Banking: Can we release the sleeping millions?

Pressure is mounting for the millions of pounds in dormant accounts to be handed over to charities and the voluntary sector. Patrick McCurry reports.

By the end of this year, charity and community projects in Ireland will have benefited from EUR60m (£41.5m) that was previously sitting unused in bank and building society accounts. This is because the Irish government passed legislation forcing the financial sector to hand over the assets from so-called dormant accounts over to a 'disbursements board' to distribute the money in grants to good causes.

Seamus Thompson, chief executive of the Irish Wheelchair Association and a member of the disbursements board says: "It's been a massive boost to the voluntary and community sector in Ireland."

Following the example of Ireland and some other countries, there are moves to encourage the UK's financial sector to hand over unclaimed assets to good causes. If this materialises, the kind of resources channelled to the charity sector could be huge.

There are several reasons why bank and building society accounts or insurance policies become dormant. The most obvious is that they are forgotten about, particularly if only small sums are involved.

For example, Labour MP Martyn Jones first got involved in the campaign to transfer unclaimed assets to good causes after discovering his own 'dormant account'.

He was checking his standing orders and direct debits and discovered one standing order that had been paying out a pound a month for years.

It turned out this money was going to a fundraising account for Wrexham Labour Party, where Jones had lived 20 years previously.

"The party had benefited for all that time, except that it hadn't, because it didn't know that the account existed," Jones told the House of Commons in a debate on unclaimed assets.

But unclaimed assets are not just held in bank accounts. Many householders may take out life cover as part of their mortgage arrangements, but when they sell the property they forget about the insurance policy. Another reason is lack of knowledge about an account. For instance, a significant proportion of building society customers who were entitled to payouts following demutualisation did not claim those funds.

It is not known how much money lies unused in dormant accounts and unclaimed insurance policies, but some estimates put it as high as £20bn.

The actual figure will depend on how dormant accounts are defined. In Ireland, for example, it is an account that has not been used for 15 years, while in Australia it is seven years and in the US six.

Obviously, the fewer the years required for an account to be classified as dormant, the higher the figure will be for unclaimed assets.

But it's a highly controversial issue, given that holding onto unclaimed assets helps financial institutions present a healthier balance sheet.

The Government is under pressure to act. An early day motion, or parliamentary petition, calling for action and organised by Martyn Jones, has been signed by a quarter of all MPs.

Jones has accused the banks and financial institutions of using money in dormant accounts to boost their profits and of not making a serious attempt to reunite funds with their owners.

Spring Budget

This pressure appears to be having some influence at government level.

In the detailed commentary accompanying his spring Budget this year, Chancellor Gordon Brown said that where financial assets and owners cannot be reunited, "it is also right that the assets be reinvested in society, as long as the original owners' entitlements to reclaim the funds are preserved".

He added: "Charitable and voluntary organisations would provide an effective route for this."

Since then, the Treasury has been in talks with banks and other financial institutions about the idea, and an update on these discussions is expected in the Chancellor's autumn statement, which will be made sometime this month.

The Treasury has also been consulting interested parties, including some voluntary organisations, on a scheme.

"The Treasury wrote to us to ask how the money from unclaimed assets could be distributed and we said it should take the form of both grants and loans," says Hilary Brown-Wilkinson, director of the Institute for Philanthropy.

Some progress has already been made in engaging with the financial sector.

In August 2003, the Balance Charitable Foundation was set up with the support of two investment banks, UBS and Lehman Brothers. The Balance Foundation was so called because it is working to free up unused bank balances and because the notion of equity is suggested by the word 'balance'.

Richard Compton-Burnett, chief executive of the foundation, says it has been in contact with a number of key financial organisations. Its initial focus was investment banks, he says, and it is also involving law firm Freshfields to look at the legal issues surrounding the topic. Others involved in talks have included the Financial Services Authority (FSA).

"We've been looking at a lot of the difficult technical issues involved in releasing unclaimed assets," he says.

The technical difficulties are primarily legal, but also relate to tax and accounting issues. The main legal point of concern is that sometimes assets are held by financial institutions on trust for the owners, and can only be released to charity in very limited circumstances in the absence of new legislation.

"That means there's a trust relationship which is a legal concept, and an organisation can't simply release monies without a breach of trust," says Compton-Burnett.

Released assets

One breakthrough, he says, was when the FSA agreed a rule change allowing investment banks to release certain unclaimed assets. That rule change has allowed the foundation to approach a number of investment banks and discuss asset transfers.

There have been no actual transfers to the foundation so far, says Compton-Burnett, but he expects that situation to change in the coming months.

The foundation will be publishing its grant-making policy before the end of the year, he adds.

He also suggests that some form of insurance could be put in place that would protect those institutions handing over assets from dormant accounts.

If an account holder were to turn up to claim the assets of an account that had been disbursed to charity, the insurance would cover that claim.

This would differ from the Irish model, in which the government is the ultimate guarantor and will compensate any account holders that claim their assets.

But despite the activities of the Balance Foundation, political campaigns and Gordon Brown's comments, much of the financial sector is either opposed to or sceptical about the idea.

The Building Societies Association has expressed its sharp opposition to the proposals (see box above) and the British Bankers' Association (BBA), while not opposing the idea outright, sounds less than enthusiastic.

BBA spokesman Brian Capon says that the money in dormant accounts belongs to customers and is always theirs to claim. "If you're talking about transferring that, there are legal, tax and accounting issues that need to be tackled," he says.

He adds that the banks already do a lot for charity: "In the past five years, the big six banks have donated £600m to charity."

Capon denies Martyn Jones's allegation that the banks have been slow to try to trace the owners of dormant accounts, noting that the banks have a dormant account tracing system in place.

The big question surrounding the whole issue is whether the Government will have to pass legislation forcing the financial sector to transfer unclaimed assets to a charity fund, or whether encouragement alone will work.

The Balance Foundation's Compton-Burnett says: "It remains to be seen whether the retail banks and other financial institutions take part voluntarily, but obviously we're keen to involve them as much as we can."


In Ireland it was the finance minister Charlie McCreevy who really pushed through the new system, and it turned out that legislation was required because of opposition from the financial sector.

But it took a long time from the early campaigning for the new system to reach the Irish statute books, which should be a warning to those in the UK voluntary sector expecting rapid progress.

"McCreevey started campaigning for the proposals in 1996, but it was only in 2001 that the Dormant Accounts Act was passed in Ireland," says the Wheelchair Association's Thompson.

But the long campaign has definitely been worth it, he says. In this, the first year of the board, EUR60m will be distributed to charities and other organisations involved in tackling economic and social disadvantage, educational disadvantage and helping people with disabilities.

The sums available for disbursement in future years are not yet established, but there is likely to be a steady stream of money from dormant accounts.

One of the big benefits of the fund is that, unlike the Irish lottery, it is independent. Thompson says: "The lottery here has lost a lot of its independence and has become almost a part of departmental spending, so we're very keen to retain the independence of the disbursements board."

There is little doubt that the UK voluntary sector would love to see something similar to the Irish system up and running. But much will depend on how co-operative the financial sector shows itself to be with government proposals.

If it turns out that legislation is needed, the looming General Election and other priorities are likely to mean that little major change will be forthcoming for several years.


Martyn Jones, Labour MP for Clwyd South, has campaigned to improve UK laws surrounding unclaimed assets.

"I want the UK to adopt legislation similar to that in other countries, so that charities and community groups across the UK could benefit from a multi-billion pound windfall, while not prejudicing the legitimate rights of the owners. I believe that the current situation, in which huge amounts of assets reside in such accounts in the UK, is becoming scandalous, and I want the Government to follow the example of other countries and act.

"I believe the banks and building societies have failed to take serious, adequate and determined action to trace the rightful owners of dormant and intestate accounts. Instead, these institutions sit on huge balances of dormant money and reap the rewards. The Government should introduce legislation by which money is transferred from dormant accounts and intestate estates to an independently managed fund for use by charities and good causes.

"The legislation would stipulate that, in the case of accounts that have been dormant for 15 years or more, the balance of those accounts should be transferred directly to an independent fund, managed by a government-appointed board of trustees. Then the money could be distributed to local community, or charitable groups and worthwhile causes.

"The Irish example is successful because the Dublin government took on the banks and building societies and said to them 'enough is enough."


Rachel Le Brocq is the BSA's press and public affairs officer.

"We're opposed to proposals to take unclaimed assets from building societies to go to good causes. This is because those funds belong to building society members and should stay there. Funds that are in building societies are already used for good causes, such as offering the public good-value mortgages and savings.

"With demutualisation in the 1990s, a lot of people may have opened accounts and have forgotten about or just not used those accounts since then, but they still have a right to those accounts. We do try to reunite unclaimed assets with account holders but sometimes it's difficult if someone has moved house or changed their name and not told us.

"Our view is that the money held in building societies should remain there and is not ours to give away. It is not clear whether, under existing legislation, the money could be legally transferred out of a building society to a third party."

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