Select Committee on Treasury Written Evidence


Memorandum submitted by the Charity Bank Limited

SUMMARY

  1.  Charity Bank stands at the crossroads of the unclaimed assets debate as a charity and a bank and as the first bank member of the Unclaimed Assets Register.

  2.  While public focus has been on the Clearing banks, we believe an early opportunity should be taken to extend the scheme to all financial institutions and, ultimately, to governmental and public bodies and companies. This may require the definition of term to be shortened to, say, 10 years. However, today, 15 years is a pragmatic way forward.

  3.  Charity Bank believes that the overriding priority is to reunite owners with their assets. We believe that an independent Register based upon the Unclaimed Assets Register should be established and publicised widely. There should be a six month enquiry period before funds are available for distribution with funds held by a Buffer Fund, free once again from all hint of external control.

  4.  A small panel of Commissioners should determine how the money is distributed. Their decisions need to be bold and to make the money work as hard as possible for every corner of society (and to resist the siren calls of envy).

  5.  We believe that a distinction can be drawn between funds that may need to be repaid but that could still work for society's benefit and those that can be given away. The calls of youth (but why not also the elderly), financial education and the "social investment bank" appear compelling and through these themes and the developing network of community development finance institutions can reach into almost every community in the land. In 2006 Charity Bank alone reached three million people via its borrowers.

  6.  The programme as a whole should be subject to the scrutiny of the people through Parliament.

BACKGROUND

  7.  In the April 2004 Budget statement, the Chancellor called on the banks to consider releasing their unclaimed assets for charitable purposes. The Chancellor described the objective in his statement as being that "where assets and owners cannot be reunited, it is right that the assets be reinvested in society". Charities and voluntary sector organisations provide an effective route to achieve this. Since that time there has been growing public, government and media interest in any assets that might be considered to be dormant, unallocated or unclaimed.

  8.  Although the United Kingdom is often described as a mature economy with a mature financial market, it is evident that, beyond the mainstream, lies an emerging market where communities in which cash (grant or gift) has been the primary source of funding or that have excluded themselves from financial access, possibly for cultural reasons, or where capital has been drying up, are struggling to move from cash dependency to a more strategic use of financial tools. Charity Bank was created in response to this perceived market gap in the availability of finance.

  9.  Charity Bank is uniquely positioned to comment upon the question of unclaimed assets as it is both an authorised bank and a registered charity. It is a member of the British Bankers' Association and the National Council of Voluntary Organisations. Transparency with both borrowers and investors lies at the heart of the operation of the Bank. Recognising that unclaimed assets could become an issue for it as well as any other financial institution, Charity Bank was the first bank to join the Unclaimed Assets Register.

  10.  Charity Bank has previously made its own representations about the use of unclaimed assets which address the issue of future claims. This is contained in the proposal section.

11.  Definition

  While we believe that 15 years may be too long a period for an asset to lie dormant, we recognise that a shorter period would add considerably to the quantum of assets and could have a short term destabilising impact upon the financial institutions. We are therefore content to accept the definition on practical and pragmatic grounds. However, this may need to be reviewed if the scope was widened, as companies can take such assets back into the company if unclaimed after 12 years, eg demutualisation shares.

12.  Scope

  We believe that the scope of assets should be as wide as possible to include all financial institutions and, ultimately, Government and other bodies that may hold unclaimed assets.

13.  Priority

  The priority of any programme must be to reunite the asset with its lawful owner or beneficiary if the asset has been gifted or willed to a third party. We believe that the Unclaimed Assets Register can form the basis of a national register easily capable of being searched by individuals, companies, probate solicitors, etc. The Register has been developed within Experian. We believe that it could be made available as a public benefit service with Experian (or an other) appointed to manage the service. The key feature is that it is independent and impartial with no other services to promote. All financial institutions would be required as part of their licence to make their data available to the Register in a common searchable format.

  A major public awareness campaign should be run to inform people about the Register and how to search the databases. Equally importantly, the public need to be informed that an unclaimed asset programme is not going to arbitrarily sequester a percentage of their bank accounts, as a number of elderly people fear.

  The Register should be subject to the scrutiny of Parliament through the Treasury Select Committee or the Public Accounts Committee. Financial institutions not complying with the Register should be capable of being fined.

14.  The collection of unclaimed asset funds

  The collection of funds must be kept distinct from the Register. All assets that meet the definition of unclaimed should be placed in a Buffer Fund and posted on the Register (in time they should be there anyway). Assets, as defined, remaining unclaimed after six months will be deemed able to be disbursed.

  The Buffer Fund should be independent of both Government and the financial sector. It should be managed by a Trustee in the public interest. If its independence can be guaranteed, it may be possible to consider the Big Lottery as manager of the Buffer Fund, or an independent trust such as Charities Aid Foundation (CAF).

15.  Distribution

  Adjacent to, but independent from the Buffer Fund would be a small board of Commissioners who would consider actuarial evidence from other countries and determine how much of the Buffer should be retained, if any, to meet future claims and how much could be distributed. We believe it is possible to insure against the risk of valid claims, thereby allowing a greater percentage to be distributed absolutely. Again, the Commissioners should be independent. The development of Charity Bank in the last five years with a board drawn from, but free of interference from business, charity, academia, and civil service has shown that an independent organisation can draw support from all sectors. CAF has experience of providing such a panel. In either case there would be no need to create additional bureaucracy.

  Unclaimed assets arise throughout the UK. It may be appropriate to assume that those in the possession of a regionally based building society originated within that community and that those held by Scottish, Welsh and Northern Irish banks have their roots in those countries. Scotland possibly less so, given the emigrant nature of the Scottish banks. It will be for the politicians to decide whether the assets are treated homogeneously or are capable of being distributed to causes local to the source of the funds. However, despite the lobbying being undertaken there is no way of knowing that, say, an owner of an unclaimed asset in Northern Ireland would not have opted, given the chance, to support a cause in Africa or even England. Indeed, where people can make the choice today by depositing with Charity Bank they know that the money will be used throughout the UK.

16.  Uses

  Good causes often do not merit that name when new sources of finance appear. In reality, unless the scope of the definition is widened, there will not be unlimited amounts to share amongst many competing interests. We believe that some difficult and, perhaps autocratic decisions have to be made by the Commissioners to make the money go as far as possible.

  We propose four uses.

    A.  Funds held back to meet claims, and not needed to generate operating income, to be placed on deposit with community development finance intermediaries such as Charity Bank et al to support both the strengthening of those community "banks" and on lending to good causes. This sweats the money, making it work several times over in support of working capital needs of charities and community groups. Risk must be limited as the funds are callable at notice by the Commissioners.

    B.  Part of the sum available for permanent distribution to be provided to the Big Lottery for a Youth themed programme (but why not also include the elderly as this where many unclaimed assets will have originated) but where the funds are provided as last in money to leverage in other funding and so extend the reach of the money. It could also be used to fund research into youth issues.

    C.  Part to be used through existing money advice agencies to deliver inclusive financial education.

    D.  The balance of the first round and primary call on future rounds to capitalise a UK version of the Local Initiatives Support Corporation. Charity Bank and others have been working to develop a capital market to finance common good activity. We are proving that demand is now growing (Charity Bank alone had over £100 million of loan enquiries in 2006) but supply of capital is insufficient to capitalise these initiatives efficiently. There is a developing need for a wholesaler, providing underwriting to the community finance sector. However, there is no need for the wholesaler to be an authorised bank provided that it is capitalised adequately to be able to fulfil its mission and to support the needs of both very small institutions and much larger social banks. This requires an allocation of upwards of £250 million with further calls on future unclaimed assets.

17.  Monitoring and scrutiny

  The money is not the banks, not is it Government's. It is the peoples. Parliament should therefore be the ultimate scrutineer of the programme. We believe that the Public Accounts Committee is the appropriate place.

CHARITY BANK ILLUSTRATIVE PROPOSAL

  A financial institution could agree with Charity Bank a package of deposits and share capital investment drawn from all or a proportion of the unclaimed (demutualisation share) assets. A mix of deposits and share capital would be preferred to allow Charity Bank to meet the capital adequacy requirements of supporting an increased deposit base.

  The deposits would be repayable at notice or at final maturity in approximately (ten) years, if no claim had been made or beneficial owner identified. In the unlikely event that any claims had redeemed all the deposits and extended into the share capital share investment, this would be redeemed from a Lloyds type "bond" to avoid destabilising Charity Bank's capital base.

  The significance of a capital investment is that not only does it allow Charity Bank to raise more deposits but it can be leveraged directly up to six times by Charity Bank's deposit gathering capabilities. This enables "dormant money" to go even further for the benefit of society. The indirect leverage is substantially greater again, making the assets really sweat for the common good.

  The key benefits are as follows:

    —  Deposits can be made in the name of the depositing institution or appropriate entity and therefore remain a balance sheet asset.

    —  Interest can be earned on deposits to augment the sum available for the common good. Although the interest is modest at just 2% per annum gross, it nevertheless unlocks broader returns in terms of corporate responsibility, stakeholder goodwill, and the social returns from the money invested in communities.

    —  All of the money invested works for charitable benefit not just the marginal interest.

    —  Claimed assets can be returned immediately.

    —  By working through an intermediary lending in every part of the UK, the financial institution can demonstrate that it is not favouring one community or charitable activity over another, yet is contributing to a more sustainable, financially stronger voluntary sector. This meets the desire of the Chancellor that benefits will be spread across the charitable and voluntary sectors.

    —  The partnership demonstrates corporate leadership through an intelligent and responsible way to invest in communities.

    —  The assets can help Charity Bank achieve a step change in its operations, contributing to the development of social finance in many more communities.

  The investing institution can take comfort from the fact that Charity Bank is regulated by both the FSA and the Charity Commission. Nevertheless, there is a theoretical risk that if a significant proportion of unclaimed assets deposited with Charity Bank were claimed at the same time, this has the potential to destabilise the organisation. Charity Bank would seek to manage this unlikely situation.

February 2007





 
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