Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 20 - 37)

TUESDAY 15 MAY 2007

MR PATRICK STOREY AND MR PETER GRAHAM

  Q20  Mr Todd: There is quite a lot of detail to be worked on, how the central reclaim fund would actually work. One area would be on the timetable of the identification of accounts by an institution and the collection by the central reclaim fund. What do you think would be a reasonable timeframe for that process to take place?

  Mr Storey: If I can ask Peter to explain the Irish experience.

  Mr Storey: The Irish experience, as I have alluded to before, allows for a reawakening period, so in the first run through the legislation it was 31 March 2002, the depositing institutions had to identify dormant accounts that had not been transacted on for 15 years. There was then a 12-month reawakening process, at which time the rules said that if the balance was greater than X the account holder had to be written to, there had to be notices in branch's and there had to be Press notification.

  Q21  Mr Todd: Is that a rolling process? In other words, what you are referring to is the start of the exercise, and does that roll then because obviously new accounts will become qualifiers under the scheme as time goes on. Is the same gap imposed all the way through or is that a one-off to start the scheme off?

  Mr Graham: The 12-month was a one-off because this had not been done before and there is an annual identification on 30 September each year and for a reawakening by the following 31 March.

  Q22  Mr Todd: Then the transfer from the reclaim fund to the disbursement agency, what sort of interval are we talking about there?

  Mr Graham: We were not involved in looking at that aspect of the fund; we were merely looking at the deposit takers and putting into the central pot.

  Q23  Mr Todd: So what do you think would be a reasonable interval between the receipt of the money by the fund and its transfer of the proportion of it to the disbursement agency?

  Mr Storey: There is no reason why that should not happen immediately. It is working out what proportion it should be.

  Q24  Mr Todd: How frequent should those transfers be, the transfers from the collection agency to the disbursement agency?

  Mr Storey: If the institutions are identifying and paying over funds on an annual basis it makes sense for that to happen at that time, or within a few days, weeks, months later.

  Q25  Mr Todd: If we followed the model that happened in Ireland there presumably would be pretty much a rolling process of transfers from the institutions to the reclaim fund.

  Mr Graham: That happens once a year in terms of putting money into the central pot. However, when the customer comes back to the deposit taker and satisfies the deposit taker that they are the customer, money goes out of the central pot or the reclaim pot, the reserve accounts on a weekly basis.

  Q26  Mr Todd: How should the money be handled when it is in the reclaim fund? There is reference to prudent management of the resource in the reclaim fund, and are there any constraints that should be placed on that?

  Mr Storey: As the Chairman mentioned, the Irish experience has been that despite the enormous efforts that the institutions have put into reawakening accounts many have reawakened after funds have been transferred to the Central Fund, so it is I think relevant, to look at other jurisdictions and the profiles of monies and to ensure that sufficient is available.

  Q27  Mr Todd: In other words one of the criteria would be to have funds invested in relatively liquid forms of investment so that you can transfer money back out rapidly to a customer when they have been identified?

  Mr Storey: Yes.

  Q28  Mr Todd: Is there a requirement to disclose the investment profile of the monies transferred to the reclaim fund, so obviously somebody can be in an interesting earning account of some scale and transferred to the reclaim fund, and is there a requirement to disclose that interest rate to the fund and say, "This was earning 5%" or whatever?

  Mr Storey: No, that was not a requirement in Ireland and frankly that would be an horrendous administrative exercise for both the institutions making the transfers and indeed for any central funds to keep track of. You are talking about tens of thousands, hundreds of thousands of individual accounts.

  Q29  Mr Todd: Particularly some of these dormant accounts?

  Mr Storey: Precisely, very odd characteristics. No, it was an essential and, we believe, very valuable aspect of the Irish system that the institutions needed to retain very full information of the characteristics of each account, the proceeds of which have been passed to a central fund, so that if that account was reawakened the customer could be put back into the position in which he was previously. The central fund had no such information; this therefore meant that there were no security issues, it was not prone to fraud, which is a serious issue to consider and the administration burden placed on the central fund was swept aside.

  Q30  Chairman: You mentioned that the Irish dormant scheme did not involve a central register of dormant accounts, therefore minimising the flows of information and keeping costs low. How feasible would the establishment of a central register be in the UK and what obstacles would it come up against?

  Mr Storey: It would be a nightmare in my view. It would be an administrative nightmare and a very costly exercise and fraught with fraud difficulties.

  Mr Graham: I am sorry to interrupt, Mr McFall, but one thing is very important to understand, that the anti money laundering regulations in the United Kingdom came in in 1993. Even when they came in there were grand-fathering arrangements which mean that I, as an existing customer of whichever bank—NatWest Bank, National Westminster—the National Westminster did not need to formally identify me with electricity bills, driving licences, passports, et cetera. So when you have this money you will have "Todd M" might be the only information you have on that account holder. There will of course be an account number and a balance in that account.

  Q31  Chairman: Subsequent to the dormant accounts being acted on in the Republic of Ireland life insurance was brought into the scheme?

  Mr Storey: That is the right, about two years afterwards.

  Q32  Chairman: What impact did this have? It has not been envisaged here, that is why I am asking.

  Mr Storey: Yes, although I think Mr Brown made reference to it in his pre-budget speech two years ago about the possibility of that following. In the Republic of Ireland now the proceeds of unclaimed life assurance policies are now subject to very similar regulations to the dormant accounts that we are currently discussing, but the Irish government left two years for the dormant bank account regulations to bed down.

  Q33  Chairman: So it would be a good idea to have the same thing here but giving a space in between establishing the scheme and looking at life insurance?

  Mr Storey: I am not sure that I would express a view as to whether it is a good thing to implement it or not.

  Q34  Chairman: But it would be fertile ground?

  Mr Storey: Yes.

  Q35  Chairman: The Republic of Ireland Scheme, is it successful and if it is successful what is that success down to?

  Mr Storey: It has been successful in releasing net over those first three years still €198 million for the causes for which the fund was established. It did create huge administrative burden and cost for the institutions involved and particularly for the dormant life assurance funds. That is an ongoing cost—most of the banks are interested in it for technical reasons. The banks and the insurers have to employ more people to do more things. In our view the secret of its success has been the creation of a level playing field and that came about through compulsion, although there were some disadvantages in that.

  Q36  Chairman: If we have a voluntary scheme here what incentive would there be for financial institutions to ensure that they get the maximum returns to remit?

  Mr Graham: Other than demonstrating good cooperative citizenship?

  Q37  Chairman: Yes.

  Mr Graham: Cynically one finds it hard to understand why there is a benefit.

  Mr Storey: It will be inconsistent with the objectives of the institution to maximise shareholder/policyholder wealth.

  Chairman: Can I thank you for your evidence and also for your written submission and your help to us before we went to the Republic of Ireland. We did get a lot out of that visit, which was largely down to yourselves. Thank you very much.





 
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