Financial Conduct Authority
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FSA plans proportionate regime for regulating Reclaim Funds

The Financial Services Authority (FSA) today set out how it aims to regulate the new reclaim funds – the institutions that will be responsible for dormant accounts transferred to them from banks and building societies.

Under the Dormant Bank and Building Society Accounts Act 2008 (the Act), which received Royal Assent on 26 November 2008, reclaim funds will be authorised and regulated by the FSA. They will be under an obligation to transfer surplus money, after meeting FSA requirements and their own expenses, to the Government’s ‘Big Lottery Fund’ (BIG), which will reinvest the money according to Government priorities.

Graeme Ashley-Fenn, FSA director of permissions, decisions and reporting, said:

“Reclaim funds will be a unique type of financial institution with the characteristics of both a bank and an insurer.  This is because they will have dormant accounts transferred to them and will also have to estimate the percentage of deposits that are likely to be reclaimed.  Our regime will reflect this uniqueness and will be proportionate and cost-effective with clear prudential requirements for reclaim funds to retain sufficient money to repay dormant depositors that may claim their money at a later stage.”

The FSA has pre-consulted and worked with the British Bankers’ Association (BBA) and the Building Societies Association (BSA), as well as the Treasury and will work with interested applicants on a pre-application basis and also through the authorisation process.  The consultation period has also been shortened to two and a half months, given this pre-consultation process.  

The Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS) will cover customers of banks and building societies who have dormant accounts transferred to a reclaim fund.

Notes for editors

  1. Consultation Paper 09/8 Regulating Reclaim funds.
  2. The Treasury committed to setting up a scheme to reinvest dormant bank and building societies deposits (unclaimed assets) in good causes in the 2006 Pre-Budget Report.  The Dormant Bank and Building Society Accounts Act 2008 (the Act) received Royal Assent on 26 November 2008.  Participation in the scheme is voluntary and for those banks and building societies that participate, the Act allows existing liabilities to dormant account customers to be extinguished.  This will be replaced by a new statutory liability to repay customers, to be placed on a new type of firm, a ‘reclaim fund’.
  3. In order to enable reclaim funds to be authorised by us, the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) will be amended to include the relevant activities of reclaim funds.  These activities are specified as the meeting of repayment claims and the management of dormant account funds.  The Treasury is today consulting on this separately.
  4. Dormant Accounts:  The Act defines a dormant account as one on which no transactions have been carried out by or on the instructions of the account holder for 15 years, unless there was a disincentive for withdrawal, withdrawals were prevented, or the customer had instructed the bank or building society not to communicate with them. 
  5. The BBA and the BSA have committed to increase and enhance their existing reuniting activity before the new scheme is launched with the intended outcome being to reactivate as many accounts as possible by reuniting owners and their assets, and minimise reclaims once the dormant accounts have been transferred to a reclaim fund. 
  6. As part of the reunification exercise, The BBA, BSA and National Savings and Investments (NS&I) have joined forces to develop, which brings together the three separate tracing schemes for dormant accounts with banks, building societies, and national savings in a single website.  Through this free service, consumers can search for dormant accounts. Once the new regime is operational, banks and building societies will be required, on entering into communications with a dormant account holder, to inform them if they are participating in the scheme and provide appropriate information about its terms.
  7. Reclaim fund: The Act describes the functions of a reclaim fund as meeting of repayment claims, the management of dormant account funds and the transfer of any surplus to BIG.  A reclaim fund would need to be authorised by us and would be subject to our prudential requirements.  If a bank or building society transfers a dormant account to a reclaim fund, its liability to repay that customer is extinguished.  That liability is transferred to a reclaim fund, who will repay the depositor upon request.  Monies not reclaimed will be transferred to BIG for distribution to charitable causes according to government priorities.  Participation by banks and building societies in a reclaim fund is voluntary.
  8. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  9. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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