using released funds in this way. A strong case was made for prioritizing the needs of socially excluded older people in a grants programme. A wealth of research from both government and independent sources supported this, particularly Sir Derek Wanless's review of Social Care and the Joseph Rowntree Foundation's report on the funding of long-term care. The campaigning work of Help the Aged, Age Concern, and other charities, raised the issues starkly: the "crisis of under funding in the current system"; the regional lottery for services based on where a person lived and the eligibility and charging policy of the local authority; the confusion between funding for health and social care; and the key role of charities in supporting older people while statutory funding has increasingly focused on acute services only. Despite this situation, only a small number of trusts and foundations prioritise the needs of older people.

  13. Accordingly, Balance established an open grants programme for charities working with older people over 75 at risk of social exclusion. The programme set out key criteria and an external expert panel was appointed to provide advice to staff and Trustees. So far the Balance Foundation has supported over a dozen projects with over £0.5m-all of which are providing vital support to this vulnerable group of people. The projects which Balance has funded range from national projects covering advocacy and advice to local community projects offering welfare benefit advice, befriending and social activities and intergenerational/cross-cultural arts projects.

  14. Balance is proud of its legacy in the voluntary sector, by which it estimates c £8m has been and continues to be put to good use in the voluntary sector by financial institutions themselves, while Balance itself has used some of these funds to support an important area of social need. As a result of the Balance initiative, some banks have been able to allocate resources to new UK or European-wide charitable initiatives while others have given fresh impetus to on-going projects with the allocation of substantial amounts of additional funding. The overriding impact of the Balance initiative is that monies which have been languishing unused for up to 15 years or more within financial institutions have, within months of release, been put to work in supporting targeted projects in the voluntary sector to benefit those most in need of help.

February 2007

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