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On 09 January 2021 the UK Government published its response to the four-year review of the Dormant Assets Scheme, announcing that its scope will be extended from retail banks and building societies to insurers, pensions, and investment and wealth managers. This is a significant evolution with implications in terms of new costs and requirements, but it has been welcomed by the industry.
The Dormant Assets Scheme has the primary aim of reuniting ‘gone away’ customers with assets that have been forgotten about or lost for a number of years.
Under the scheme, firms are expected to use best efforts to reconnect with customers, for example, whose deposits have been untouched for fifteen years or more. If this is not possible, these assets are transferred to a government fund (Reclaim Fund Ltd) which uses the money for social investment. As the country as a whole focuses on recovery from the Covid-19 pandemic, the increased funding that the expanded scheme could make available will be particularly important: the government estimates that more than £880 million will be made available as a result.
A key feature of the scheme is unchanged: it remains voluntary. However, uptake is expected to be high: more than 30 firms participate in the current scheme as it stands, encompassing most high street banks and building societies.
Impact on funds
The roll-out to investment and wealth management (IWM) will require firms to make a judgment in terms of their participation, but there will also be operational considerations around how to engage with the scheme effectively. Much of IWM is in scope: assets that will be covered include UCITS and NURSs. A dormant asset will be defined as one associated with a customer who has “gone away” for at least twelve years. Following up with end investors who have not touched their funds for many years will therefore require firms to increase their monitoring activities, and to track down assets that fall into the “dormant” category.
The funds industry, in responding to the government’s consultation, noted that there were technical details to be worked through in terms of how the scheme will tie in to the FCA’s COLL and CASS rules. For its part, the government has noted that these issues will need to be addressed by the regulator itself as the government does not currently plan to legislate on this aspect of the scheme.
The government’s response also notes that there will be costs associated with joining the scheme. These will include set-up costs, including potential rewording of terms and conditions and prospectuses, and establishing new administration systems. There will be ongoing costs associated with the tracing of customers. However, the government notes that the costs of retaining dormant assets can also be significant, and this, coupled with the reputational benefits of engaging with the scheme, will likely offset any costs associated with joining.
Considerations for firms
When considering whether to participate when it is introduced, there are a number of factors that will influence firms’ decisions. Aside from the cost-benefit analysis, there are broader societal benefits that will be of interest to firms as the government seeks to marshal the industry behind its efforts towards recovery from the pandemic. It estimates that the IWM sector’s share of the £880m total will amount to £238m: this represents a significant societal contribution on behalf of the industry. Firms will also look to the uptake of the scheme as it currently stands: it will be noted that most of the banks and building societies in scope for the existing scheme have signed up. It can be expected that uptake among IWMs will therefore be similarly high, especially given the support firms have expressed for the proposals so far. Finally, it is in the interests of the end investor for firms to seek them out and reunite them with their lost or forgotten assets: the government estimates that some £2 billion of dormant insurance, pensions, IWM and securities sector assets could be reunited with owners through enhanced tracing efforts. Considering the societal impact, the likely uptake among competitors, and the benefits to end investors, it is likely that many firms will indeed support the expanded scheme when it is introduced.
The next steps for the expansion of the Dormant Assets Scheme have not yet been set out in detail, although the government has noted in its response that it will seek to legislate on this when parliamentary time allows. Any changes from a Handbook, COLL and CASS perspective can be expected to follow after this.
Since the scheme was first established, it has distributed £745 million to social causes throughout the UK. The expansion to cover UCITS and NURSs offers the investment and wealth management industry the opportunity not only to build on the scheme’s successes, but to play an important part in supporting the economic recovery from Covid-19.
It is worth remembering that the Dormant Assets Scheme will remain a voluntary initiative, and it does not preclude tracing outside of the scheme. A number of firms are already actively tracing “gone-aways” and reuniting them with their assets, citing many of the benefits listed in the article above. There is therefore the possibility of firms proactively and independently repatriating assets. Ultimately firms can decide whether or not to sign up to the formal scheme when further details are made available by the government.
Initial principles have been published, but the more technical elements such as timeframe, regulatory interactions, and implications in terms of COLL and CASS are still to be set out. Ultimately these specifics, rather than the overarching principles, will likely determine the level of uptake and interest from firms.