Examination of Witnesses (Questions 220
- 239)
TUESDAY 5 JUNE 2007
SIR RONALD
COHEN, MR
ED MAYO
AND MR
TOBY ECCLES
Q220 John Thurso: So you would recommend
actual advertising as opposed to simply press releasing it?
Mr Eccles: Yes.
Q221 John Thurso: In your April consultation
paper on consumer protection and regulation of dormant accounts
there was an implication that banks are more successful in tracing
people where they have a credit liability as opposed to simply
a deposit when people have moved house. Do you think there are
additional techniques that the institutions should be using in
order to find dormant account holders?
Mr Eccles: We have already covered
much of this. I think there are some reasonably cheap and scaleable
solutions, eg Experian's Unclaimed Assets Register is one. I am
not saying that this needs to happen for all scale of accounts,
I think that would be strange, but I do think that more active
processes can and should be investigated by banks and building
societies. We welcomed Halifax's announcement that they were planning
to do exactly that.
Q222 John Thurso: What would be the
advantages or disadvantages of following the voluntary route in
designing the Unclaimed Assets Scheme and to what extent should
this be opposed?
Mr Eccles: The advantage to the
financial institutions is clearly a matter of cost. I think from
the UK's point of view there is a culture of reasonably light
touch regulation and self-regulation. To our way of thinking the
Government's consultation paper looked at this with a view to
talking about the voluntary scheme and seeing it as positive.
There is also a certain onus on the industry to demonstrate a
willingness to impose self-regulation that will create the level
playing field that I think all of us are interested in and avoiding
the scenario where there are one or two institutions who appear
to be making much less effort to identify the accounts in the
first place, which means a commensurate much lower proportion
of their overall assets being found to be dormant and creating,
if you like, a culture where it is disadvantageous to comply effectively
with the process.
Q223 John Thurso: If one is being
realistic and if one is mildly cynical about banks, given, as
we have heard, that a lot of these are accounts between £0
and £10 or between £10 and £50, the vast number
being possibly sub-£50, there is absolutely no profit in
it for the banking system, there is a cost involved. So if they
do not have to, why should they? Is it not better to say this
is it, this is the law, this is how it is going to work, obey
the regulations or else and then you do not have to worry about
whether there is a rogue institution that will not play the game?
Mr Eccles: As Sir Ronald has already
mentioned, if there is a regulator with teeth it will work. We
think that could be a self-regulator or it could be a statutory
regulator. We are open to either option provided it has teeth.
Q224 John Thurso: Do you think a
self-regulator can have teeth? Is that a possibility?
Sir Ronald Cohen: Yes. I think
in the financial services area certainly there is plenty of evidence
that it can. Takeover Panel would be an example.
John Thurso: It has some pretty good
teeth through regulation as well, does it not? I will leave it
there.
Q225 Mr Love: In your submission
to us you have put down four different areas where you think the
self-regulatory framework should be strengthened. It says it should
go to a located and existing body and we have touched upon that.
I am not going to touch upon individuals and whether they are
responsible and how they could be registered with the FSA etcetera,
etcetera. The one that I am interested in is in relation to having
powers of external audit of compliance. How important is that?
We are struggling with this issue about what teeth we are talking
about that would make a difference for the Banking Code Standards
Board or the FSA. I have alighted on that as being one area. Can
you give us some idea where those teeth that are essential in
your view need to be? Is it in this external issue of compliance
to assess identification processes and systems as you said in
your submission?
Mr Mayo: You have had evidence
from Grant Thornton so you have had a view of the power of usefulness
of an external view on the system and they give a very forthright
and objective view about the way that the Irish scheme has worked.
The Irish scheme is in some ways more mechanised than what is
being proposed here. What is being proposed here may be more difficult
to audit, I do not know. I do not think you would have been put
to the trouble of trying to work out whether the figures you got
from the building societies have or have not changed over the
last few weeks or are or are not going to multiply fifty fold
over the next 12-18 months if at the very start of this there
had been a decision to put the role of identifying dormant accounts
and getting a realistic estimate of their sums out to an external
auditor. That would have been a very simple thing to do. We have
not done that. The fear would be that we get locked in to a culture
focussed on the banking coterie. Over time this thing fades away
and it is either because the incentives are not there or because,
as Sir Ronald said earlier, the inertia sets in and this is not
top of mind. At root this is customers' money, it is consumers'
money and not banks' money or building societies' money. It must
be right to take every step to make sure that people can access
their own money and sometimes that kind of money will be just
an additional sum for a rainy day. Sometimes it will be quite
crucial amounts of money for people who may have been saving for
some time.
Q226 Mr Love: Can I act as devil's
advocate for a second and put to you the case that was put to
us earlier on, which is that we need light touch regulation—and
I will not go into whether it is self-regulation or not—because
the institutions need to be able to adapt to changing circumstances,
they need to be flexible. You will have heard all the arguments
before. I am sure they are well known to you. To what extent do
you put an onus on that in terms of reaching a balance about what
level of regulation is appropriate?
Mr Mayo: In a survey which was
cited earlier we looked at how far the great British public thinks
that banks and building societies are currently making enough
effort to find customers with inactive accounts. 67% of people,
two-thirds, said they did not believe they were making enough
effort currently. 28%—that is most of the remainder—said
that they did not know. Clearly there is a case for action. At
the same time, no one likes to invent new rules. No one would
like to see new regulators necessarily appear on the block. I
think it is right to start with the rules and systems that we
have got and say are they fit for purpose and if they are not
fit for purpose, how could they be extended in order to make this
work. I think in our proposals, both the ones that you have cited
and the ones that we have suggested around a tracing agency, would
be ways of doing that.
Mr Eccles: What we have indicated
here is that the risk-based approach should be used. It would
not be a matter of an external audit of the process and compliance
for every organisation. The knowledge that an external audit would
be possible is much of the benefit. We are talking there about
an external audit not just of the amounts but of the process by
which they were come to so that some of the difficulties that
Grant Thornton mentioned to you and to us about identifying assets
could be checked off against a list by people who have got experience
of looking into it.
Q227 Mr Love: I want to come on to
the Central Register of Dormant Accounts. I noticed in your submission
you indicated that in your view one in three people have a dormant
account. I want to come back to this vexed issue about whether
or not we are getting an accurate assessment of what is likely
to be out there when this scheme is finally set up. While I understand
that it was not possible to say how much there is, would it be
fair to say that you are sceptical about the figures that have
been produced so far by the industry?
Mr Mayo: It is my job to be sceptical
so it is easy for me to say that I would be sceptical, yes. I
agree with the point that Sir Ronald made about the focus really
needing to be on getting the process right and therefore we can
deal with the funds that are there and come through. At the same
time we did find in this exercise that there is a huge untapped
public interest in this and this may often be small sums of money
but there will be public interest in this. The process for the
figures and sums that we have talked about finding their way through
the incredibly complicated system of trying to find out whether
you have a dormant account with a bank or you have to go to the
Building Societies Association or somewhere else, to a third point,
is a very complicated system. The numbers that are making it through
seem to me to be absolutely minuscule in relation to the potential
numbers of people. Our survey showed the number of people that
believed they may have an inactive account over a number of years
and that was not specific to the 15 years. It may well be that
people are deluded or they have no such account. That is the public
opinion and therefore we have to design this system for success
and we have to design a system that can respond to the public
opinion that will be there, rather than setting up something which
I think will rather frustrate people and play to their cynicism,
that is in some way either banks or government taking their money
or losing their money or frustrating their interest.
Q228 Mr Love: Let us go on to the
Central Register of Dormant Accounts. How feasible is that, and
would it add to the issues that Mr Mayo has been talking about
to do with people having confidence in the system that is set
up?
Mr Eccles: We saw there were two
ways where people could effectively have a single interface for
seeking to find out whether they have a dormant account. One possibility
was to create a central register. The second possibility was to
create a consistent system so that this single interface could
ask all of the banks whether they had anything on their systems
for this person that was registered as dormant. We do not think
it is necessary for there to be a centralised database. We did
check this with the Information Commissioner's Office and they
were comfortable with either method. There was a sense that if
there is a single way that requires initially quite little information
it would greatly increase the number of people that were interested.
I noticed that when we got the response back on the question do
you have one and why is it dormant 58% of people said it was because
the amount was too small. I wonder whether that is too small given
the present ease or otherwise in trying to find it rather than
too small because I do not care about that size of money at all.
Q229 Mr Love: This is the proposal
about a Lost and Found Register. I assume you are talking about
a central point that all the public would contact and then they
would have tentacles into the whole of the industry. Tell us how
that would work.
Mr Eccles: Quite simply, it could
be a very thin interface that allows web, telephone or similar
access and it would distribute the information that was put in
to the present three systems that you have through the BBA, the
BSA and the National Savings and so on but on the basis that they
would also have automated systems. Two of the three have started
to automate their own systems. That would feed directly through
to the members that were relevant. We do not see this as being
a massive systems cost on top of what is there already. This is
trying to provide a relatively cheap solution that makes things
much easier for consumers.
Chairman: The point you made about one
in three people having a dormant account is important for us to
take into account in our report and the issue of central tracing
systems. You mentioned that the present methods for reclaim are
disparate, confusing and complicated. That is a really important
point to consider.
Q230 Mr Fallon: Can we just come
back to this issue of excluding national savings and investments.
I think I heard you right when you invited the Committee to take
a view on that, but I would like your view. Is it intellectually
coherent to exclude these on the grounds that they are already
used to the public benefit?
Sir Ronald Cohen: It is a policy
issue. If you looked at it from my perspective, the more can flow
into communities today the better, so I would be in favour of
including them. What is different about them is that they are
already held by the Government and so in a sense in most countries
around the world today that have a treatment of unclaimed assets
the money is taken by the Government. In any case, in the United
States it is the Federal Government or the State Government. So
you could take one view that says it is already in Government
hands.
Q231 Mr Fallon: What is your view?
Sir Ronald Cohen: I think the
challenge that is faced today by impoverished communities and
the disadvantaged in the UK is absolutely massive and I think
too little money is going there and too little of an effort is
being made to create a proper market that is capable of funding
the activities of the third sector, going from philanthropic organisations
that are trying to develop their activities and who need funding
to do that all the way through to mission driven models where
people are trying to make money but by helping particular communities
by investing in them. In that sense I would welcome a Government
decision that unclaimed assets in national savings accounts should
flow. It is not really an issue that the Commission should reply
to, it is for you to reply to.
Q232 Mr Fallon: Let us turn now to
the issue of disbursement. Of the 400 million you wanted 250 million
for your Social Investment Bank. How much are you now actually
likely to get?
Sir Ronald Cohen: We are not sure
that we are definitely going to get anything. There is a consultation
under way at the moment about the concept of a Social Investment
Bank. We believe that we have made a very strong case that it
would be better to concentrate a good chunk of this money and
to invest it in developing a financial infrastructure for voluntary
organisations to get funding. We have a situation in Britain where
we have got 160,000 or 170,000 voluntary organisations of one
kind or another. Less than 3% have £1 million of revenue
a year. They control foundations and others control massive assets,
but what is actually being deployed out of these assets is a relatively
small amount of money if you look at the need that exists in communities.
Q233 Mr Fallon: We understand the
argument for the Social Investment Bank. What I do not understand
is why you are losing it. The consultation paper seems to propose
that instead the Government will use the Big Lottery Fund to distribute
money directly to youth projects, projects involving financial
exclusion and financial capability, rather than create the kind
of wholesale financial operation that you wanted through the bank.
Why are you losing this argument?
Sir Ronald Cohen: We do not see
the fact that the money would travel via the Big Lottery Fund
as an impediment to our receiving it. We would see the Social
Investment Bank as one of those organisations that could go to
the Big Lottery Fund if the Government had decided that money
should be allocated to a Social Investment Bank and ask for it,
solicit for it. We see the Big Lottery Fund simply as a conduit
and from a legislative and other point of view it happens to be
a convenient one.
Q234 Mr Fallon: I see that, but on
page 23 they set out these three targets, programmes and activities
for young people, financial capability and financial inclusion.
Those are not quite the targets of the Social Investment Bank.
Sir Ronald Cohen: No, those are
competing targets at the moment. What we have suggested as a commission
is that the Government should make a commitment now to the Social
Investment Bank receiving funding from unclaimed assets. The issue
then will be, when we know the amount, whether there is enough
to go round youth, financial exclusion and the Social Investment
Bank. We have been quite relaxed about that issue because, as
you have heard, you are either cynical or you are optimistic about
the amounts of money that are going to come through and we are
optimistic about the amounts of money that are going to come through,
particularly since the 250 million plus 20 million a year that
we have asked for, which is 330 million, could be split in somewhat
different ways. You could get 150 million up front and then you
could get 30 or 40 million for each of five years and you get
to the same financial footprint as it were. What is crucial is
that a sufficient amount of money, 150 million plus, be allocated
to the Social Investment Bank at the beginning. We are continuing
through this period of consultation our discussions with the Treasury
and the office of the third sector to persuade them that this
is a good application of these funds.
Q235 Mr Fallon: So the 150 million
is the minimum to make the Social Investment Bank be a viable
concern, is that right?
Sir Ronald Cohen: Initially it
is 330 over five years, correct.
Q236 Mr Fallon: If you lose this
argument then the danger is the Big Lottery Fund in a sense will
be used to replace some of the 600 million or so that has been
taken from youth and arts groups to fund the Olympic deficit.
Sir Ronald Cohen: We have been
told that that is not a risk and we have taken it at face value.
Q237 Chairman: Sir Ronald, some press
comment has been made on that 150 million. I have one here which
says, "Any City banker would tell you that at this low level
it will be so undercapitalised it would not rate as a serious
player, and would not be able to apply any of the skills and techniques
that could so raise the local game." In order to ensure we
get these skills and techniques what figure do you want so that
we can reflect on that in our report?
Sir Ronald Cohen: I think it has
got to be of the order of £330 million over five years. I
would rather it was £250 million up front than £150
million up front, but if we found that the total was insufficient
and we had to start with £150 million, we would start with
£150 million. Below £150 million would not be credible.
Q238 Mr Mudie: I want to raise this
question of accountability with you. You are after £330 million
from the Government and you are saying you want to be accountable
to the third sector as to how you spend it and not the Government.
As I see it the third sector are the people who are bidding for
this money. Half of them who get it will think you are wonderful
and the other half who are hoping to get it will be frightened
stiff of saying anything about you. I do not think that is a very
good method of accountability.
Sir Ronald Cohen: Let me explain
what we had in mind. We believe that if this organisation reports
to the Government and its objectives are set by the Government—
Q239 Mr Mudie: What about Parliament?
Sir Ronald Cohen: We have indeed
considered that it would be appropriate for this organisation
to report to Parliament directly.
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