Dormant Assets Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

2nd reading
Wednesday 26th May 2021 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, it is a great pleasure to welcome the noble Baroness, Lady Fleet. She is singing the right tune in everything that she said about the value of music education. I also pay tribute to how she has practised what she just preached to us.

I welcome this Bill as a follow-on to the Dormant Bank and Building Society Accounts Act, and I am aware that it is welcomed by the industry responsible for the assets, as well as the charitable bodies that hope to put the funds to good use. Participation by industry is voluntary, but it is still expected to be significant, more than doubling the volume of the funds released by the original scheme.

The two main aspects to the Bill are enlargement of scope to include dormant insurance, pension, investment, securities and client account assets and to make the approach to distributing the assets more flexible. A contemporaneous matter is that as from 30 March, Reclaim Fund Ltd has transferred its shareholding from Angel Square Investments—formerly the Co-operative Banking Group—to HM Treasury.

The new dormant assets each have their own clause, but the general principle seems to have been to include at this stage only assets that already have contractual mechanisms that can determine a cash reference value or, as in the case of a collective investment, have an established formula for valuing compensation at a subsequent date. That strategy makes sense in terms of managing liability. I was concerned whether seven years was the right length of time for deeming an asset dormant with regard to pension and insurance-type assets, but, on balance, perhaps I can see the benefit of bringing forward the point at which greater attempts are made to reconnect people with their assets. In theory, that should make it less likely that, for example, the notifier on a death certificate has moved, which is one way of tracing connected people.

Regarding the assets that are not included, the Bill includes the ability to expand to further asset classes. That creates an incentive for industry to develop new contractual terms relating to dormancy and “gone away” in these other kinds of investments so that, ultimately, if that was pursued to the extreme, it could apply to everything. What safeguard is there to make sure that there is not a perverse incentive to change future contractual terms to the detriment of asset owners in general?

One matter that does not appear in the Bill is that directors are free of fiduciary duty in respect of decisions to transfer dormant assets. It may be more complicated for some assets than for cash deposits if there are other, possibly unforeseen, consequential effects—for example, of reducing assets under management. Perhaps the Minister can say something about why there is nothing specific other than with regard to the cash liability.

I have an interest around how risk is determined and managed by the authorised reclaim fund. The Explanatory Notes make it clear, as in the 2008 Act, that reclaim funds are responsible for managing reserves to meet customer reclaims. Presently, 40% of the dormant assets received by Reclaim Fund Ltd are reserved for potential reclaim, which is based on actuarial calculations and recommendations from the FCA. Reclaims actually run at a much lower percentage. According to the 2020 accounts, the dormant assets received were some £89 million, £36 million was reserved for reclaims, and actual reclaims were just shy of £13 million. It is more representative to look at the cumulative figures for reclaims, as obviously they relate to a spread of years. The 2020 accounts show a cumulative liability provision of nearly £474 million against total reclaims since inception of just over £105 million, which is for 10 years of operation.

This low level of reclaim was attributed in the response to the consultation as due to the due diligence in trying to unify assets with their owners. It makes me wonder whether the calculations around that 40% rate should be revisited, at least for the bank and building society assets where there is a track record, presumably not just of the reclaims but of the ages and other data surrounding who has reclaimed. I acknowledge that for the new assets the same reclaim rates may not apply, but I am curious to know how the reunification rates are fed into the retention calculations and how far additional prudence was previously built in—for example by the FCA in order to protect the financial services compensation fund.

I would also like to ask what the attitude is of the Treasury towards the current level of prudence, given the provisions of Clause 27 and the new Treasury ability to provide a loan in the event that a reclaim fund is unable to meet its liabilities. I am not suggesting there should be a gung-ho approach, but with the government loan facility, a future stream of dormant assets and no financial services compensation protection to consider, does that also point to lower provisioning and higher release of funds for good works? Even if half of the 40% retention rate is released, it is a lot more money.

Also on this point, although under Schedule 2 to the 2008 Act there is no profit distribution to the shareholders of an authorised reclaim fund that could distort retention incentives, there is a cost to managing the retained assets as well as, if you like, a charitable lost opportunity cost.

I cited just now some 2020 figures. In fact, in 2020 the amount of £89 million of dormant assets represented a remarkably low year for dormant assets received—the lowest since 2013, when it was £87 million. The intervening years averaged £121 million, although I note that the Minister said that a rather lower £42 million steady state is expected. The year 2020 followed a somewhat bumper year of £147 million in 2019. I am wondering where these projections and steady state numbers come from. I can accept, and maybe it is the case, that projections show more digital banking is likely to keep people better attached to their money but, so far, none of the expectations, whether of the reclaim amount or the general level of the fund, seems to follow the projections.

A related question with regard to pensions and projections is: what effect does the Minister think the pensions dashboard will have in terms of reducing the number of accounts that go dormant because of loss of address? When would it be expected for that effect to kick in?

On the distribution of assets, I accept that a more flexible approach has benefits. However, even with consultation—and I think it should probably be in the Bill—surely the underlying strategic objective should be within the legislation. Ten years on from the 2008 Act, the definition could usefully be widened, but I am concerned about repealing Section 18 of the 2008 Act and leaving no structure. Focusing on a few areas, as the 2008 Act did, should potentially enable a game-changing investment that has a multiplier effect, which is an idea worth hanging on to even if realised partly in a different form. There are proposals around, as the noble Lord, Lord Blunkett, mentioned, relating to a community wealth fund, and that might be one such vehicle. Like him, I would be interested to hear about any thinking that the Government have done on the community wealth fund idea and how better to gain multiplier effects.