House of Commons
|Session 2008 - 09|
Publications on the internet
Public Bill Committee Debates
The Committee consisted of the following Members:
Simon Patrick, Committee Clerk
attended the Committee
Second Delegated Legislation Committee
Monday 29 June 2009
[Janet Anderson in the Chair]Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2009
That the Committee has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2009 (S.I. 2009, No. 1389).
It is a pleasure to serve under your chairmanship, Mrs. Anderson, to discuss the order this afternoon. The Dormant Bank and Building Society Accounts Bill received Royal Assent on 26 November 2008 and establishes the legislative framework for a UK dormant accounts scheme that allows banks and building societies to make funds in dormant accounts available for distribution to the wider benefit of the community, while protecting the rights of account holders to reclaim their money. The 2008 Act was widely supported by both Houses during its passage, and we are grateful to hon. Members for their contributions during those debates. Following its passage, the Government consulted on consequential secondary legislation, including on extending the scope of Financial Services Authority regulation to cover reclaim funds, which we are dealing with today. The Government published a summary of responses to the consultation on 10 June this year, and all respondents firmly supported the proposals.
The Governments approach to developing the scheme has focused on three key principles: first, consumer protection, by ensuring an ongoing legal right for account holders to reclaim their money at any time; secondly, reuniting, by encouraging account holders to be reunited with their rightful assets; and, thirdly, better regulation, by adopting a proportionate regulatory approach. The Government intend the scheme to be effective, transparent and fair. Although the order is largely technical in nature, it contributes importantly to that objective by extending the scope of FSA regulation to include reclaim funds. FSA regulation will help to ensure that the reclaim fund manages dormant account funds prudently and can meet repayment risk and that consumers are properly protected and not unfairly disadvantaged should their dormant accounts be transferred into the scheme.
Before going into the details of the order, it might be helpful to the Committee if I briefly provide an overview of how the UK dormant accounts scheme will work. Banks and building societies are committed to reuniting account holders with their dormant accounts, but if that is unsuccessful and an account meets the statutory definition of dormancy, a bank or building society may transfer the account balance to the reclaim fund. Following a transfer, the banks or building societys liability to repay the account holder is extinguished. Instead, the customer gains a legally enforceable right to repayment from the reclaim fund. Money that the reclaim fund does not require to meet reclaims or to cover its own reasonable costs will be passed on for investment in
Given that the purpose of the order is to extend the scope of FSA regulation to cover reclaim funds, I shall explain how we envisage that the fund will operate, according to the requirements set out in legislation. The 2008 Act sets out the definition of a reclaim fund: it must be a company incorporated under the Companies Act 2006. The industry is committed to leading on selecting or setting up a reclaim fund. Once established, a fund will be entirely independent of the Government, the banking industry and the Big Lottery Fund. The 2008 Act also requires the activities of a reclaim fund to be restricted, by its articles of association, to the meeting of repayment claims, to the management of dormant account funds to meet whatever reclaim fund claims it is prudent to anticipate and to the transfer of money to the Big Lottery Fund or any other body charged with the distribution of unclaimed funds for social or environmental purposes.
The transparency of the reclaim funds operation and its good governance are important parts of the scheme. The 2008 Act makes it clear that the FSA must regulate a reclaim fund; and the FSA has already consulted separately on its proposals for regulation. For the FSA to bring forward its final rules and regulations, the Government must legislate to enable the FSA to regulate reclaim funds, which is the purpose of the order. The Government propose to amend the regulated activities order under the Financial Services and Markets Act 2000 to specify as regulated activities the meeting of repayment claims by a reclaim fund and the management of dormant account funds by a reclaim fund. That will require any reclaim fund to be authorised by the FSA, by inserting those two activities as specified kinds of activity that no person may carry on without FSA authorisation. FSA oversight of the reclaim fund will help to ensure that the reclaim fund manages dormant account funds prudently and can meet repayment risk and that consumers are properly protected. It will also ensure that consumers have access to the financial services compensation scheme in the highly unlikely event that the reclaim fund becomes insolvent.
Mr. Mark Hoban (Fareham) (Con): Will the Minister explain which category the reclaim fund will sit within the FSCS?
Ian Pearson: I hope to be able to do so in my closing remarksit is not immediately apparent to me which category it will fall into, so I will consult and get back to the hon. Gentleman. I should re-emphasise that it is highly unlikely, given how the reclaim fund would be managed, that it would need to become insolvent and seek access to the FSCS. We are talking about theoretical circumstances.
Mr. Hoban: I hope that it is theoretical and that the reclaim fund is managed in such a way that it does not become insolvent. However, if the reclaim fund was within the licensed deposit takers section of the FSCS, which includes banks, credit unions and building societies,
Ian Pearson: The hon. Gentleman makes a good point. I am advised by officials that it will be in deposit class A. I want to reflect on his point, given the possibility of future events.
In the event of disputes, consumers will be subject to the usual qualifying conditions and have recourse the Financial Ombudsman Service. They could ultimately resort to the courts to enforce their legal rights. Important consumer protection measures are built into FSA regulation.
The order is very technical, but it is an important part of the legislative framework for the scheme. I think that we all support the principle of consumer protection that is behind the order, and I hope that when we have discussed and debated the details, we will approve it.
Mr. Hoban: It is a pleasure to serve under your chairmanship, Mrs. Anderson, for what I think is the first time.
The Minister and I debated reclaimed funds when we debated the Dormant Bank and Building Society Accounts Act, so there is little need to go over the history of the matter, save to say that the order is a key part of the architecture, because it is in effect the conduit through which money from dormant bank and building society accounts will pass into the Big Lottery Fund. It is important from a consumer perspective that the process exists, and it is important that it is well managed. When a consumer decides that they want some money back when their account has been declared dormant, they will fall back on the reclaim fund.
There is a tension in the management of the fund. We would all like as much money as possible go to the three worthy causes that were identified in the Actchildren and youth services, financial inclusion and social investment wholesalers. There is pressure to get the money from bank accounts into the BLF for distribution to those good causes, but we want to ensure that money is left in the reclaim fund so that there is money to fall back on if someone wants to reclaim a deposit after the 10-year period. The order is an important part of that structure.
I asked the Minister where within the financial services compensation scheme the reclaim fund sits. If it becomes insolvent, it is absolutely right that account holders should have a fall-back mechanism, which is what the FSCS exists to provide. However, at the moment, people in the deposit-taking classes are picking up the bills for credit unions that collapse, which happens, sadly, all too often. They are also meeting some of the costs of Bradford and Bingley and the Icelandic banks, so quite a lot of money is already being transferred from deposit-takers to the FSCS in respect of those claims. It would be disappointing, although a logical consequence of the location of the reclaim fund in the architecture, if money expected to go to good causes was diverted to meet the costs of compensation for failed banks or building societies. Clarification from the Minister would be helpful.
The Minister said that the order was necessary to enable the FSA to produce its own detailed rules on the regulation of reclaim funds, but will he say more about
The Minister also said that the reclaim fund must be independent of the banking sectorI am paraphrasing his remarksyet paragraph 4.1 of the response to the consultation says that the British Bankers Association and the Building Societies Association
are committed to leading on selecting or setting up a reclaim fund.
How can the reclaim fund be independent of banks if the BBA and the BSA play a role in setting it up?
Where are the Government in drawing up the spending directions for the Big Lottery Fund in terms of implementing the strategic spending priorities in the Act? When does the Minister expect the dormant accounts scheme to be operational? It has been a long time coming; I think that it was consulted on before the last general election. We have had the primary legislation and are now dealing with secondary legislation, so it would be helpful if we knew when the scheme would be launched. If I were a betting man, I would suspect that it would be some time before next May. I do not know why next May falls into my mind as a date for launch, but it seems a convenient time for the Government to announce the launch of the scheme.
I should be grateful for clarification of those matters, particularly on the FSCS and the role the banking industry will play in running the reclaim fund.
Dr. John Pugh (Southport) (LD): I wish that I could say that it is a pleasure to serve under your chairmanship this afternoon, Mrs. Anderson, but it is not. I am feeling thoroughly unwell and out of sorts, so with the Committees indulgence, I will content myself with saying
Dr. Pugh: Hon. Members are prolonging my suffering. The order completes the uncontentious Dormant Bank and Building Society Accounts Act 2008, modifies the Financial Services and Markets Act 2000 and introduces relatively uncontentious regulation by the FSA. We support it.
Ian Pearson: I agree with the first three things that the hon. Member for Fareham said. First, I agree that the reclaim fund is an important part of the architecture of ensuring that dormant account funds can go to worthy causes. Secondly, I agree with him about the tension between wanting money to go to worthy causes and
The hon. Gentleman said that the dormancy period was 10 years, but I should correct him, because it is actually 15 years. I am sure that he remembers that and that it was a slip of the tongue.
Mr. Brian Binley (Northampton, South) (Con): I am concerned about the time limit and about how heirs and assigns fit in. If interest accrues, there could be a sizeable amount in an account. I imagine that that would be a rare occurrence, because not many people go around forgetting that they have left a large amount in a bank account. However, occasionally, there could, for whatever reason, be a large sum in an account. How will that impact on the interest, on the time limit and on heirs and assigns? How much right will heirs and assigns have to reclaim from the fund?
Ian Pearson: I can assure the hon. Gentleman that nothing in the order directly relates to that. The dormancy period is determined in legislation. Whether money that has been lost is reunited with the current owner or with heirs and successors who are entitled to it, it is clear that the money is rightfully theirs. Procedures will be put in place to ensure that that is the case.
The third thing that the hon. Member for Fareham said was that it would be disappointing if money that was expected to go to good causes was deflected to pay for failing banks and institutions, and I support him in that comment. That will be addressed by the FSA, when it determines the FSCS levy.
Mr. Hoban: Will the Minister expand on that? Is he suggesting that the FSA would exclude the reclaim fund from contributing to the levy?
Ian Pearson: No, I am not saying that. I am saying that the FSA proposes charging 20 per cent. of deposit class A leviesonly a fifth of the levies that it would normally require. Again, the levy is based on the size of the assets involved. However, the hon. Gentleman raises an interesting point, and nobody on either side of the Committee would want reclaimed funds diverted to pay for failing banks, rather than worthy causes. I will reflect on the point and discuss it with my officials.
The hon. Gentleman asked a number of questions about the ownership of the reclaim fund and about candidates. Let me try to explain where we are on that. The reclaim fund will be a private special purpose company independent of the Government, the banking
It would not be appropriate to comment on how many candidates have come forward. In terms of when we want the scheme to become operational, the scheme is conditional on the secondary legislation taking effect. Following that, the FSA will need to bring in details of its prudential framework for the scheme. The reclaim fund will need to apply to the FSA for authorisation once the necessary regulation and rules are in place.
We have said that we are looking for the scheme to be operational as soon as possible after the authorisation of a reclaim fund. I cannot give the hon. Gentleman a date today, but we want to get moving, and further discussions need to take place between the BBA, the BSA and the FSA to make sure that we do. I should emphasise that industry has always told the Government that it is committed to setting up a reclaim fund, and we expect industry to deliver on those commitments.
The hon. Gentleman also asked about spending directions. The allocation between each of the spending areas for England will be determined, as I think I said during the passage of the Dormant Bank and Building Society Accounts Bill, by a cross-Department working group, which includes the Department for Children, Schools and Families, the Office of the Third Sector, the Department for Communities and Local Government, the Department for Culture, Media and Sport and the Treasury. That will continue to meet to draft the spending directions issued to the Big Lottery Fund. Then they will be issued by the Secretary of State for Children, Schools and Families. The hon. Gentleman will remember the debate that we had about the fact that someone had to have overall responsibility for issuing the directions.
On the point about heirs, the 2008 Act sets out that consumers have the right to reclaim the balance, including interest. Those who have inherited dormant accounts will be entitled to the balance. I hope that that makes the matter clear to the hon. Member for Northampton, South.
This technical order gives the FSA the power to regulate the reclaim fund. I think that we all agree with the general principle that the reclaim fund should be regulated and I hope that I have answered satisfactorily the questions that were raised.
Question put and agreed to.
That the Committee has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2009 (S.I. 2009, No. 1389).
|©Parliamentary copyright 2009||Prepared 30 June 2009|