Examination of Witnesses (Questions 180
TUESDAY 5 JUNE 2007
KNIGHT CBE, MR
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
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
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 moneysthat 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