Dormant Bank and Building Society Accounts Bill [Lords]
Ian Pearson: The clause defines a reclaim fund as the body that will receive dormant account money from banks and building societies, by setting out criteria that must be written into its constitution. It will ensure that the reclaim fund uses dormant accounts money only for specific purposes: to repay customers, to ensure that it has sufficient reserves to meet anticipated claims and to make any surplus available for distribution to the Big Lottery Fund.
As I have explained, the industry will establish the reclaim fund and it will be a private company. Last year, the BBA and the BSA published a detailed timetable to establish a reclaim fund between now and 2009. That has been updated this month in their most recent press notices. They are proceeding to identify a candidate and to work with them and the FSA to have a reclaim fund up and running next year.
The reclaim fund will invest and manage dormant accounts money prudently to meet reclaim applications. Only money not needed to meet the reclaim risk or reasonable running costs will be released for distribution. The clause should be read alongside schedule 1, which places certain requirements on the reclaim fund. The BBA has stated publicly that costs will be clear and transparent. Schedule 1 makes it clear that expenses cannot be unreasonable.
The hon. Member for Fareham asked how the reclaim fund will establish how much money it needs to keep back. The reclaim fund will determine that in accordance with the FSA rules. The FSA will consult separately on its rules, following Royal Assent.
I shall give more information on the point about costs. The reclaim fund will be able to meet reasonable running costs and have the option to outsource key tasksfor instance, the investment of funds transferred to it. That is necessary if it is to be run efficiently.
The legislation makes it clear that the fund may not defray unreasonable expenses, including making unreasonable payments to third parties. We will debate some of that with schedule 1. The fund may not make
Mr. Walker: I do not expect the Minister to answer this today, but perhaps he could write to me. He refers to the reclaim fund investing money. It would be helpful to the Committee if we got a note of what asset classes the reclaim fund will be allowed to invest in. I raised that a few moments ago, but it would be helpful in reassuring the Committee that the money will be invested in safe and secure financial instruments.
Ian Pearson: The investment policy of the reclaim fund is not a subject for the Bill. Investment activity would obviously be regulated through the FSA. The private company would determine its investment policy in accordance with the Bill and the prudential regulation regime that we have for companies of this nature.
Question put and agreed to.
Clause 5 ordered to stand part of the Bill.
Provision to be made in articles of association of reclaim fund
, the following information in relation to that year.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 22 to 25 and amendment No. 27, in schedule 1, page 17, line 32, at end insert
(d) the name of each bank and building society in existence who did not transfer money to the fund..
Ian Pearson: The Government recognise that the amended Bill will require the reclaim fund to report directly to Government and to Parliament. We argued in the other place that the requirements then already in the Bill should satisfy any concerns about transparency. However, we have reflected carefully, and the Governments amendments today show that we have listened to the debate and are seeking to reinforce transparency.
It remains our view that requiring the reclaim fund to lay its annual accounts and reports before Parliament is inappropriate and out of keeping with the Bill. When we come to debate clause 6, I will seek to remove that requirement. The Bill sets out how the reclaim fund will be constituted. It does not establish a reclaim fund; that is the task for the industry. Therefore, the reclaim fund will be independent of Government.
Transparency is crucial to the scheme, and as a result of being formed as a company under the Companies Act 2006, the reclaim fund will be required to prepare annual accounts and reports each year. Government amendments Nos. 21 to 25 will require the reclaim fund to publish the information as soon as possible after the end of each financial year, so that it will be available for all to see, including Members.
In addition, I remind the Committee that schedule 1 already requires the reclaim fund to publish annually a list of institutions participating in the scheme; the amounts of money transferred into the scheme by individual institutions; the amounts of money reclaimed by customers from individual institutions; and the aggregate amount passed to the BLF. Therefore, that information will also be available for public scrutiny.
I should like to respond to amendment No. 27, which would require the reclaim fund to publish the names of all banks and building societies that do not participate in the scheme. That amendment is not necessary. A complete list of all banks and building societies operating in the UK is already available from the FSAs website. I can confirm that the FSA updates the list regularly, so it would be easy to compare it with the list of participating institutions, which the reclaim fund would publish as soon as possible after the end of the financial year.
These Government amendments indicate our strong commitment to transparency. We have listened to debate in the other place. That is one of the reasons why we have introduced our amendments today.
Mr. Hoban: I want to start by speaking briefly to amendment No. 27. Among the objectives of increasing the transparency of the payments in and out of the reclaim fund are encouraging those banks that have taken advantage of the voluntary nature of the scheme to think carefully about their policies and exposing them to proper public scrutiny. That is why it would be helpful, alongside the list of those banks that have paid into the scheme, to have a list of those that have not. That comparison would make it easier for people to hold to account those institutions that have not participated in the scheme or to understand why they have not.
Some banks and deposit takers might have been set up only relatively recently. As a consequence, they might not have assets over five years old, let alone 15 years old, and they could explain their non-participation in the scheme. It would be helpful to have that complete list, so that people can start to ask the right questions, rather than going to the FSA website to find a list and then compare it. We want to ensure that the publicity and transparency exists to hold those non-participating institutions to account. That is why I proposed amendment No. 27so that we can clearly see the laggards in the process.
I welcome the Government amendments, which reflect some progress in ensuring proper transparency, and I am grateful to the Minister for them. It is better to put the information in the annual report and accounts, rather than in a separate report to be laid before Parliament. Those items must therefore be audited, which will give more comfort on the accuracy of the data to be disclosed.
Mr. Jones: I welcome the Government amendments, particularly in relation to more transparency. If we have a voluntary scheme, as presently proposed, we need transparency to see whether banks and building societies are participating fully. Given that the amendments allow for transparency in terms of the cash amounts given to the reclaim fund, is there any way that the average person in the street can judge how much money is in
Ian Pearson: My hon. Friend makes an interesting point. It is right that the public should be informed of the extent to which individual banks and building societies pass money to the reclaim fund from genuinely dormant accounts and do not hold money back. I understand that he might suspect them of wanting to hold money back for themselves. I do not believe that, but the Bills purpose is not to judge the decisions that individual banks and building societies make about which accounts are dormant and meet the criteria. However, I understand his interest in that.
I welcome the broad support for Government amendments and remind the Committee that, under schedule 1, a lot of information will be available at individual institution level on reclaims from consumers, as well as the amount of money transferred.
I have some sympathy with what the hon. Member for Fareham says in respect of amendment No. 27, and it is good to find ways to identify those who are not participating in the scheme as well as those who are. However, the amendment is not necessary or appropriate. It is not the responsibility of the reclaim fund to horizon-scan industry and identify institutions that are or are not participating. It is more appropriate that the FSA, which has responsibility for regulating the industry, undertake the horizon-scanning exercise and, as I said, that information is available on the FSA website. Compelling the reclaim fund to do something else would not be appropriate.
Mr. Browne: Given that the Minister is in relevant territory, will he explain the Governments thinking behind making the scheme voluntary rather than mandatory on the financial institution?
Ian Pearson: We discussed the matter on Second Reading and it has been debated previously. The Government consider it right to adopt the voluntary approach. Establishing the reclaim fund as a private sector body to which the institutions contribute voluntarily will maximise the efficiencies by which the scheme will operate. It was welcomed by the hon. Member for Fareham on Second Reading. The banks and building societies have told us explicitly that they will participate in the scheme, and we see no reason not to proceed on a voluntary basis.
Under a voluntary approach, the private sector will take responsibility for managing liabilities to account holders, which will remain on the private sectors balance sheet. The approach gives additional flexibility too, because it allows individual institutions to determine whether an account is genuinely dormant. That is an important additional element of flexibility and such a system will be less rigid than other international schemes, and therefore will help to reduce costs related to unnecessary administration. It also fits in with the spirit of better
Mr. Field: Our concern is relatively straightforward. The reclaim fund will be there to protect public interest, and given the FSAs other work in a range of different areas, it is difficult to see how it will be able to drill down in the way that we have in mind. The amendment tabled by my hon. Friend the Member for Fareham would not put an unreasonable burden on the FSA. None the less, the reclaim fund would have an idea of which building societies and banks had taken account of their responsibilities, whether voluntary or otherwise. That would provide additional protection whereby the public at large would be aware of exactly what was going on.
We agree with the Minister that the amendments would enhance protection, transparency and openness. In keeping with that, I am surprised that he does not feel that our amendment would be part of the seamless improvement set out in the schedule.
Ian Pearson: I understand the point that the hon. Gentleman is making and welcome his support for the Government amendments, which will increase transparency. The question that he must answer is this: is it the responsibility of the reclaim fund to scan the horizon to produce a complete list of banks and building societies operating in the UK? That is not what the reclaim fund is there for, quite transparently. If he believes that the fund should be doing that, the second question he must answer is whether that is a cost-effective use of its resources.
I would much rather that the FSA had that complete listit has a statutory duty to provide such a list, which is available on its websiteand leave the reclaim fund to operate and to publish in a transparent way the information on those participating in the scheme.
There is not a lot between us on this issue. People who examine such matters will quickly look at who is participating in the reclaim fund, compare that with other databases that are readily available from the FSA and others, and, if they want to, engage in a naming and shaming exercise of those who for some reason have decided not to participate.
Mr. Hoban: The Minister is in danger of making the matter unduly complicated. There is a list in existence of all banks and building societies that the FSA registers. All the amendment proposes is having a list that says which institutions have paid in and how much, and below that a list of institutions that have not paid in. He proposed doing that through the annual report and accounts; my suggestion was in the context of a specific report to Parliament. The reclaim fund would simply take the list produced by the FSA and mark off those that had not paid in. That would not be an onerous or expensive exercise for it.
Perhaps the Minister will accept the spirit of my amendment and come back on Report with better wording as to where the list would come from and so on, but it
Ian Pearson: In the spirit with which the hon. Gentleman has raised the issue, I say to him that I will reflect on it again. My caution about accepting the amendment or agreeing to do so at a later date relates to the fact that when we put such requirements into legislation, sometimes they turn out to be far more onerous than anticipated. He suggests that it would be a simple matter of taking the FSAs list. If the amendment said that, it might be more workable, but as it stands it does not say that, and it might require the reclaim fund to do a substantial amount of work to prove that it understood why all those organisations were not participating in the reclaim fund, although they were licensed deposit takers.
I will reflect on the point that the hon. Gentleman has made. I share the view that the public should want to know why organisations are not participating in the reclaim fund voluntarily. That is the key aspect that he is trying to push, so if he is prepared to withdraw the amendment, I will certainly reflect on the matter further.
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|Prepared 15 October 2008