Examination of Witnesses (Questions 1
TUESDAY 15 MAY 2007
Q1 Chairman: Welcome to our first
session on unclaimed assets within the financial system. Could
you identify yourselves for the shorthand writer, please.
Mr Storey: Good morning. My name
is Patrick Storey. I am a lead partner in the financial markets
group at Grant Thornton, which is a large firm of chartered accountants
and professional services. I specialise in the retail financial
Mr Graham: I am Peter Graham,
director of Grant Thornton financial markets group.
Q2 Chairman: Thank you very much.
I know the involvement Grant Thornton has had in Ireland. Could
you outline briefly for the Committee your role in the Irish dormant
Mr Storey: Yes, indeed. About
two years ago, the Irish Financial Regulator who is responsible
for policing and monitoring the Irish dormant accounts legislation
asked Grant Thornton to help it to monitor the implementation
of the statutory regulations in Ireland. This involved us visiting
a number of financial institutions on behalf of the Regulator
to see whether those institutions were applying the regulations
according to the statute.
Q3 Chairman: In Ireland in 1997 it
was estimated that there were approximately 3 million in
dormant or abandoned deposits. By 30 April, after the first year
of reawakening after the first run of the legislation, 196
million was remitted into the dormant accounts. In the UK we have
estimates ranging from £400 million to £450 million
to maybe even £30 billion, so it is all wild. At the start
in 1997 in Ireland we were talking about 3 million and by
5 April 2003 that had changed enormously. How will that impact
on the UK, do you think?
Mr Storey: It first of all demonstrates
how difficult it is and how difficult it was in Ireland to estimate
just how much would be realised or how much lay dormant in bank
accounts. Perhaps we will come on a little later to describe the
technical difficulties that the institutions will have had in
identifying the dormant accounts, but, as you say, the estimates
in Ireland range from 3-6 million to ultimately 196
million which was collected in the first year in 2003. If we were
to implement parallel regulations in the UKand I would
emphasise the word "if" because the proposals are fundamentally
different from the structure in Irelandthen surely looking
at the population sizes initially, the population differential
between Ireland and the United Kingdom at the relevant years,
so we would be looking at a 15-year dormancy and that takes us
back to 1986-87, the population differential between Ireland and
the UK is between 16-17 times. Multiplying, on the basis of population,
the amount that would be realised or that could be lying dormant
in UK accounts in the UK, could be in the order of 2.2 billion
and that is without them looking at the differential in personal
wealth in the two countries at the relevant times. The GDP per
capita in the Republic of Ireland in 1986 was roughly half of
what it was in the UK in 1993, which would be the beginning of
the dormancy period we have been looking at in the UK. That is
Q4 Mr Newmark: In defining unclaimed
assets, do you think that 15 years is an appropriate term, particularly
when you look at the US, for example, which I think has a shorter
Mr Storey: Yes, I am aware that
some jurisdictions have an extremely short term. It seems appropriate.
It is the most common period that seems to be used in certain
European jurisdictions and has been used in the Republic of Ireland.
The difficulty of defining a very much shorter period of time
is: are the accounts in fact dormant or are they rainy day accounts
that people have left?
Q5 Mr Newmark: The proposed scheme
minimum criterion of dormancy is that there has been no customer-initiated
transactions for 15 years. Beyond this, banks and building societies
will be able to use other forms of communication with customers
as evidence of customer activity. What issues is this likely to
Mr Storey: Possible issues of
objectivity but the proposals I believe are very sensible. The
Irish process required a customer-initiated transaction. If I
can call upon my colleague Peter to describe the difficulties
there were in identifying "rainy day" accounts.
Q6 Mr Newmark: Or retirement accounts.
Mr Storey: Or retirement accounts,
that is right.
Mr Graham: Within the Republic
of Ireland legislation, for example, I could operate three accounts.
I could have my current account; my regular savings account; and
a rainy day account or my daughter's wedding account. My current
account I use weekly or daily; my regular savings I use monthly;
and because I have put the lump sum into my rainy day or my daughter's
wedding account, I do not touch it. In theory, that account, under
the rules in the Republic of Ireland, can become dormant and transfer
to the National Treasury Management Agency dormant accounts fund.
Q7 Mr Newmark: What happens in the
case in which I only have a retirement account or a rainy day
account? For me, I have stuffed some money for my kids in an account
that I leave there for when they go to college. If, when they
were born, my parents gave me some money and I just shoved it
into an account, technically for 18 years that money could be
just sitting in an account doing nothing other than me getting
Mr Graham: In the Republic of
Ireland, if you had not transacted on that account that, in theory,
would become dormant. I do not live in the Republic of Ireland,
Q8 Mr Newmark: It would be a bit
absurd if I exist and I have put money into an account for a number
of my children. A lot of parents do this. A lot of parents will
put money aside for their grandchildren and say, "Here is
some money for when they want to go on to university." That
is an 18-year period. How do you deal with those sorts of situations?
Mr Storey: For the record, I agree,
the problem is capturing the fact that you exist.
Q9 Chairman: When we visited the
Republic of Ireland we saw this, but I do not think Brooks was
on that visit.
Mr Graham: Within the Republic
of Ireland legislation, it is not a case of a guillotine comes
down or a portcullis comes down and a drawbridge comes up and
the account holder can never see that money again. The legislation
allows for a reawakening period. On the first run through, that
was a 12-month period, the annual cycles followed.
Q10 Mr Newmark: So there is some
mechanism to try to identify who the people are.
Mr Graham: Definitely.
Mr Storey: On the other hand,
the proposals which offer other means of identifying that the
account is still active seem eminently sensible. In the example
Peter has given, if you know and you are able to objectively show
that the customer is using a linked current account, it seems
Q11 Mr Newmark: Should there be a
minimum amount in the account, like £100, for it to be included?
Mr Storey: I do not think we have
a view on that.
Q12 Peter Viggers: In the Irish model,
was there flexibility in the way banks could interpret the definition
of unclaimed assets?
Mr Storey: No. Absolutely not.
It was a difficulty in the presentation of that model. It created
a level playing fieldabsolute objectivitybut at
the edges there were some difficulties and that did put some of
the banks to disproportionate expense to identify, particularly,
Mr Graham: The registration in
the Republic allowed for certain exclusions of accounts which
by dint of the Act could not be dormant within the definition.
As far as the banking system is concerned, if it is an account
numbered 1, 2, 3, 4, that is a cheque account; if it is numbered
5, 6, 7, 8 that is a savings account. They did not know if that
savings account was necessarily a lien on that with regard to
other accounts. The effort to which they had to go to identify
these to comply with the Act is an area that, if I were allowed
to rewrite the Republic's rules again, I might improve, but I
Q13 Peter Viggers: Some banks will
need to invest a considerable amount of money in setting up the
structures here and reviewing the structures.
Mr Storey: Yes.
Peter Viggers: Will the legislation need
to be inflexible in order to force the banks to do this?
Q14 Chairman: There is not legislation
proposed at the moment in the Treasury documents.
Mr Storey: Will the legislation
need to be inflexible? If the rules or requirements are flexible,
you must expect flexible application of those rules. The one merit
of the Irish system was its objectivity and it did create a common
playing field, an even playing field, and everybody was playing
by the same set of rules.
Q15 Peter Viggers: Did your studies
lead you in discussions with the banks to any ideas about the
amount of money that the banks would lose by way of the scheme
of unclaimed assets being changed? Because the banks obviously
have been drawing revenue from unclaimed assets; they must make
up for it somehow. Did your work lead you to any discussion with
them as to how much they would have to recover in some other way
from their customers?
Mr Storey: No. The amounts that
different institutions ended up paying over to the central fund
in the Republic of Ireland depended very much on the maturity
of those institutions. Clearly the newer, younger institutions
had far fewer dusty, genuinely dormant accounts sitting in the
background. For the older institutions this will have depleted
their asset base to a greater degree. We were focusing on the
application of the rules, not on the consequences for the institutions.
Chairman: Just for the record, on Brooks'
point, in terms of equalling balances, in 2003 to 2006 in the
Republic of Ireland over 110 million was reclaimed by people.
I think that is helpful.
Q16 Mr Gauke: The Irish scheme was
compulsory though the UK government was proposing a voluntary
scheme for the UK. Do you think that is feasible and what would
be the advantages of the voluntary scheme as opposed to a compulsory
Mr Storey: I have some reservations
about a voluntary scheme in that it does not create the level
playing field that I have talked about in Ireland. There are some
distinct disadvantages of having a very rigid structure such as
the Irish model, but at least the institutions know where they
stand. The concerns I would have is that whilst most institutions
would be very noble and I am sure enter into the spirit of this
there may be others that will give it lip service.
Q17 Mr Gauke: Would you agree with
that Mr Graham?
Mr Graham: I would agree entirely.
I remember my auditing career starting off in the early 90s in
the Royal Bank of Scotland, and we are in very profitable times
for these institutions and of course it is easier to comply.
Q18 Mr Gauke: Do you see there being
any particular problems with the fact that it is self-regulatory
that it will be through the banking code and that itself is a
voluntary form of regulation, or does that further increase the
difficulties with the voluntary system?
Mr Storey: I do not think it further
increases it. I think there is just an inherent difficulty in
a voluntary structure that you will have some who will enter into
the spirit of the structure and others who will not, and that
leads to competitive disadvantage. I mentioned that there were
some of the older institutions which perhaps stood to suffer more
in terms of depleting their asset base. It is perhaps unfair.
Q19 Mr Gauke: One possible solution
that has been put to us by the Commission on Unclaimed Assets
is the need for a regulator to ensure public confidence that it
is a level playing field. Are there any existing bodies that you
can see that would fulfil the role of regulator and what would
be the responsibilities of such a regulator?
Mr Storey: First of all, I find
it difficult to understand what the role of the regulator would
be if you have a voluntary process, except if you are going to
perhaps say what good boys we are in our annual accounts and dissipating
this process perhaps, and the company's auditors will vouch for
that, that it is a fair representation. So I find it difficult
to see the role of a regulator at all in the voluntary system.
If it is a compulsory system there are a range of options. I know
that the Financial Services Authority has been mentioned as a
potential body to regulate this set of rules. This is not consistent
with the FSA's current role and it is not consistent with the
FSA's more statutory objectives. This is, I daresay, more of a
fiscal process and perhaps HM Revenue & Customs would be a
more appropriate regulator for the process. There are of course
a number of trade associations and we had a self-regulatory system
in the UK financial services before the creation of the Financial
Services Authority, and it worked pretty successfully with those
self-regulatory organisations, so perhaps the respective trade
associations could step in. I do not think we have a particular
view. As I mentioned earlier, the Irish financial regulator was
designated by the Irish legislation as the appropriate body to
police and monitor the Irish legislation.