Dormant Bank and Building Society Accounts Bill [HL]

My Lords, I beg to move that this Bill be now read a second time. It is a fact of life that many people forget about, or lose track of, often small deposits of money in bank and building society accounts. This may be because they have changed address and lost contact with their bank, or perhaps have died without anyone being aware of the account. As a consequence, a large amount of money is lying dormant in bank and building society accounts. The estimation of the British Bankers’ Association and the Building Societies Association is that there is currently between £250 million and £350 million in banks, and up to £150 million in building societies. This is based on a dormancy period of at least 15 years. Several countries have schemes to enable these unclaimed assets to be reinvested in society. Following a Labour Party manifesto commitment, the 2005 Pre-Budget Report set out that the Government had decided that the time had come for such a scheme in the United Kingdom. The Dormant Bank and Building Society Accounts Bill is a key part of turning that ambition into a reality. The Bill enables a scheme that both releases money for distribution in the community and protects consumers, providing them with the same ongoing right to repayment as they would have had from their bank. It also takes an approach that deliberately limits the regulatory burden on industry. As such, it is an approach that is good for the consumer, good for industry and good for society. The Bill is central to the delivery of the scheme. Its key elements include: defining a dormant bank account as one where there has been no customer-initiated transaction for 15 years; defining the financial institutions able to participate in the scheme, which is broadly speaking retail banks and building societies; and permitting eligible institutions to have their liability extinguished on eligible accounts on certain conditions, including a transfer to a reclaim fund, which in turn takes on the liability to repay any reclaiming customer. It sets out what a reclaim fund is and amends the Financial Services and Markets Act 2000 to enable the activities of a reclaim fund to be specified in secondary legislation as regulated activities and, thus, for a reclaim fund to be regulated by the Financial Services Authority. The Bill provides consumers with protections, including the right to repayment from the reclaim fund. It gives powers to the Big Lottery Fund to distribute assets that the reclaim fund deems surplus to its requirement to hold assets to meet anticipated levels of customer reclaim. It provides a power for the Secretary of State to apportion money between the countries of the United Kingdom following consultation with the devolved Administrations. It sets out the priorities for expenditure in England as youth services, financial capability, financial inclusion and resource for a social investment wholesaler. It provides Ministers in the devolved Administrations with an order-making power to set distribution objectives in their country, and it sets out an alternative option for small institutions to participate through separate arrangements that allow distribution of money in their local communities. There are a number of elements outside the proposed legislation that will be integral to the delivery of the scheme. These include: the setting up of a reclaim fund and its subsequent authorisation by the Financial Services Authority; agreements between individual participating institutions and the reclaim fund under which institutions agree to act as agents of the reclaim fund for the purposes of repaying customers; revisions to the self-regulation of the Banking Code; and the industry’s commitments to maximise efforts to reunite account holders with their lost accounts. The Government’s approach has been informed by the following principles: first, wherever possible, reuniting account holders with their money; secondly, the consumer’s right to reclaim—account holders must have the legal right to reclaim their money at any time; thirdly, the light-touch approach, as our intention is to minimise the running costs for the scheme and participating institutions by wherever possible building on existing infrastructure in order to maximise the money available for reinvestment in the community; and, finally, better regulation. The proposed UK scheme differs significantly from other international arrangements in being in part a self-regulatory scheme. It is proposed that legislation will enable, but not compel, banks and building societies to transfer funds held in dormant accounts. The scheme is intended to operate as follows. Following the pre-scheme reuniting exercise, participating institutions identify accounts that meet the definition of dormancy. The Bill allows banks and building societies to cancel their liabilities to holders of these accounts on certain conditions, including the transfer of assets to an FSA-authorised reclaim fund. As part of this transfer, the Bill establishes a new statutory right for consumers to be repaid by the central reclaim fund. Money that the reclaim fund does not require to repay consumers will be passed over for reinvestment in the community via the Big Lottery Fund. In England, distribution will focus on providing places to go for young people, financial capability and inclusion projects, and, resources permitting, developing the social investment market. The devolved Administrations will determine their own priorities for distribution. Small institutions will have an option of seeing money reinvested in their local communities. As I set out earlier, banks and building societies estimate that between £400 million and £500 million currently lies unclaimed under the proposed definition. Clearly, the impact of pre-scheme reuniting and the provision by the reclaim fund against future reclaim requests will mean a significantly smaller amount is available for distribution. It is not possible to quantify this figure at present with any degree of confidence. While customers will always have the ongoing right to reclaim their money under the proposed scheme, the Government believe that it is important that any scheme is preceded by a concerted reuniting effort. Reuniting customers with their lost accounts is primarily a matter for financial institutions and their customers and is outside legislation. The Government therefore welcome the bank and building society sector’s commitment to a comprehensive reuniting exercise in advance of the scheme launch. The BBA and the BSA made a detailed announcement on 8 November, which is available on their website. It sets out that they and the individual institutions will undertake proactive search activity throughout 2008. As part of this, the BBA, BSA and NS&I will bring together their free tracing schemes into a single cross-industry facility for customers seeking to locate a lost account. The one-stop shop will be launched in January. The scheme aims to capture genuinely lost accounts as opposed to those that are managed by customers. The proposed dormancy period of 15 years is deliberately long with this objective. In the Bill, dormancy is defined as no customer-initiated transactions on the account. It is intended, however, that banks and building societies can use the voluntary nature of the scheme to generate greater flexibility. Thus, they can refer to any customer-initiated activity related to the account, such as correspondence or telephone calls, e-mails or voting at AGMs, in deciding whether an account is suitable for the scheme. Institutions that can participate in the scheme are, broadly speaking, all retail banks and building societies operating branches in the UK. National Savings & Investments is not included in the scheme. The reclaim fund will receive money from dormant accounts transferred by individual banks and building societies. The Bill does not create a reclaim fund but sets out the requirements that a company must meet in order to operate as one and paves the way for its authorisation and regulation by the FSA. A reclaim fund will be a private sector-run company and the banking and building societies sector has committed to lead on selecting and setting up a central reclaim fund. This commitment and a timetable for the identification were set out in its 8 November announcement. The Bill requires a reclaim fund to be authorised by the FSA, and the FSA’s regulation will help to ensure that it has sufficient money to meet anticipated levels of claims for repayment by customers. The Bill also sets out the three purposes of a reclaim fund which will be incorporated in its articles of association and may not be changed at a later date. The purposes are that the reclaim fund must meet repayment claims, manage money prudently, and transfer surplus funds to the Big Lottery Fund for distribution. In addition, the Bill will place further restrictions on a reclaim fund. A fund may cover its running costs to the extent that they are reasonable and it must publish key information about institutions that are participating. The flow of money into the scheme and the levels of customer reclaim by institution must also be published. It is intended that account holders will experience no practical difficulty in the way that they are treated as a result of the scheme. Banks and building societies will act as a reclaim fund’s agents, and this will be set out in private arrangements outside of legislation. Consumers will therefore be able to continue their usual relationship with their bank or building society and will deal with their bank directly if they wish to reclaim their money. Banks and building societies’ relationships with their customers are self-regulated through the Banking Code, and this will remain the case for customers with accounts under this scheme. The Banking Code is to be updated in March 2008. The industry has indicated that the code will be updated to ensure that customers will continue to use their own bank or building society as a means of reclaiming their money. They will ensure equivalency of treatment for all customers regardless of whether their money has been transferred into the scheme, and banks and building societies will inform their customers about the scheme, including publishing their policies for treating accounts as unclaimed assets. In the event of any disputes, consumers will continue to have recourse to the Financial Ombudsman Service for resolution, subject to the usual qualifying conditions, and of course consumers can resort ultimately to the courts to enforce their legal rights. The reclaim fund will release money not needed to cover reclaim for distribution. The principles underlying the Government’s approach to redistribution are that it is an efficient and co-ordinated light-touch scheme which limits spending on administration and releases as much money as possible for investment in communities; that, as a UK-wide scheme, it is an appropriate and efficient distribution of assets across England, Scotland, Wales and Northern Ireland; that spending is additional to government provision in a manner which is accountable and transparent; and that distribution should benefit a diverse range of communities and be used to deliver practical programmes which bring about real change to neighbourhoods. Guided by these principles, the Bill appoints the Big Lottery Fund as the distributor of dormant account money. The decision to use the lottery was supported in consultation. It has been chosen because using an existing body makes practical sense. The Big Lottery Fund is one of the few existing UK-wide organisations with the capacity to distribute resources on a large scale. It operates across the whole of the UK and has country headquarters in England, Scotland, Wales and Northern Ireland to which decision-making is devolved, and it has access to an extensive network of third sector and public sector delivery partners ranging from large-scale national charities through to grassroots community groups. Dormant account money will not be folded into the lottery’s other activities but will be managed as a separate and distinct fund with separate financial management and accounting arrangements. The 2005 Pre-Budget Report stated the Government’s preference for these resources in England to be focused on youth services that are responsive to the needs of young people, and on the issues of financial capability and inclusion. The Government believe that there is a strong case for focusing resources in England on improving the life chances of young people and helping them through the important transition from childhood through adolescence to adulthood. Investment in young people is an investment in the future of the whole community. Their success is a social and economic necessity. More also needs to be done to raise the level of financial capability and financial inclusion across the whole population and to ensure that people are able to make the right financial choices and develop the skills to manage their finances to their own advantage. The Government feel that spending on these activities represents an appropriate use of dormant account assets. In addition to these spending areas, following consultation the Government would also like to see a proportion of the available assets in England, if resources permit, used to invest in the long-term sustainability of the third sector. This can boost the social investment market through support to the creation of a social investment wholesale institution. These priorities for distribution are set out in the Bill and are for England. Scotland, Wales and Northern Ireland will determine their own spending priorities, reflecting the needs of communities in each country. Under the proposals, small banks and building societies will have the option of distributing money not needed to fund reclaim to charities that benefit their local communities. Typically, these institutions will be building societies often playing an important role in their local communities, and this builds on the commitment made in the 2005 Pre-Budget Report. Customers with these small locally-based institutions will be treated in the same way as for the main scheme. For example, the reclaim fund will take on the liability to repay them and they can continue to claim directly with their bank or building society to get the repayment. But money not needed by the reclaim fund will be available for the small institution to distribute the balance to charities benefiting their local communities. To qualify for this scheme, an institution must have total assets of £7 billion or less. The Government believe that larger financial institutions serving wider communities should take part in the main scheme. The scheme is not intended to affect membership rights. The Bill contains provisions so that if a building society transfers an account to the scheme, any membership rights attached to the account will continue as though the scheme had not been transferred. This includes any rights that might exist to demutualisation benefits. The Bill will not impinge on the Crown’s existing rights to bona vacantia, or ownerless property. It will also allow existing arrangements for dormant charity accounts as set out in the Charities Act 1993 to continue. This Bill offers an historic opportunity to allow money lying dormant in bank accounts to be used to the wider benefit of society. It does so while protecting consumers and maintaining a low burden on industry. As such, I commend the Bill to the House. Moved, That the Bill be now read a second time.—(Lord Davies of Oldham.)