big push on dormant cashMay 2004
UK financial institutions are being given the chance to redirect cash lying in dormant bank accounts to projects tackling social and financial exclusion.
The Balance Charitable Foundation for Unclaimed Assets has been set up to channel money from dormant accounts to charities. Estimates of the money, mainly in the names of people who have died or cannot be traced, range from £5billion ($9bn) to £20bn.
Although participation is voluntary, the UK government could use the threat of regulation to encourage banks to comply. Gordon Brown, the chancellor of the exchequer, has publicly backed the idea and will review progress in six months.
Richard Compton-Burnett, the new foundation’s chief executive, said Brown’s stance suggested the government might intervene if financial institutions did not comply. ‘The threat is implied rather than explicit,’ he said.
He added, however, that forcing banks to disclose dormant assets and then redistribute them ‘would require a major act of parliament and a lot of complicated work on behalf of the banks’, and the political will for that was lacking at present.
The foundation says Lehman Brothers and UBS Warburg have already pledged their support, and that discussions are under way with seven or eight investment banks.
However, response from the banking sector as a whole has not been particularly positive. The British Bankers’ Association (BBA) is to consult its members but has privately expressed reservations. Building societies say money from dormant accounts is used to help fund mortgages.
The charity sector, too, has reservations. Gordon Crowe, legacy controller for Guide Dogs for the Blind, who has lobbied the UK Treasury to require the release of money from dormant accounts, said: ‘I suspect that a very small amount of the unclaimed assets is going to be released in this way. This initiative is just ... relying on the goodwill of the banks.’
The foundation is initially concentrating on investment banks but will move on to high street banks, which are likely to have much more in dormant accounts. Its launch comes at a sensitive time for the high street banks, as several include assets from dormant accounts in their profit line, and have just announced strong profits.
The foundation’s grant-making policy will not be published until trustees are in place, but it expects to start by addressing ‘social exclusion in chronically deprived areas’ and could be guided by the wishes of institutions that donate.
The initiative has been set up by a group of individuals, including Sir David Cooksey, a venture capitalist and non-executive director of the Bank of England, with help from charities.
The financial institutions will use a small percentage of the money released to insure against any claims from owners and heirs who come forward at a later date.
According to the BBA, some banks classify an account as dormant after it has been inactive for only 18 months, while others allow five years. The exact period is at the discretion of individual banks. In the March budget, Brown said it was ‘right’ for the cash in dormant accounts to be reinvested in society rather than used by banks.
In the US, financial institutions have to keep a public database of dormant assets, which eventually go into the public purse if they are not claimed.
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