Memorandum submitted by the Building Societies
Association
1. The Building Societies Association (BSA)
welcomes the opportunity to contribute to the Treasury Select
Committee's inquiry into unclaimed assets.
EXECUTIVE SUMMARY
— Lost accounts, or unclaimed assets,
account for a very small proportion of total building society
deposit balances—ie £50 million to £70 million
out of £190 billion. When people do lose touch with their
account, the main reason is that they have moved house and forgotten
to tell the building society their new address. Building societies
have effective arrangements in place for protecting such accounts
against fraud and for reuniting account holders with their money.
— The Building Societies Association
has a central tracing scheme that assists people who think they
may have a lost building society account. The scheme is free of
charge and is covered by the Banking Code.
— Any lost accounts within a building
society, that are not claimed by the account holder, are used
to provide better value savings and mortgage products for the
benefit of all building society members.
— As soon as it became clear the Government
was committed to introducing a scheme for paying over unclaimed
assets to charitable causes, the BSA worked closely with the Government
in designing its proposed unclaimed assets scheme.
— The definition of an unclaimed asset
proposed by the Government—ie 15 years of no customer activity—is
sensible and realistic although it needs some adjustment. Any
lesser period than 15 years would capture many accounts that are
not genuinely unclaimed.
— Building societies' paramount aim
is to reunite customers with their lost accounts. Where, under
the Government's proposed scheme, this can not be done, societies—as
mutual organisations—are determined that lost accounts monies
should be used to support good causes in the communities from
which their members are drawn. Even where unclaimed assets are
paid over under the scheme proposed by the Government, customers
must still be able to reclaim their monies at any time.
— Building societies support the Government's
preference for a voluntary unclaimed assets scheme. The Banking
Code is the appropriate mechanism to underpin this.
— Consistent with the inclusion of
building society and bank accounts within the Government's scheme,
there is logic to including other forms of unclaimed asset; notably,
National Savings & Investments and the shares and dividends
of listed companies, as well as unclaimed life and pension policies.
INTRODUCTION
2. The Building Societies Association (BSA)
represents all 60 building societies in the United Kingdom. Building
societies have total assets in excess of £305 billion and
hold residential mortgages of over £200 billion, approximately
18% of the total outstanding in the UK. Societies hold over £190
billion of retail deposits, accounting for about 19% of all such
deposits in the UK. In respect of cash ISAs, societies are market
leaders, accounting for 37% of cash ISA balances (£46 billion
out of £124 billion in August 2006). They employ almost 50,000
full and part-time staff and operate through around 2,150 branches.
3. There is much speculation about the amounts
of money contained in bank and building society dormant and lost
accounts. Analysis carried out by the BSA in 2004 indicated that
there were around £50 million to £70 million in building
society lost accounts, based on the Government's definition of
15 years of no customer activity. Figures we recently collected,
as at 31 December 2006, tend to confirm these amounts.
WHY DO
LOST ACCOUNTS
OCCUR?
4. The main reason that people may lose
touch with a building society account is that they forget to inform
their building society of their new address when they move house.
This tends to be more likely if the amount involved is relatively
small—larger balances tend not to be forgotten about. Some
accounts become lost when the account holder dies and the executor
of their estate does not realise the account exists.
WHAT DO
BUILDING SOCIETIES
DO ABOUT
THEM?
5. Where building societies become aware
that they have lost touch with a customer, they take steps to
safeguard the customer's account. For example, they will stop
sending statements to an address if they know that the customer
no longer lives there. This helps to prevent fraud on the account
and helps safeguard confidentiality.
6. The paramount aim of all building societies
in regard to lost accounts is to reunite the accounts with account
holders or, where they have died, their legal heirs. Where that
is not possible, the lost account monies remain within the building
society and are available to be reclaimed at any time by the account
holder. Building societies are mutual institutions and unclaimed
assets within building societies are 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,
although it is acknowledged that these effects on interest rates
are marginal. Unlike the past practice of some PLCs, building
societies do not take lost account monies into profit and pay
them over as dividends to shareholders.
REUNITING LOST
ACCOUNTS CUSTOMERS
WITH THEIR
ACCOUNTS: THE
BSA TRACING SCHEME
7. The BSA set up a tracing scheme for lost
accounts in 2001. This assists customers, who believe they may
have a lost building society account, to get back in touch with
the society. Customers are given a clear understanding of their
right to reclaim their monies and simple instructions on how to
proceed. If the customer knows the name of the building society
where the account was held they are encouraged to contact the
building society direct. If it is a society that no longer exists,
ie because it has merged with another, the BSA can tell them where
the business of the merged society now resides (there is also
an online facility on the BSA's website that will do this). Where
the customer is not sure which building society held the original
account (as is sometimes the case where the account holder has
died), the BSA helps to coordinate the customer's search on their
behalf.
8. The BSA tracing service is free of charge
and is covered by the Banking Code, the self regulatory code of
good banking practice to which most UK building societies and
banks subscribe.
9. Ten "pledges" underpin the
BSA's scheme—these are commitments from building societies
to people seeking to trace a lost account. The ten pledges are
set out in the claim form which those people wishing to trace
a lost account are invited to complete and send to the BSA. An
example of the claim form is attached as an appendix to this memorandum.
The form may be submitted in paper form and since December 2006,
there is a facility to send completed forms direct from the BSA's
website.
10. In 2006 there were 24,000 downloads
of the BSA lost accounts tracing form from the BSA website. 1,300
completed forms were received by the BSA and forwarded to building
societies which then carried out searches on a customer's behalf.
11. Individual building societies each have
their own arrangements for managing and tracing lost accounts
and the BSA tracing scheme dovetails with these for the benefit
of customers who wish to search for their lost accounts.
12. Any individual who is unhappy with the
treatment they receive from a building society in tracing a lost
account has recourse to that society's internal complaints procedures.
If still not satisfied, they have the right to refer their case
to the Financial Ombudsman Service and, ultimately, to the courts.
THE PROPOSED
UNCLAIMED ASSETS
SCHEME
13. The Government announced in the 2004
Budget its plans to direct lost accounts monies—but not
other forms of unclaimed asset—to charitable causes. At
the time the BSA opposed the idea in principle. As noted above,
building societies are mutual institutions, owned by their members
who are also their customers. We argued that it is appropriate
for lost account monies to stay in the building society and be
used for the benefit of all members, rather than taken out of
the society and paid over to charity.
14. However, although the BSA's concerns
about the principle of the Government's plans for using lost accounts
monies to fund charitable causes remain, it has become clear over
the past few years that the Government is resolute in its commitment
to this policy. Accordingly, the BSA agreed to work positively
with the Government to consider how these unclaimed assets could
be used in the community as the Government wishes, but in a way
that reflects the views and interests of building society members.
15. Discussions between the Government and
the building societies and banks have been detailed and have considered
a range of difficult technical and operational matters that have
needed to be addressed.
i) Definition of an unclaimed asset
16. Fundamental to the unclaimed assets
scheme is the definition of what constitutes an "unclaimed
asset". It is essential that the unclaimed assets scheme
includes only those accounts where the bank or building society
and its customer have genuinely lost touch and there is little
prospect of the monies being reclaimed.
17. Under the definition set out in the
Pre-Budget Report in 2005, all accounts where there has been "no
customer activity" for 15 years or more will fall to be included
within the proposed unclaimed assets scheme. 15 years is a sensible
criterion, in that any lesser period increases the risk of accounts
being included in the scheme that are not lost or unclaimed.
18. It is essential that a realistic understanding
of what constitutes "customer activity" is reached.
For example, it should be recognised that a lack of customer-initiated
transactions on a savings account does not of itself indicate
that an account is lost or unclaimed. It is very common for building
society members to leave their savings in a building society account
for long periods; often the money is rainy day or retirement savings
and they have no intention of touching it until they need to do
so. Frequently, such account holders will have other relationships
with the building society. Where they have other accounts, such
as a savings or a mortgage account, it will be important that
activity on those accounts can be accepted as evidence that the
relationship with the customer has not broken down. Accordingly,
none of that customer's accounts should be included in the unclaimed
assets scheme. Similarly, if a building society member has voted
at an Annual General Meeting of the building society, that too
should constitute evidence of customer activity. The definition
of 15 years of no customer activity also needs to be adjusted
to take account of accounts such as cash ISAs, trust accounts,
and fixed term accounts where either the customer is not able
to carry out any transactions during a fixed period (often several
years) or they are penalised for doing so, for example, with a
cash ISA, by loss of tax exemption.
ii) Reactivation
19. In the period immediately prior to the
introduction of the proposed unclaimed assets scheme, it is intended
that building societies will be stepping up their efforts to contact
account holders to enable them to confirm that they are content
for their account to remain where it is. This will build on the
existing tracing schemes of the BSA and individual building societies
and will be aimed at ensuring as far as possible that only genuinely
unclaimed balances fall to be handed over under the new scheme.
We anticipate that this period of increased tracing and reunification
activity will last for around 12 months.
20. Where monies are paid over under the
scheme it is essential that account holders are still able to
reactivate their accounts and this needs to be done in a customer-friendly
way. The best way of achieving this would be to maintain the interface
between banks and building societies and their customers. So,
even where monies are paid over—under the unclaimed assets
scheme—to a third party that assumes liability for repayment
of account balances, the customer's relationship remains with
the building society or bank.
iii) Regulation
21. The Treasury has previously announced
its preference for a voluntary scheme and the BSA is strongly
supportive of this. In our view, the main advantage of a voluntary
approach is that it could be delivered at much lower cost than
a fully statutorily-based scheme, thereby maximising the monies
available for distribution to good causes. A statutory scheme
would imply a much higher level of prescription and rigidity than
a voluntary scheme.
22. The BSA considers that a self-regulatory
approach, under the Banking Code, is the appropriate means of
ensuring that building societies and banks follow the requirements
of the unclaimed assets scheme, where they have committed to do
so. The Banking Code already covers the lost accounts procedures
of banks, building societies and National Savings and Investments.
In this way, subscribers to the Banking Code commit to comply
with the respective lost account schemes of BBA, BSA and NS&I
and their compliance is overseen by the independent Banking Code
Standards Board. We envisage that the Banking Code—which
is currently undergoing a triennial independent review—would
be need to be amended to reflect the introduction of the unclaimed
assets scheme and this, in turn, would be subject to compliance
monitoring by the BCSB.
iv) Legislative underpinning for the proposed
unclaimed assets scheme
23. Building societies are keen to ensure
an approach that is balance sheet-neutral, ie that when the assets,
in the form of the cash in building society savings accounts,
are removed from their balance sheets and paid over under the
proposed unclaimed assets scheme, the liability to repay to account
holders the balances on the accounts must also be removed. Under
recently introduced international financial reporting standards,
this can only effectively be done if the transfer is recognised
in statute. We understand the Treasury now accepts this is necessary
and, in the 2006 Pre-Budget Report, it announced that it planned
to bring forward legislation to put in place statutory underpinning
for a voluntary unclaimed assets scheme.
v) Distribution
24. All building societies currently support
good causes in the communities from which their members are drawn.
Feedback received by building societies from their members indicates
that their members are strongly opposed to the idea that lost
account funds should be used to build up a central pot to be disbursed
by the Government or its agencies—as has been proposed in
the context of the unclaimed assets scheme. Consistent with this,
the BSA is urging the Government to allow building societies to
direct their members' lost account monies to good causes within
the communities from which their members are drawn. For some building
societies this would mean channelling funds via the independent
charitable foundations they have set up and which are involved
in supporting charitable causes in communities local to the society.
vi) Coverage of the unclaimed assets scheme
25. The Treasury Select Committee has asked
for comments on the coverage of the proposed unclaimed assets
scheme. The Government has said it currently has no plans to extend
its unclaimed assets scheme beyond bank and building society accounts.
Whilst this may help to keep the scheme simple, there would be
logic in extending the scheme to include other forms of unclaimed
asset.
26. The BSA has previously pressed the Government
to include within its unclaimed assets scheme those unclaimed
assets held by National Savings and Investments. Based on a definition
of no customer activity for 15 years, NS&I has estimated that
it has unclaimed assets of £439 million[11].
This dwarfs the amount the BSA estimates to be unclaimed in building
society lost accounts. The Government's argument for not including
NS&I's unclaimed assets within its scheme is that such assets
are already being used to finance public expenditure, an assertion
the BSA does not find convincing. Public expenditure and expenditure
by charities are quite different.
27. In a building society, as a mutual,
its account holders (with the exception of a few depositors) are
also its members, ie its shareholders. It would, accordingly,
be consistent with the inclusion of building society share accounts
within the proposed unclaimed assets scheme to include, also,
the unclaimed shares and dividends of banks and other listed companies.
Other forms of unclaimed asset that might also be included are
unclaimed life policies and pensions. It seems to the BSA that
these are materially quite similar to the unclaimed assets of
banks and building societies. We think the Treasury Select Committee
is correct to be considering such assets in the context of its
current inquiry into the Government's proposals.
February 2007
11 House of Commons Written Question 9 October 2006. Back
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