Dormant Assets Scheme Consultation

This morning, HM Treasury published a consultation document setting out its proposals for expanding the dormant assets scheme.

The consultation discusses the background to the current scheme and then sets out proposals to expand it beyond banks and building society accounts.

Treasury believes that expanding the scheme presents an opportunity to unlock an estimated £1 – 2 billion of unclaimed assets for good causes.

It’s acknowledged that the expansion will require amendments to many industry rules and the implementation of new primary legislation to:

• define the transferrable assets;
• define dormancy in respect of each of those assets;
• define eligible participants;
• set out the operational structure; and
• ensure there are relevant consumer protections.

In addition to that, firms offering the types of products covers will require to update their company documentation, terms and conditions, policy wordings, articles and association, scheme rules etc to take account of the dormant assets framework if implemented.

The government expects that the implementation of the expansion will be on a phased basis and the principle of voluntary participation will be maintained.

Increase in categories of assets covered

The proposals are looking to take the following assets into the scope of the scheme (in addition to bank and building society balances which are already included):

• dormant insurance policies (savings endowments, term insurance, whole-of-life insurance and investment bonds which (i) are contracts of insurance for “contracts of insurance” for Schedule 1 of FSMA and that (ii) crystallise into cash by operation of a contractual, legal or regulatory event);
• dormant share proceeds (as defined in s540 of the CA2006 (provided they are UK registered PLCs (as per s4 ) or OEICs (as per s237(3));
• dormant unit proceeds (in an AUT scheme as defined in s237 of FSMA);
• dormant investment assets distributions and proceeds (of a collective investment scheme that isn’t an AUT (as per s235 of FSMA) including distributions of income, redemption proceeds, inactive cash balances and orphan monies post wind up;
• other dormant security distributions (dividends and proceeds from corporate actions).

Changes to dormancy definition

Currently, assets are classed as dormant after 15 years without customer-initiated activity.  Given the suggested expansion in scope, this definition would no longer be appropriate for some of the new categories of eligible assets.

All of the below require the relevant firm to have made “proportionate and reasonable efforts to reunite the asset with its owner” and those efforts must have been unsuccessful.  If this occurs, then the new definitions of dormancy for each of the categories of assets is proposed as:

• dormant insurance policies – (1) if there is a death claim, whichever comes earlier of (i) identification that no next of kin exists and (ii) 7 years after a death claim is accepted and there is no ongoing contact with those managing the estate, and (2) if there is no death 7 years after the end of the term;
• dormant share proceeds and dormant unit proceeds – no transactions have been carried out or contact made in relation to the asset or by the asset owner for 12 years and (where applicable) 3 distributions or other sums remain unclaimed or unpaid;
• dormant investment assets distributions and proceeds  – no transactions have been carried out or contact made in relation to the asset or by the asset owner for 6 years  and (where applicable) 3 distributions or other sums remain unclaimed or unpaid;
• dividends – no transactions have been carried out or contact made in relation to the asset or by the asset owner for 12 years;
• proceeds from corporate actions – 12 years after the company received the consideration.

Proposed reclaim values by asset class

Broadly, the amount that can be transferred  back to an owner is in line with market practice.  The scheme uses the principle of full restitution i.e. the reclaim values will be the amount that would have been due to the asset owner had a transfer into the scheme not occurred.  Under the expanded scheme, the proposed new reclaim values will be:

• dormant insurance policies – the value of the insurance policy at the point of crystallisation plus accrued interest;
• dormant share proceeds – in line with participating companies share forfeiture terms;
• dormant unit proceeds – the value at the time the owner makes their reclaim and it is verified, plus any distributions paid since the assets were liquidated and transferred;
• dormant investment assets distributions and proceeds  – the value of fund distributions, redemption proceeds, inactive cash accounts and/or orphan monies at the time they were due;
• dividends and proceeds from corporate actions – the value at the time they were due.

Responses to the consultation are due by 23.59 on 16 April by completing the response sheet and emailing it to dormantassets@culture.gov.uk