Examination of Witnesses (Questions 204
TUESDAY 5 JUNE 2007
Q204 Chairman: Sir Ronald, welcome
to our inquiry. Can you introduce your team for the Committee,
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
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
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 thatwhether it
is the Unclaimed Assets Register or electoral rolls etceteramore
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
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
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,
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