Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 204 - 219)



  Q204  Chairman: Sir Ronald, welcome to our inquiry. Can you introduce your team for the Committee, please?

  Sir Ronald Cohen: Yes indeed. I am the Chairman of the Commission on Unclaimed Assets, Ed Mayo is a Commissioner and also Chief Executive of the National Consumer Council, and Toby Eccles is the new Secretary of the Commission.

  Q205  Chairman: I am going to ask you about the evidence we heard this morning. First of all, how did the Commission on Unclaimed Assets come into existence and what is its purpose?

  Sir Ronald Cohen: I was approached by the person representing the Scarman Trust, Matthew Pike, and he mentioned to me that a number of foundations had asked him to see whether I would be prepared to lead an independent commission that would look at what should be done with the unclaimed assets. I hesitated at first and subsequently accepted.

  Q206  Chairman: You have heard the evidence given by the Building Societies Association and the BBA, particularly that their participation in the scheme would be voluntary. You have heard our questions to them. Do you have any comments to add on that?

  Sir Ronald Cohen: I would reinforce your view, Chairman, which is that you have to have something with teeth that is the regulator. It is fine to go for self-regulation if we do not want to go for legislation, but the regulator has to be in a position to enforce what he or she feels to be appropriate. I also chair the Social Investment Task Force. We made a recommendation on a voluntary basis in 2000 that the banks should publish information about their lending to poorer areas. We have only got so far. Some banks have been more motivated than others to do it. It is not that they do not have the goodwill or feel the goodwill to do something for poorer areas but that it comes pretty low down the list of priorities in the bank.

  Q207  Chairman: We have heard various estimates of the level of funds held in dormant accounts. What is your estimate? Is it about £250 million?

  Sir Ronald Cohen: We were quite encouraged by the fact that in Ireland the expectations turned out to be rather greater than the original projection, but it is impossible to know. What is important though is to note that subsequent to the initial flow of unclaimed assets there has been an annual flow of about 15% of the original flow. So it is not just a question of what you get at the beginning, it is a question of the continuing flow of unclaimed assets. In that sense I think we will get to sums that are rather larger than the ones that we are talking about now because of an additional flow following the original assets.

  Q208  Chairman: You heard us saying that we visited the Republic of Ireland and that there were estimates of €3 million in 1997 and it ended up at €196 million. Do you think that that pattern could be replicated in the United Kingdom?

  Sir Ronald Cohen: Perhaps not on that scale because the expectations here have never been as low as €3 million and the Post Office was included in the case of Northern Ireland. It is very difficult for the banks to be absolutely sure what they have, as they have said, in unclaimed assets. When you look at the size of Ireland and you look at the size of the UK, you would expect it to be a multiple of what Ireland has found.

  Q209  Chairman: Let me read to you the evidence that we received from Grant Thornton on that so that you can give me your opinion. They told us that "the population differential between Ireland and the UK is between 16 to 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 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 pure mathematics." Do you have any sympathy for the view that has been given?

  Sir Ronald Cohen: I have sympathy for the direction of the view. It is very difficult as a financial person to quantify it. What is crucial is to ensure that all of the financial institutions that come under the ambit of this effort make an organised and determined effort to identify these assets, not just to reunite them once they have identified them with the depositors but to identify them in the first place.

  Q210  Mr Todd: I want to look at the customer aspect of this. These assets are held by individuals who were at one time customers of the institutions and they may still be. How important is it that they are told that their asset may be about to be transferred to the reclaim fund, and in what form should that communication be? Do you think that should be set down very clearly in any guidance that is given?

  Mr Eccles: There are issues in giving no communication at all. As our survey indicated, there are a very large number of very small bank accounts out there and then there are some which are somewhat bigger. Our sense was that a letter should be sent out in the event that there was no response saying that they had genuinely moved on from that address. One of the reasons for that, as experienced in Ireland, was that where, for example, someone has died and their family was unaware of a rainy day account put away by that person, the letter arriving actually allowed them to be reunited with that asset. There was no way that those people would have arrived without that letter having been sent.

  Q211  Mr Todd: I am thinking of the formal process at the point where a transfer might take place. I think you will have heard the previous discussion over the processes the various financial institutions will follow to try and reunite accounts. Is there some formal point at which you should communicate in a particular way? I think you are possibly suggesting that that might depend on the value of the account that is held. Is there also a suggestion that there should be some greater level of attention given to research, for example in checking electoral rolls, to see whether someone does indeed reside at that account?

  Mr Eccles: In our hearings we heard very similar things to what you have been hearing, ie that there are a variety of ways that banks at the moment seek their assets rather than their liabilities and that—whether it is the Unclaimed Assets Register or electoral rolls etcetera—more effort could be made to try and reunify people with their assets. In terms of whether an institution needs to mention to people formally that their money is about to be transferred, I think that is different from trying to reunite it. I think the reuniting should be the focus because, as has been universally acknowledged, this will always stay customers' money; they will always be able to come and collect it. I think the wish to create various restrictions has always somehow failed to acknowledge that people will always be able to come back and get the money. If there is a particular account where it may be more difficult to get in touch with the customer it will not be a customer issue because the customer will still be able to get in touch with the money.

  Q212  Angela Eagle: Both the banks and the building societies in their evidence to us earlier downplayed the incentives that there are for nothing to happen. Do you agree with their downplaying the incentives for nothing to happen? Do you have some scepticism that actually, given the fact that this money has been in an account laying dormant, costing very little, for example, for banks to administer, but they have been using it to increase their profits, it is not actually going to feature in their thoughts when they approach this issue with enthusiasm or indifference?

  Sir Ronald Cohen: I think there is a widespread spectrum of reactions within financial institutions. It is fair to say this is a headache rather than an opportunity. I think by now they have come to the view that they really do have to do something about it. This issue is not going away. I believe that they are sincere in wanting to do a proper job of it.

  Q213  Angela Eagle: They were downplaying the amount of money they thought was involved in their evidence to us, but with the Grant Thornton types of estimates going up as high as £2.5 billion, they would not be downplaying that, would they?

  Sir Ronald Cohen: They are very anxious, as I gathered from my discussions with them, that figures should not be floating around that are a multiple of what is likely to emerge because the focus then would be on whether they have done a proper job of identifying and so on. So I think for that reason they are being conservative. It is in the nature of bankers to be conservative. I do not think that in itself matters terribly, frankly. The important thing is that the figures should be accurate and the money should pass over in the way that the Government wishes to see it pass over. I have been less concerned, with regard to the Social Investment Bank for instance, about getting guarantees on specific amounts than I have been about getting a commitment that some of the money would come to the Social Investment Bank. My own feeling is that we will be pleasantly surprised when we know the numbers.

  Q214  Angela Eagle: Given that, do you not think it might be in the banks' best interests, although they do not naturally think so, to have a compulsory rather than a voluntary scheme?

  Sir Ronald Cohen: I think perhaps some leaders in the banks would agree with you. Overall I think there is probably a preference for a self-regulating scheme.

  Q215  Angela Eagle: What is your preference?

  Sir Ronald Cohen: I think it can work as long as the regulator has teeth. We have been good in Britain at using self-regulation, but the regulator has to have teeth. It is not enough to appoint a regulator who can make statements but who has no power to enforce or to investigate or do any of the things that are required in order to make sure that the scheme works as it is supposed to.

  Q216  Angela Eagle: Therefore, do you think that the Banking Code is an adequate cover? That is clearly good for the customer institution interface, but should there be other teeth in the system? How would you see the regulator, who could be the most effective, actually working?

  Sir Ronald Cohen: In our discussions we have concentrated on the FSA or on the Banking Code. We have come to the conclusion that either of these would be suitable as long as the possibility was taken seriously and there were powers to make sure that the right information was made available and the right action was taken.

  Q217  Angela Eagle: The Chairman has mentioned some of our frustrations as a Committee with the Banking Code as a way of driving change. Are you sure the Banking Code would be adequate in those circumstances because I am not sure that we are?

  Mr Mayo: I share some of those frustrations with the way that the Banking Code Standards Board is operated. In the submission we put in we make some explicit recommendations around the kinds of ways in which that organisation would need to be beefed up if it were to play a regulatory role in this case. A simple thing would be publicising information about how much money is being released through to banks and how much money is being reclaimed and passed through. This kind of stuff is needed as basics as well as other powers in terms of ensuring enforcement and compliance. There are a couple of other things. We would argue that if Parliament decided to go for a self-regulatory route we would wish to see safeguards. I think without those we really would worry that the system would simply be asleep and in a couple of years' time it would not be really keeping people on their toes and pursuing the interests of customers and reuniting them with their money or putting it to good causes. The first is a system of a much more simple and convenient way for consumers to be able to check whether they have the money there available in accounts that we have termed the UK Lost and Found. We have done a bit of work exploring the feasibility of that. We have talked to different providers about that. I could certainly say more about it if you are interested. I think that would be a very positive way of making it easier for people to be reunited with their money as opposed to a half-hearted maze or gate-keeping exercise essentially from the institutions concerned. The second is that always with self-regulation and statutory regulation you have got, as in this case, the option that has been used in a number of sectors of "co-regulation", where self-regulation is allowed to proceed but on the basis that if it does not work then there are reserve powers in hand to be able to take that on to a new form. The Communications Regulator Ofcom, for example, operates a co-regulatory model in relation to complaints on premium line services and the like. It would be possible to imagine, although we have not looked at the details of how this would work in terms of legislation, a self-regulatory model going with a co-regulatory model and if five years down the line self-regulation has not worked then it would be relatively simple to look to the Financial Services Authority or the Treasury or elsewhere to be able to take regulation more closely to hand.

  Q218  John Thurso: Are there any parts of the financial system that have unclaimed assets that could or should be included in this scheme and that are not at the moment?

  Sir Ronald Cohen: So far as the private marketplace is concerned, my understanding is that just about every organisation that is involved is covered. If there are some then they should be covered. National Savings is a different issue because it is a Government organisation and whether the fact that the money stays with the Government is of itself sufficient is an issue for you to decide.

  Q219  John Thurso: Mr Eccles said in responding to Mark Todd that it was very important there should be letters that go out and the Government proposal at the minute does not include a letter and I think you have made it clear that your view was that letters are pretty important. Are there any other elements that are missing from the campaign to reunite customers with their lost accounts that you think should be in there?

  Mr Eccles: I think one of the things that we noted in the Government consultation was that presently I think the offer is that there would be quarterly press releases issued by the BBA and the BSA in support of raising awareness in this area and that did seem quite low to us. I was intrigued when asked to say whether this was sufficiently cost-effective and I said I felt this was undoubtedly sufficiently cost-effective. I think our concern would be that that is leaving it to the press to find the message if you like. I think, as we have seen, there has been some variation in terms of the press response, with some scaremongering and scare stories alongside more sensible journalism. If we were to allow for press or radio advertising, both of which are reasonably cost-effective, it would mean there was a consistent message.

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