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
|
