The UK’s COVID-19 Recovery Plan - Expansion of the Dormant Assets Scheme

On Monday, the Queen announced proposals for the Dormant Assets Bill (the “Bill”) - a piece of legislation that is intended to unlock £880 million for social and environmental initiatives in the UK as we enter a period of COVID-19 recovery.

The Bill will expand the current Dormant Assets Scheme (the “Scheme”) into the insurance, pensions, investment and wealth management and securities sectors in the UK.  In the past, dormant assets have posed a major problem for financial institutions – billions of pounds sitting in lost pensions, investments and life insurance policies.  Therefore, the industry has shown widespread support for expansion of the Scheme.

Director General at the ABI, Huw Evans said, “We also welcome that the insurance and pensions sector will be included in the dormant asset scheme to ensure that an estimated £2.1bn of unclaimed assets can be made available to good causes with the asset owners having the right to reclaim their funds at any point.”

What is the Dormant Assets Scheme?

• It was established through legislation in 2008.
• It aims to reunite owners with their financial assets and, where this is not possible, funds are used to support important initiatives in the UK.
• Owners may claim their dormant assets at any time.  However, only a small percentage do so and the rest of the money lies dormant.
• The existing regime applies to banks holding accounts that have sat unused for more than 15 years.
• The Scheme is voluntary but currently over 30 banks and building societies participate including HSBC, Lloyds, Nationwide and RBS.
• Funds from the Scheme are split proportionally between the four UK nations and spent on innovative projects addressing entrenched social challenges.  In Scotland, the government uses dormant assets funding to improve the physical and mental wellbeing of young people through the Young Start programme.
• Since 2011, £745million has been released to good causes in the UK.

It is clear that the Scheme already plays an important role in society. As we enter an era of COVID-19 recovery, it is hoped that the enhanced Scheme will have an even greater impact on the UK’s individuals, charities and social enterprises.  The Scheme provides long-term, flexible funding which, when used effectively, can create positive systemic impact where the UK needs it most.

The Bill

The Bill proposes an expansion of the Scheme which will mean that the following additional unclaimed assets can be transferred into it:

• Proceeds of life insurance and retirement income policies
• Shares or units in collective investments
• Certain investment asset distributions and proceeds
• Shares and distributions from shares in public limited companies
• Proceeds from corporate actions

However, a key requirement is that only cash can be transferred into the Scheme.  Any non-cash assets must therefore by crystallised or converted into cash to be eligible to transfer.  This places an additional obligation on participating firms in terms of valuation.

It is expected that expanding the Scheme into these new sectors will make roughly £880 million available to aid the UK’s recovery from COVID-19.  However, the Scheme remains voluntary and, of course, this figure will depend on the number of firms that sign up to the Scheme.

What does this mean for firms?

Firms will likely welcome the Bill as the expansion enables a wider range of financial services institutions to participate and ensure that their businesses can be run more efficiently and effectively whilst supporting wider community initiatives.

What does this mean for consumers?

Understandably, some consumers may be concerned that their assets could be transferred to the Scheme against their will.  However, it’s important to remember that the number one priority for the Scheme and businesses continues to be reuniting owners with their assets.

There are three key principles underpinning the Scheme:

1. Reunification – reuniting owners with their assets.
2. Full restitution – customers are always able to reclaim what they would have been owed if their assets had never been transferred to the Scheme.
3. Voluntary participation – businesses can decide whether they want to join the Scheme and how much they transfer.

In the unlikely event that a consumer finds that their assets have been mistakenly transferred into the Scheme, the Scheme is obliged to repay that owner who comes forward to reclaim their money.  Also, the transfer and reclaim process will be tax neutral, consistent with the principles of consumer protection.  This way, the customer never loses out.

Over the past year, our communities have grappled with the devastating impact of COVID-19.  This Bill gives the UK’s financial services industry a unique opportunity to support social and environmental initiatives, having an indirect impact on those who need it most.

Our recommendation

We would recommend that our clients in the financial services sector add the Bill to their internal legislation trackers.  The Bill will need to follow the usual process through Parliament before receiving Royal Assent and becoming law.  However, given the references to the Scheme as facilitating the COVID-19 recovery, it may be that this happens sooner rather than later.