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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