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 tasks—for instance, the investment of funds transferred to
it. That is necessary if it is to be run
efficiently.
Mr.
Walker: Will the Minister give
way?
Ian
Pearson: I want to be clear on this point and then I will
give
way. 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
distributions to its members, which would be out of keeping with the
essential purpose of the scheme, which is to make money available for
reinvestment in the community. The industry has made clear that it will
defray its costs on a publicly disclosed
basis. 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.
Schedule
1Provision
to be made in articles of association of reclaim
fund
Ian
Pearson: I beg to move amendment No. 21, in
schedule 1, page 17, line 24, leave
out ‘,
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 Government’s
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 FSA’s 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.
27—so 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
dormant accounts in those banks and building societies that contribute?
We could also judge how many are not contributing at all. As far as I
can see, although we have the ability, with the amendments and the
Bill, to see how much money goes into the fund, we do not know how much
money was
available.
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 Bill’s 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. 12
noon 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 Government’s 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 sector’s 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
regulation and existing regulatory arrangements such as the banking code
and Financial Services Authority regulation. A voluntary approach can
work better than a statutory scheme and ensure that more money is
transferred into good
causes. Mr.
Field: Our concern is relatively straightforward. The
reclaim fund will be there to protect public interest, and given the
FSA’s 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 list—it has a
statutory duty to provide such a list, which is available on its
website—and 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
should not be a particularly onerous requirement for the reclaim fund to
do that and to increase the transparency of the
process. 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
FSA’s 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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