Select Committee on Treasury Written Evidence


Memorandum submitted by the Commission on Unclaimed Assets

  The primary focus of the Commission's work from October 2005 until April of this year has been to establish the most effective distribution and use of unclaimed assets. After widespread consultation with the third sector, social investment and financial experts and Government, we produced our report "The Social Investment Bank: Its organisation and role in driving the development of the third sector" that received broad support on its publication. We do not have anything to add to the report and it provides our complete input on distribution.

  In early April we published "Unclaimed Assets: Consumer protection and regulation of dormant accounts" in conjunction with the National Consumer Council. This concentrated on ensuring that the proposed legislation benefited consumers, firstly, by reuniting them with their assets and, secondly, by ensuring effective regulation to identify remaining dormant assets that can be made available for the public good. To aid the committee we have extracted elements from this report to answer the questions on definition, identification and collection of unclaimed assets below, and added new material in sections 2 and 4.6. Where appropriate, we have drawn upon international examples.

  1.  The proposed definition of an unclaimed asset within the United Kingdom banking sector, and whether the scope of assets identified for inclusion within the scheme is appropriate:

    1.1  We agree with the definition of dormancy as 15 years since last customer initiated activity. In 4.7 of the Treasury consultation we are concerned at the discretion afforded to financial institutions in choosing what customer initiated activity forms the basis of the definition of dormancy in that institution. This runs the risk of dormancy becoming too narrowly defined and missing genuinely dormant funds. There is also a danger that the framework would no longer be perceived as fair between financial institutions.

    1.2  An opinion poll that we ran through Experian for the CPR report suggested that members of the public wanted an account to be considered dormant after around 10 years, but with significant numbers also opting for five years, 15 years and more than 15 years.

    1.3  We agree with 3.25 of the Treasury consultation "all customers have the right to repayment of money so transfer to the scheme should make little practical difference to individuals." We see no reason why any particular accounts should be excluded from the framework to put dormant accounts to the public good. This would include corporate, personal, or charitable accounts, and accounts of residents or non-residents. We are concerned at the exclusion of "no mail" accounts in 4.5 of the Treasury consultation. A "no mail" customer would have to go through a process of identification after such a lengthy period of time with no contact, regardless of whether the money has been transferred to a dormant account fund. We see no customer benefit to such accounts being excluded.

  2.  The scope for extension of the scheme, or for another scheme, relating to unclaimed assets held by other financial institutions, such as insurance companies and National Savings & Investments:

    2.1  The Commission does see value in extending the scheme or developing additional schemes for unclaimed or orphan assets in other financial institutions.

    2.2  In addition to the benefits of reuniting more customers with their lost assets and the remaining assets being put to the public good, it would also remove any perceived conflict of interest for financial institutions.

    2.3  There is significant international precedent for extending legislation to other asset types, leading to consistency across all financial sectors.

  3.  Any potential estimates of the scale of unclaimed assets, using different criteria to define an unclaimed asset:

    3.1  We have not entered the discussion on the amount of funds available given that we have no new data to add.

  4.  Who should monitor the running of the collection scheme, and ensure that financial institutions identify, and provide for use, unclaimed assets:

REQUIREMENTS OF REGULATION

    4.1  There is no international precedent for a dormant accounts framework that has been run on a voluntary or self-regulated basis. In assessing a self-regulated model as opposed to a compulsory model, we took into consideration the work that was required in other countries for account providers to be compliant with the legislation, and the level of funds that were released.

    4.2  The most recent comparison is with the legislation passed in Ireland. At the Commission's hearing, Grant Thornton, who had acted as the external assessor of compliance for a number of financial institutions under the act, explained some of the technical difficulties in identifying accounts, they included:

    4.2.1  Apparent transactions caused by changing or merging IT systems appeared as customer transactions;

    4.2.2  Petty balance accounts or "omnibus" accounts made up of large numbers of smaller dormant accounts did not appear on the systems as dormant as transactions putting individual accounts into or taking them out of the omnibus account showed as customer initiated transactions; and

    4.2.3  Archived data or accounts that do not appear on current systems were not always included amongst the dormant accounts.

    4.3  Grant Thornton also made clear that estimates for total dormant funds in Ireland increased substantially as more detailed work identified more accounts.

    "In Ireland in 1997 at the request of the department of finance it was estimated by the industry that there were approximately €3 million of dormant or abandoned deposits... It was estimated by the minister of finance following that that there was between €30 and 60 million worth of dormant accounts in 1999. And then by 30 April 2003, after the first year of reawakening the first run of this legislation, €196 million was remitted into the Dormant Accounts Fund."

    4.4  We believe that effective regulation of dormant accounts is essential, to take into account the potential systems difficulties and changes that may be needed, to ensure public confidence and so that complying financial institutions can be confident that there is a level playing field. Any regulation should be proportionate and require as low an administrative burden as compliance would allow. We recommend:

    4.4.1  Independent regulation for dormant accounts is located within an existing body, such as the Banking Code Standards Board.

    4.4.2  A risk-based approach should be used to evaluate financial institution compliance.

    4.4.3  The regulator should have the power to require an external audit of compliance, to assess identification processes and systems, as well as auditing the dormant accounts figure itself.

    4.4.4  There should be a senior individual within a financial institution who takes responsibility for the dormant account filing and transfer. This individual should be a Financial Services Authority (FSA) authorised person.

    4.4.5  The regulator should publish annually a report on the levels of compliance across the industry, broken down by provider.

    4.4.6  Amounts reunited with consumers and amounts transferred to the receiving entity should be provided annually by each financial institution, and should be made publicly available.

    4.4.7  Regulators powers should include the ability to fine non-compliant institutions, make public statements regarding such non-compliance, and inform the FSA of any failures by responsible individuals.

    4.4.8  The Banking Code should be updated to make it clear for customers what their rights are in relation to dormant accounts and the steps that financial institutions will take in relation to these.

    4.5  Our agreement with a voluntary or self-regulated scheme, as set out in the Treasury consultation, is dependent on these standards of regulation being met.

WHO SHOULD REGULATE

    4.6  The regulation could be split as between identifying unclaimed assets and providing them for use:

    4.6.1  Identification: Ensure that dormant accounts are effectively identified, including an accurate date of the last customer activity, and that sufficient information is retained to aid in their being reunited with their owner. This should be for all accounts that are dormant not just those that are over 15 years old. It would enable easier automation of searches for lost assets, and make it easier for institutions to know their customers and treat them fairly, and to avoid money laundering and fraud. This would fit within the present ambit of the FSA.

    4.6.2  Collection: Ensure that the correct funds are transferred to an external receiving body. This would not fit within the ambit of the FSA and could be placed within a self-regulated entity such as the Banking Code Standards Board. If other financial products were also to be regulated in this way, the regulatory power could transfer to a single separate entity.

  5.  Whether the collection of unclaimed asset funds should be organisationally separate from its disbursement:

    5.1  We agree with the Treasury consultation that the receiving body should be separately governed from any dispersal body—such as the Social Investment Bank.

  6.  Whether enough is being done to ensure that unclaimed assets will be reunited with their owners, especially after the assets have begun to be disbursed:

    6.1  In Ireland one of the main benefits of the dormant account legislation is the significant number of consumers reunited with their money. In the opinion poll conducted with Experian, approximately one in three people polled said that they had a dormant account. This suggests that there are significant barriers in the UK to consumers accessing their assets. These barriers potentially include a lack of consumer awareness about how to reclaim funds, a lack of confidence in or fear of the system, or that the system itself is overly complex or disparate.

    6.2  Consumer confidence: The unambiguous message that consumers retain the right to their money and any interest due in perpetuity should be provided consistently in all literature and public information on dormant accounts to ensure consumer confidence is maintained.

    6.3  Public information campaign: The BBA, BSA and Unclaimed Assets Register all report significant rises in inquiries following media publicity around dormant accounts. There has been no market research conducted by the BBA or BSA on consumer awareness of their reclaim services, nor has there been significant advertising of them. It seems unlikely that consumer awareness of the service is high or that consumers are knowledgeable on how to reclaim money that they have lost. We welcome plans for a national media publicity campaign around dormant account assets to reunite as many consumers with their money as possible. However, the proposal of quarterly press releases by the BBA and BSA as suggested in 2.11 of the Treasury consultation is inadequate. Some press or radio advertising would appear essential to ensure a clear and consistent message and posters in branches would also be a cost effective way to get the message across to consumers.

    6.4  Targeting specific customer groups, such as those approaching retirement, with information about the reclaim process, should also be considered. The National Strategy for Financial Capability, a national generic financial advice network, and Government communications with consumers, including pension forecasts, present clear opportunities for doing so. This would ensure ongoing public awareness and increased consumers' skills and understanding around keeping in touch with their assets. It is also important to target those winding up deceased estates (executors and probate solicitors) where, as a result of lost documentation, dormant accounts may be missed in determining value.

    6.5  Writing to customers of dormant funds: In Ireland, one of the benefits of writing to customers whose accounts have been dormant for 15 years or more was allowing families of account holders who are deceased, to become reunited with the funds. They would not otherwise have come forward as they had no previous knowledge of the account. However, in 3.24 of the Treasury consultation it is stated that financial institutions will not be required to write to the last known address of customers whose accounts have been dormant for 15 years or more. This does not encourage reawakening of older accounts by account providers, and gives little impetus for a new and effective reunification campaign which could benefit consumers. Therefore, as a minimum, account providers should be required to write to holders of accounts that have been dormant for 15 or more years, where mail has not been returned, and where the account balance is above £49.

    6.6  Proactive communication: We recognise that account holders have a responsibility to keep in touch with their account provider. However, given that account providers have changed names, moved or closed branches, there is also a degree of obligation on the account provider, as a custodian of their customers' assets, to keep in touch with them.

    6.7  One of the most common times for people to become disconnected from their money is when they move house. Keith Hollender, Managing Director of Experian's Unclaimed Assets Register, told us that drawing on data from the vast resource of active records managed, Experian can find someone's new address from a previous address with a 60-70% success rate. This method has been used by many life assurance companies and others in the financial services arena to find the owners of unclaimed assets. It is fast and scalable, with the possibility of entering thousands or even millions of addresses, and relatively cheap.

    6.8   We encourage the industry to take a more proactive approach, early in an account's dormancy, to ensure that fewer customers become lost. Therefore, we recommend that providers' extend their commitment to write to account holders before their account is labelled dormant, and undertake an address search for account holders who cannot be contacted at their last known address.

  7.  How unclaimed assets that have been disbursed can be reclaimed should their owner be found, and who should bear the final burden of repaying such monies owed.

    7.1  Disbursal of funds should not impact on the consumer. We agree with the framework laid out by the Treasury that customers should receive funds direct from the account provider, who also does the final check on account holder identification and who is reimbursed by the receiving body. We are concerned that the time taken for the process, of up to three months, seems surprisingly long. The time allowance in Ireland was 57 days, and that was more than four years ago when systems would be expected to be slower. We therefore recommend that a maximum of eight weeks is considered in the UK.

    7.2  Methods of reclaim for dormant accounts, or indeed any financial asset, should be well advertised and made as simple as possible. The complexities and difficulties of present systems are set out in our CPR report. Taking a more consumer-focused approach would lead to significant improvement, without compromising security. The potential improvements and a model for a solution are provided below.

    7.3  Single interface: There should be an overarching facility that allows consumers to search all possible dormant accounts from a single place.

    7.4  Simplified initial search: It should allow consumers to make a simple initial search to check whether it is worth them continuing to fill in more complete data which they may have to spend time researching. There is precedent for this in the UK as well as in other countries. For example, the BBA set up Restore UK, which uses a preliminary name-only search to contact rightful owners of some accounts frozen under World War II legislation.

    7.5  More inclusive: Digital exclusion, difficulty with filling out forms and reluctance to walk into a bank remain realities for many consumers. This may be particularly the case for elderly people who should be a significant target audience for all unclaimed assets as retirement is a key trigger for assessing personal finances. Any system designed to reunite customers with their money should offer a variety of access channels, including telephone, internet and paper-based forms.

    7.6  Identification and verification: Consumers can lack standard identification, such as a passport or a driving licence to prove who they are and where they live. Elderly and other disadvantaged and vulnerable groups are particularly affected by this as they may have bank accounts that pre-date more stringent identification and verification requirements, and may not have needed a passport to open the account. Identification and verification requirements around basic bank accounts demonstrate industry's acceptance of such challenges. Industry and Government should work together to develop and implement flexible identification and verification requirements, learning from existing systems and the rules around basic bank accounts, to help consumers reclaim their assets.

    7.7  Appropriate for other assets: When designing a single interface to make reclaiming assets easier for consumers it is logical to consider a system that can be expanded to incorporate assets beyond dormant accounts.

    7.8  Without cost to the end user: Any new service to support consumers in becoming reunited with their assets should be free to that user, with the costs born by the industry.

UK LOST AND FOUND

    7.9  We have been doing some research in this area with a view to making it as easy as possible for consumers to be reunited with their money. The simplest to use international precedents such as those in the United States, Australia and Canada tended to involve significant transfer of account information from the account provider to another organisation. This is not desirable and so we researched whether it is possible to design a system with a single uniform interface that requires quite simple information on an initial query and that also protects consumers' right to privacy and protects their data.

    7.10  In our CPR report we proposed the UK Lost and Found (UKLF), a single, simple interface for people looking for financial assets that they have become disconnected from. It could be searched via the internet, by telephone or in writing. The objective would be to make it easier for consumers to be reunited with their lost financial assets and reduce overall administration without compromising data security. There are two possible models for this, provided in more detail in our consumer protection and regulation report. One would retain some basic information such as name, date of birth and last known address centrally. The other would not, securely interrogating databases of dormant assets within each financial institution. Both were considered acceptable by the Information Commissioners Office.

    7.11  We have considered other issues such as complaint handling and representation in our CPR report.

April 2007





 
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