Select Committee on Treasury Written Evidence

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.


    —  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.


  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.


  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.


  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.


  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.


  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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