Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 102 - 119)



  Q102  Chairman: Good morning and welcome to our inquiry into unclaimed assets within the financial services system. Can you identify yourselves for the shorthand writer, please, starting with Adrian?

  Mr Coles: Adrian Coles, Director General of the Building Societies Association.

  Mr Cornish: Iain Cornish, Chairman of the Building Societies Association and Chief Executive of Yorkshire Building Society.

  Ms Knight: Angela Knight, Chief Executive of the British Bankers' Association

  Mr Chisnall: Paul Chisnall, Executive Director of the British Bankers' Association.

  Q103  Chairman: You are all welcome. The BBA and the BSA have worked closely with the Government in designing proposals for an unclaimed assets scheme. Is that because you recognise a need to do something or, rather, you fear that the Government might impose a less flexible system if you do not show your eagerness to act? Adrian, how about you, since you smiled?

  Mr Coles: Thank you, Chairman, for the friendly approach; I was encouraged by you to smile. I think we are taking part in it because we believe that something should be done about dormant accounts. There are significant amounts of money, amounting to hundreds of millions of pounds collectively, across the widely defined banking system in dormant accounts. Banks and building societies are doing a lot to reunite customers with dormant accounts, with lost accounts, but if, after all the efforts of the banking system, it is not possible to reunite, then it is probably sensible to move along the lines suggested in the consultation document that the Treasury put out, the introduction of which was signed by myself and Angela as well.

  Q104  Chairman: Angela, you mentioned in your submission about the experience of the Irish scheme. As a committee we visited the Republic of Ireland and took evidence on it. What was your experience of the Irish scheme?

  Ms Knight: It clearly works well, but there are two issues which we discussed with the Irish scheme, and I believe that you will no doubt have had the same comment as well, Chairman. The first is that they were very much in favour of a 15-year period, because that fits in with the right sort of experience, but they were concerned about the way that the Irish scheme had operated in terms of the definition of what was a dormant account and what was not, and there it was entirely transactional based, which is all right as far as its goes but does not necessarily give the flexibility that fits in with what individuals do and individuals in conjunction with their financial services company. We think that if we go for the same sort of rigidity that dormancy is based only on a transaction issue, then we will end up with what has happened in the Irish scheme, and that is some accounts being put to dormancy where actually the financial institution did know the individual. So, we want a bit of flexibility within how we define dormancy, and that is what we have said to you in our response.

  Q105  Chairman: The Irish scheme was a compulsory scheme; it was mandatory. Would you like the same here?

  Ms Knight: The thing that we have proposed, as you know, is a scheme that operates within a statutory framework, and one of the reasons for proposing what we have proposed is that actually a lot of it is what is working at the moment. Adrian has just mentioned the fact that the Building Societies Association and ourselves have been running, let us call it, a reunification project, call it what you like, for now about six years, and certainly as far as the BBA is concerned, we are getting literally thousands and thousands of hits on our website. We have done a lot of work, brought together something like 40,000 people with their money. They did not know where their money was. It seems to us that what is operating now does operate well. We have got, I think, 42 banks that are all signed up to it—that is just about everybody that we know who offers accounts. So, when you have got a system that operates, when you have got a procedure that has been working for some years, when you have got the numbers that we have got in terms of both helping people find their institution, getting people reunited, I would say that to build on what we have got is probably the best way forward.

  Q106  Chairman: You will be aware that in the Irish scheme the Bank's initial estimates of dormant balances was in the region of three million euros but the eventual figure transferred was just under 200 million euros, in fact 186 million euros. Can we expect, therefore, to see a much larger pool of transfers in the UK?

  Ms Knight: I do not think it is quite like for like as far as the Irish scheme and the UK scheme are concerned in terms of who is in that Irish pool, because they have put the Post Office in there and that is the same, or equivalent in this context, of National Savings. National Savings is not in there as far as we are concerned. Secondly, perhaps I could explain what we have done as the BBA and why we think the figures that we have provided to you are reasoned and sensible ones. We have been back and checked with our members now two or three times, so we have got some real substance for the figures that we have presented to you. We gave you 250 to 350 million, Chairman. The second thing is that there has been quite a lot of merger, acquisition, takeover within the UK, there has be a lot of activity over a number of years of banks with refurbishing their databases, refurbishing their systems and, as I say, bringing customer bases together. The third thing is that people are much more aware of what is happening right now about dormant accounts. This inquiry and, indeed, the original government announcement has wised people up. There will be a lot more attention given to this area when the reunification programmes are launched. Right now we are seeing double the number of hits, double the number of contacts we had before. The estimate we have given you of 250 to 350 is based on substance and we have been back a couple of times to get confirmation.

  Q107  Chairman: You mentioned reunification of funds. 40% of the funds in the Irish scheme were returned to account holders as part of that reunification exercise. Do your estimates take into account the likely reclaim of funds by customers?

  Mr Chisnall: No, they do not. The figures that we have given are the amount that we believe currently is the stock of unclaimed moneys in bank and building society accounts. Clearly, we were proposing there would be a reunification exercise before an unclaimed assets scheme.

  Q108  Chairman: You have not got figures for that.

  Mr Chisnall: We have not. It is in the future. All I would add is if we look at the scale of the figures that we have given to you, we believe that that reflects the high level of reunification that has already taken place than actually had already existed.

  Q109  Chairman: The 400 million total that you are talking about transferring will obviously be less if there is going to be a reunification of 40%, will it not?

  Mr Cornish: Perhaps I can give some practical insight based on our own experience. Our starting figure, based on a trawl through our computer records and transactions that customers have initiated, was around about £11-12 million. We have now started manually going through all the paper files, going back, obviously, many years, to see if there is any evidence of other customer activity which would give us grounds to believe we could reunite customers with their assets, and certainly for the larger balance accounts we are finding that roughly half of those accounts, we believe, we will be fairly straightforwardly be able to reunite people with their money; so our estimate might actually come down by 40-50%.

  Q110  Chairman: In that case, rather than £400 million, it could be £200 million transferred to unclaimed assets.

  Mr Coles: Chairman, I should say at this stage, the BSA has increased its estimate over the last few weeks since we submitted written evidence to you of the amount in building society accounts.

  Q111  Chairman: You said £50-70 million?

  Mr Coles: We said to you £50-70 million, and building societies have been looking more carefully over the last four weeks or so, as we have initiated another inquiry of our members on how much money is involved, and our latest estimate, based on revision by one or two large societies, is now £150 million but still ignoring any potential reunification activity of the type that Iain has just been talking about.

  Q112  Chairman: That is a three-fold increase. Does that apply for the banks then, Angela?

  Ms Knight: No. We rechecked ourselves very recently, both directly with the major banks and then with a selection of smaller banks, and we are sticking with our current estimate. To just underline what has just been said, if I may, Chairman, that 250 to 350 million which we have given as our estimate, and it is a reasoned estimate, we do not know how much of that will be reclaimed during a reclamation exercise. We are just not sure.

  Q113  Chairman: Do your estimates include those accounts in which the institution has identified that the customer is active despite there being no record of transactions, for example, by voting in AGMs or contacting the bank by telephone?

  Mr Coles: The definition that we try to use is "lost account", not just "dormant", not just where there has been no activity but where the institution, the building society in our case, just cannot contact the customer. Building on Angela's point from earlier, it is important that the UK scheme, as compared to the Irish scheme, includes voting at AGM, a call to a call centre, a visit to a branch, even when there has been no activity on the account, because what we really want to isolate here is not dormant accounts, it is absolutely lost accounts where there is no chance at all of the customer having any relationship with the institution because they have just totally disappeared.

  Q114  Chairman: What about the banks on that point?

  Mr Chisnall: Again, our figure is the current stock of moneys sitting in dormant accounts according to the definitions proposed. I think, as we have already said, there are reasons why the figure does not look to be a comparable basis to the Irish scheme, the point being that there has been a lot of reorganisation within the UK banking system—there have been demutualisations, there have been mergers. On each of those instances there will have been customer reunification and, therefore, what we are saying is we think that a lot of that reunification that took place in Ireland has already taken place as far as the UK banks are concerned. In terms of the 250 to 350 million, there will be some of that money in which the customer will be traceable, but I think it will be a lower proportion than you saw in Ireland.

  Q115  Mr Fallon: For people who count money, you seem remarkably hazy about how much is actually there. I am not quite clear, Mrs Knight. In paragraph 35 you say your figure is corroborated "by cross-reference to the experience of the Irish scheme" and then you cannot say whether or not 40% of it would in fact be reunited. So, is it corroborated or is it not corroborated?

  Mr Chisnall: We think it is corroborated because what we have done, we have made estimates before reunification and, of course, when the Irish scheme actually started to look at their numbers, they came up with a far clearer view of what they had got in there than at the start. Where we were trying to get some sort of feel, which I thought was the right thing to do as the BBA, is to whether the numbers we were receiving were in the right sort of ball park or not, in addition to going back to our members, we looked to see what was the reality once the Irish banks had started to really focus on this (what was the reality of their numbers versus the reality of ours) and, therefore, we did come up with numbers that we felt broadly comparable.

  Q116  Mr Fallon: What is the answer to my question? If you are 350 million, what percentage will be reunified, do you expect? Is it 40%, or is it lower?

  Ms Knight: No, it will be lower than that because of the reasons that my colleague, Paul Chisnall, has given.

  Q117  Mr Fallon: So what will it be?

  Ms Knight: And that is that a lot of the work which the Irish banks had not actually undertaken has already been done by our members. It is very difficult to give you an answer to the question, because you are asking me what is going to be the effect of individuals getting in touch with institutions with which they have had no contact for a number of years, but where we do believe that there is a real need to ensure that there is a difference between us and the Irish scheme is this definition of dormancy: because if it is only transaction based, then we would be saying more of this money will not be reclaimed, and we do not think that that is quite right. We think the right thing to do is, where there is knowledge of the individual, regardless of whether a transaction has taken place in 15 years, that individual has a right to their account.

  Q118  Mr Todd: If the money is passed over to the reclaim fund and then the account holder is identified, will there be any cost in reactivating the account? How are you intending to maintain a record of that account and any interest that might be earned on it?

  Mr Coles: It is up to the institution to keep a record of the account, and it will be up to the institution to keep a record of the account even when this new scheme comes; so I do not think the introduction of the scheme will have any particular implications for customers. This is very much behind the scenes as far as the customer is concerned. They will still be able to reclaim their money in the same way.

  Q119  Mr Todd: I was suggesting there will be some implications for you, in that there may be some costs involved in reactivating an account which you had placed into some sort of different—

  Mr Cornish: The costs, I do not think, will come at the point of reactivation, they will come in doing the systems work to identify these accounts and the costs will come in actually doing the reunification exercise. Once that has been done, when a customer walks in, the marginal cost of essentially reactivating the account at that point will be the minimum.

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