Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



  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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