OpinionJul 15 2020

Expanding dormant assets scheme will help tackle financial exclusion

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Expanding dormant assets scheme will help tackle financial exclusion
comment-speech

The world has changed immeasurably since the Department for Digital, Culture, Media and Sport (DCMS) first began to consult in February on plans for a major expansion of the dormant assets scheme. 

Ten years on from Reclaim Fund Ltd (RFL)’s incorporation as the custodian of dormant assets, and nine years since we first took in funds from banks and building societies, the consultation into expansion plans, which closes tomorrow, could potentially unlock millions of pounds of additional support for good causes across the UK.

Events of 2020 have brought the social need into stark relief as communities have grappled with the impact of Covid-19.

When people move address, change their names, pass away without leaving a will or simply forget they have an account, funds can become lost in dormant accounts.

Perhaps one of the best kept secrets of the UK’s financial services industry, the dormant assets scheme came into being in 2008 through legislation allowing funds to be pooled together to address social challenges.

The scheme’s participants have grown to include virtually all of the UK’s major banks and building societies.

Their collective aim in voluntarily joining the scheme is to use the money held in thousands of dormant accounts to support good causes and social enterprises while protecting consumer rights to reclaim.

Of course, the core objective of any financial organisation is to safeguard customers’ money – and to reunite the two, should they ever fall out of touch.

Tracing

However, when people move address, change their names, pass away without leaving a will or simply forget they have an account, funds can become lost in dormant accounts – and even the best tracing and reunification efforts cannot unearth the original owner.

This is where the dormant assets scheme and RFL come in.

Under the established scheme for banks and building societies, funds from accounts that haven’t recorded any activity for 15 years or more can be transferred to RFL for safekeeping.

We in turn transfer a portion to The National Lottery Community Fund where it is allocated to the nations of the UK in line with government policy, to support causes that tackle some of society’s most pressing issues.

Enough money is always retained to cover any claims that may be made by customers, or next of kin, who have successfully been traced.

Even after dormant assets have been transferred to support good causes, if a customer comes forward they will always be reunited with their assets.

They will never lose out and can always rely on the scheme to restore them to exactly the same financial position they would have been in had the transfer never have occurred. 

Three core principles have guided the scheme’s progress to date: prioritising consumer protection, voluntary industry participation and the guarantee that customers can reclaim their funds in full at any point.

Underpinning this is the fact that no dormant asset funds have been spent on the operation or administration of RFL itself.

All our running costs to date have been covered by investment returns from the assets we safeguard – and the investments we make are low-risk and reflect a strong Environmental, Social & Governance (ESG) criteria.

Enough money is always retained to cover any claims that may be made by customers, or next of kin, who have successfully been traced.

Achievements

So, what has been achieved so far?

Since 2011 £745 million has been made available to good causes, with £435 million being used to establish Big Society Capital to grow the social investment market in the UK.

To date its investments have included supporting over 2,000 vulnerable people in moving into appropriate housing and facilitating job and training opportunities for 26,000 disadvantaged young people. 

Within the last year, Fair4All Finance has been established to combat financial exclusion among vulnerable people by increasing access to fair, affordable and appropriate financial services.

Dormant assets have also helped to establish Youth Futures Foundation, an independent organisation set up to tackle youth unemployment with £90m of funding that will reduce the barriers keeping nearly 500,000 young people out of work across England.

Most recently, in response to Covid-19, we have worked closely with government to accelerate distributions for this year – providing a much-needed injection of £150m to front-line charities while ensuring this is done prudently, proportionately and in line with consumer protections.

Scope of consultation

Dormant assets are being used to make a positive difference to thousands of lives.

The proposed expansion could help achieve even more.

Bringing dormant assets in insurance, investments and securities into the scheme – with the potential for pensions to feature when appropriate, either now or in future – could unlock millions of additional funds and unite more financial services firms with government and the third sector to help tackle social problems and financial exclusion.

The key to any expansion will be maintaining equally strong protections for policy or shareholders as currently apply to bank and building society account holders.

Following work led by four industry champions to lay the ground for potential expansion, the consultation process has invited a range of institutions – including insurers, wealth managers and publicly listed businesses – to share views, add to the debate and ask questions about the practical and technical considerations involved to help shape the future of the scheme. 

I believe the dormant assets scheme provides a unique channel for the UK financial services industry to support social investment and youth and financial inclusion initiatives.

Dormant assets are being used to make a positive difference to thousands of lives.

At RFL, we are proud of the part that we have played in facilitating the scheme over the last nine years, and will continue to channel that experience to help support participation and inform the next stage of discussions and development. 

At a time of increasing need in many communities across the country, the scheme provides a proven way to combine forces and make a genuine positive social impact.

Adrian Smith is chief executive of Reclaim Fund