Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 180 - 199)



  Q180  Chairman: The Government also claims in its paper that the central reclaim fund will be managed prudently. Where does the buck stop if it does manage it prudently?

  Ms Knight: I think that that is a very important point that you raise and, indeed, managing that prudently is going to be important; but a central reclaim fund of this sort will come within the regulatory framework of the UK and, indeed, there will be the ombudsman, of course, attached as well; so there are some proper checks and balances there.

  Mr Coles: One additional point on that is that the Government proposals do envisage the reclaim fund having the opportunity to take out insurance. So if the reclaim fund does not manage the liabilities, gets it wrong in terms of the number of people who turn up after, say, 22 years, presumably it will take advantage of that ability to have an insurance policy in place that would cover it.

  Q181  Chairman: Would the Treasury guarantee it? I go to Mrs Knight, she smiled, as someone with a former vested interest in this.

  Ms Knight: I clearly smiled at the wrong point. Do I think the Treasury should underpin that? That is a question that you need to ask the Treasury.

  Q182  Chairman: No doubt we will.

  Mr Chisnall: It should not be necessary, because providing we are talking about sensible definition, then you ought to be able to model the expectation of the level of reclaim. We are talking about an independent reclaim fund that will have the responsibility of receiving the moneys, and then making that assessment about the amount of money that it needs to retain overall and then handing over free moneys for distribution. Within the Treasury proposal, it says that it is exploring the prospects of the central reclaim fund falling within the financial services compensation scheme, it envisages the central reclaim fund being an authorised institution and, therefore, I think that the presumption is that that central reclaim fund ought to be in the position to model the expected level of reclaims and it ought to be able to act prudently and only hand over those monies where it can see that they are genuinely free of the risk of reclaim. Again, I think the proposal holds together on that basis.

  Q183  Mr Fallon: Mr Coles, could we turn to the issue of disbursement and distribution of assets that are not claimed. In your memorandum you urged the building societies to be able to channel funds under the local distribution scheme through their own independent charitable foundations, but the latest Treasury document says that it is proposed this should be done through an arms-length charitable body which could distribute assets to charities at the local level. Why do we need an arms-length charitable body if your smaller building societies have already got their own foundations?

  Mr Coles: The smaller building societies and, indeed, the larger building societies have their own foundations. It depends how you define "arms-length". The trustees of those foundations are appointed only in a minority by the building society. So the building society foundations, in my view, would come into the definition of "arms-length". They are not controlled by the building society but they are funded by the building society and, typically, the building society controls less than half of the nominations to be a trustee of those charities. So, I do not think there is a conflict there.

  Q184  Mr Fallon: It is not necessary to set up a separate arms-length charitable body organised by the Government—

  Mr Coles: I do not think so.

  Q185  Mr Fallon: —between your own charitable foundations and yourselves?

  Mr Coles: No, what we very much hope is that those building societies that want to take advantage of the small and local opt-out that is discussed in, I think, section four of the Treasury's consultation paper will be able to use their own charitable foundations if they wish to distribute money in their localities. The particular thing that I think upsets some of the smaller building societies is that most of the lost account money in their organisation will have been drawn from a particular locality and they do not want to be forced to donate to a national charitable scheme.

  Q186  Mr Fallon: You are opposed to what the Treasury is now proposing, are you?

  Mr Coles: I do not think we are opposed to it, no.

  Q187  Mr Fallon: The Treasury say in their document at 5:21: "It is proposed these institutions transfer money to an arms-length charitable body." Does that mean a single arms-length charitable body or does it mean using your existing charitable foundations?

  Mr Coles: I have assumed that it means using the existing charitable foundations that I believe come into the definition of "arms-length".

  Q188  Mr Fallon: Would the trustees of the foundation still maintain their traditional objectives of supporting local projects like schools, hospitals, hospices and sports grounds and so on, rather than the wider remit that has been proposed, for example, for the social investment bank?

  Mr Coles: In order to be part of a scheme and in order to be able to strike off the liabilities from your balance sheet under the legislation that is proposed, I assume the legislation will require the institutions to ensure that it is financial inclusion, financial capability and youth work that is the subject of the charitable donations and those trustees would then discharge that responsibility for ensuring that the monies went into the charities that are put forward by the Government as deserving of this dormant account money.

  Q189  Mr Fallon: So it would still be the Government who would define the recipient charities?

  Mr Coles: Yes, but the building societies that take advantage of the small and local opt out will still be part of the scheme; it is merely a question of how the money is distributed to charity.

  Q190  Mr Fallon: So it might not be distributed in the same way as the building societies foundation was distributing it at the moment.

  Mr Coles: The key difference is that they will be distributing to local schemes that support financial capability, financial inclusion and youth rather than a national scheme, but I do not think the small building societies will be taking part in this scheme giving their dormant moneys to their arms-length charity and the arms-length charity then giving it to a charity that is not part of the nationally defined arrangements.

  Q191  Chairman: Should National Savings unclaimed assets be part of the scheme?

  Mr Coles: Yes.

  Q192  Chairman: I guessed that?

  Ms Knight: We can certainly see why it should, but I think that one of the things that has crossed our mind on this is that that could make some of definitional issues rather different. We looked at the complexity of legislation, but there is a clear point there, Chairman.

  Q193  Chairman: Okay.

  Mr Coles: National Savings will be under much greater incentive to reunite customers with their dormant accounts if it faced exactly the same scheme that banks or building societies are facing. We think it is important there is a level playing field, broadly speaking. It will be advantageous for National Savings customers for National Savings to be part of the scheme.

  Q194  Chairman: Lastly, could I go back to the point raised with George about the level playing field? Evidence that we have taken already from Grant Thornton, who were advisers to the Irish scheme, may have said that whilst most institutions would be very noble and enter into the spirit of the scheme, there may be others who would give lip service. So, that ties up with George's point and Andy's point about consistency here. Some institutions would be liable just to give that lip service.

  Mr Chisnall: We talked earlier about the scheme being regulated within the Banking Code. That is very much covering the customer relationship.

  Q195  Chairman: I will tell you about the Banking Standards Code. The Banking Standards Code is voluntary. Take one issue that we come up with in terms of basic banks accounts. We said, "Look, mystery shopping, that information should be publicly available." The Banking Standards Code did nothing about it. I wrote, as Chairman of the Committee, to the five major banks, who have now come back to me and said, "Okay, we will publish that information." One of them has said to me, "But if we publish it, why do you not write to 40 others to see if they will publish it." I am delighted to do that, but the fact is it should not take the Chairman of the Treasury Select Committee to do something like that. So, in many ways, the Banking Standards Code does not have teeth and it does not have form up to now. How can we be assured that we will have form on this thing when we need real consistency on it and we need that level playing field?

  Mr Chisnall: I was not suggesting that the Banking Code would be the means of achieving consistency in terms of compliance with the scheme. What I was suggesting is that the customer interface part will be dealt with by the Banking Code, and there will be differences. For example, there will not be a uniform approach on reunification.

  Q196  Chairman: The point I am making here is the initiative of the institutions themselves to ensure that they reunite people. If you are going to leave them with that task, some will do it well while others do not do it well or at all. That is the issue here?

  Mr Chisnall: I think that institutions are all in different positions. Institutions have different histories and they will at different times make different attempts and, therefore, it is right that institutions individually, in looking at what they do in terms of reunification, look at what they have done so far, look at the success that they have had—

  Q197  Mr Mudie: Did you not say there that you are going to confine yourself to the interface between the institution and the customer but the wider thing of participating (and that is the point the Chairman is making, actually participating and actually spending money and putting the admin staff in and having a real go at it) is outside the Banking Code?

  Mr Chisnall: It is outside . . .

  Q198  Mr Mudie: So you are not going to be a very good regulator, are you?

  Mr Chisnall: It is outside the Banking Code. Separate to that there is the question of the gathering of the moneys and the understanding of the moneys and the calculating of the moneys ...

  Q199  Mr Mudie: All technical. I am sure they will do it well.

  Mr Chisnall: Under the statutory definition and the transfer of those moneys to the central reclaim fund and within the Treasury paper you will see that there is a proposal that there should be an agency agreement between the banks and the central fund, and very clearly you will need some form of external verification of these moneys—that is completely understood. Very clearly there will need to be a procedure and rules of engagement drawn up so that people participating in the scheme are participating on a like-for-like basis. We understand that.

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