For about a decade or so, the issue of dormant accounts in finan cial institutions has attracted casual but sustained interest from Members of both Houses of the Oireachtas in the potential there might be for the State to put these funds to good use. Investigation into the matter raised complex constitutional, legal, operational, prudential and investment considerations – the right to private property, rights on foot of the Succession Act, 1965, and the State Property Act, 1954, the bank-customer implied contract of confidentiality, and the implication for banks' solvency and liquidity. The Minister for Finance also had to consider the public perception impact of introducing such a scheme, and what effect this would have on potential investors both domestically and overseas.
The main concern was that there was no onus on credit institutions to trace the owners of deposits lodged with them. It was up to clients or their next-of-kin to come looking for their money. The days of personal banking, in which bank staff knew their clients and notified their dependants in circumstances where the account holder had died, for instance, have long passed, and no system was in place which guaranteed next-of-kin their rightful inheritance. In addition, there are many instances where people have chosen to remain secretive about their financial affairs, in which cases dependants or next-of-kin have found it impossible to trace the relevant accounts.
This failure to trace account holders has long been a matter of public conjecture and concern. Demutualisation of the Irish Permanent and First National Building Societies in recent years indicated the extent of the problem. In the Irish Permanent flotation, in 1994, almost half of those people entitled to free shares did not initially take up that offer. However, by the time the process was completed in 1997, and following the extensive advertising campaign, the percentage of non-claimants had fallen to 8% of customers. Nevertheless, this still numbered about 12,000 accounts.
The momentum for reform in this area increased with the publication of the report, Parliamentary Inquiry into DIRT. Senators will recall that the Committee of Public Accounts sub-committee on certain revenue matters recommended that, as soon as was feasible, legislation should be prepared by the Minister for Finance so that funds in dormant accounts could be used for specified purposes of societal and community benefit. The sub-committee considered that the money in these accounts represented "free capital" for financial institutions, in that deposit takers had free use of these funds and in effect the moneys had become part of the capital base of these institutions. The sub-committee was anxious that the benefit of these funds, which seemed to lie unclaimed for long periods of time, should accrue to society as a whole, and not just to the financial institutions.
Having regard to the various considerations mentioned above, last November the Minister proposed the outline of a scheme to deal with dormant accounts. The Government accepted the proposals and gave permission for legislation to be formally drafted. This proved a long and challenging task, as many issues came to light in the drafting process that had not previously been considered. The Minister was aware that the successful development and implementation of the proposed scheme would require the full co-operation of the financial institutions and their representatives, as well as the advice and co-operation of the Central Bank and the National Treasury Management Agency, whose assistance was always forthcoming and of enormous benefit.
The proposed legislation is without precedent in this jurisdiction. There was no other statutory scheme that could be used as a template to guide us along the path we wished to take. Nevertheless, this legislation gives the most equitable balance between the rights of account holders and the desire that neither the credit institutions nor the State should be burdened with an unduly bureaucratic scheme. In addition, the Bill fully addresses the recommendation of the Committee of Public Accounts for the use of the moneys in dormant accounts, in that charities and the community at large will, once the scheme is operational, benefit from the moneys.
The Department of Finance has attempted to estimate the amount of dormant funds held in accounts with credit institutions, on the basis of information supplied by the banks, building societies and An Post. After much discussion of the parameters, the institutions agreed to supply information relating to the number and value of deposit accounts dormant for various periods of time. An Post also supplied relevant information relating to savings bonds, savings certificates and instalment savings schemes. A period of 15 years of dormancy, when there has been no customer initiated transaction on an account for at least 15 years, was decided upon. A lesser period might cause disquiet among account holders and lead to an inordinately high level of reactivation of accounts. This could have created an unsuitable workload for all concerned. It should also be noted that 15 years is the shortest defined period for dormancy in the European Union.
Given the large volume of dormant accounts initially identified by credit institutions, the Minister had to settle on a dormancy period manageable by the institutions. The Bill provides that the timeframe settled on can, at a later date, be reduced by way of ministerial regulation. Once the backlog of dormant accounts has been reduced, the Minister for Finance and the Minister for Social, Community and Family Affairs will consider whether the timeframe is still appropriate, given that the public will be well aware of the new regime. Given a period of dormancy of 15 years, the Minister was advised that the number of such accounts could be more than 840,000 and their value about £130 million. These figures are estimates of the amounts involved and do not take account of the likely level of reactivations once the institutions in question bring the proposed scheme to the attention of their customers. They represent the best estimate of the institutions and provide sufficient evidence for the Minister to pursue his stated aim of bringing forward proposals to deal with dormant accounts.
The Government decided that the scheme would also apply to mature, but unclaimed life assurance policies. The Minister is still pursuing this matter with the insurance industry and intends to bring forward proposals later this year. The proposals in the Bill are more modest than what the Government originally envisaged, but more achievable. The Bill is a good first step on the issue of dealing with funds long neglected by owners and will help to establish the basic framework within which other dormant products can be dealt with. The Government also agreed that the Department of Finance should continue to hold talks with the Irish League of Credit Unions with a view to reaching agreement, on a formal basis, for the treatment of dormant accounts in credit unions. Such discussions are ongoing and the Minister hopes to provide for the inclusion of dormant credit union accounts at a later date, possibly through an extension of the current scheme by way of ministerial regulation.
The scheme, which will come into effect on 1 April 2002, will provide a legislative framework which will improve regulation in relation to the handling and management of funds in dormant accounts in credit institutions. Such institutions will be required to actively take all reasonable steps to identify the beneficial owners of dormant funds, with a view to alerting them to their existence, or repayment if the customer wishes. If the owner or owners cannot be traced, dormant funds will be taken into the care of the State, although the owner will be guaranteed the right to seek a refund. The moneys will be held in a separate fund to be established by the National Treasury Management Agency, whose remit will be to invest the moneys prudently, especially given the possibility of claimants seeking a return of their moneys at a later date.
The Bill also makes provision for the introduction of a scheme for the disbursement of surplus dormant funds for the benefit of charities and the community at large. The purposes for which this money may be disbursed are set out in section 41. The projects or programmes to benefit will be those designed to alleviate poverty or social deprivation or to assist those who are physically disadvantaged. However, in particular, it provides that special priority for funding is to be given to programmes or projects designed to assist primary school children experiencing learning difficulties. Once organisations involved in the design or implementation of such programmes become aware of the scheme, and I hope apply for funding, it is hoped this will help minimise the number of children leaving primary school with literacy or numeracy problems below standard for their age. The public will be pleased when the signal goes out that these moneys are to be spent on worthwhile projects.
The legislation also provides that moneys currently vesting in the intestate estates fund deposit account may be transferred, henceforth, to the dormant accounts fund on foot of an amendment to the State Property Act, 1954. I would like to clarify for Deputies that, while the Minister for Finance is bringing forward the framework legislation, the Minister for Social, Community and Family Affairs will have the primary ministerial responsibility for the scheme once it is up and running, especially for the disbursement aspects.
The Minister is extremely conscious that the moneys being dealt with derive, in the main, from private bank and building society accounts and that, as such, they must be handled and invested prudently, having regard to the constitutionally guaranteed right to private property and the confidential nature of the relationship the credit institutions enjoy with their customers. His concern that customers should be reunited with their moneys, including all interest due thereon, is reflected in four key features of the Bill.
First, the term "dormancy" will be statutorily defined and, therefore, applied uniformly by all institutions that fall within the ambit of the scheme. This will provide clarity for customers in that they can be certain that if they have not carried out any transaction on their accounts for 15 years or more, as and from 31 March next year, the money in the account is due to be dealt with in a defined manner. This should also encourage account holders to make contact with their bank or building society to ascertain whether they have an account at that institution.
Second, the institutions in question will be required to make best efforts to contact their customers. This may be done in one of two ways. Banks and building societies will be required to personally contact those account holders whose accounts are valued at or above 100, making them aware of the scheme and their rights and obligations under it. Notification will be by way of advertisement in two or more national daily newspapers for accounts valued at less than 100, as well as for so-called "non-correspondence" accounts. "Non-correspondence" accounts are those in regard to which the account holder has requested that no correspondence be sent to his or her home address or where correspondence sent to an address has been returned to the credit institution.
These annual advertisements, the first of which is scheduled to take place in April next year, will generate public awareness of the scheme. In this regard, members will be pleased to know that subsequent to the drafting of the legislation, the Department of Finance finalised discussions with the Central Bank that have resulted in the application of a new, statutory code of practice on licensed credit institutions. This code of practice provides that credit institutions issue statements on all accounts valued at or above 20, at least once a year. Everybody will agree that this is a welcome development within the banking sector and will go even further down the road started with this Bill in attempting to reunite customers with their moneys.
Third, the legislation provides that the National Treasury Management Agency will establish and manage a dormant accounts fund into which moneys from dormant accounts will be transferred from April 2003. The agency will be required to invest these moneys prudently, based on guidelines which the Minister will help to draw up but having regard to the need to meet the costs of making repayments to valid claimants seeking a return of their moneys. The main issue in this regard is that not only is a claimant entitled to a return of the principal transferred from his or her account, he or she is also entitled to any interest that he or she would have been due on that principal had the account remained with the institution. The moneys in the fund will generate an investment income, some of which will be used to offset the costs of interest payments to claimants and the rest of which will be reapplied to the fund.
Fourth, the legislation will give the Minister for Social, Community and Family Affairs authority to appoint not only the members of the disbursements board, but also inspectors for the purposes of ensuring compliance with the scheme on the part of the institutions. These inspectors, who will essentially be professional accountants hired on contract, will be empowered to examine the systems and practices which an institution employs to ascertain if they are adequate for the purposes of identifying and notifying the holders of dormant accounts. They will also ascertain whether all moneys due to be transferred to the dormant accounts fund have been transferred and properly recorded and will report back to the Minister.
Having highlighted these main features, I will now set out the main provisions of the Bill. In summary, the Bill provides for identification of the types of accounts and institutions to be covered by the scheme; the period of dormancy; the obligations of the institutions in relation to notification of account holders that their accounts may be deemed dormant; the establishment of a dormant accounts fund to be managed by the National Treasury Management Agency and the procedure, including the timeframe, within which moneys are to be transferred to that fund; the rights of share account holders in building societies on foot of the legislation; a new recording procedure to be adopted by the credit institutions in relation to the holders of dormant accounts; the introduction of a scheme whereby institutions will be obliged to complete certificates of compliance with the provisions of the legislation so that any failure on the part of institutions can be quickly identified; a new role of inspector whose remit will be to check compliance with the legislation on the part of the institutions; amendment of the State Property Act, 1954, so that moneys from the intestate estates fund deposit account can be transferred to the dormant accounts fund; the appointment by the Minister for Social, Community and Family Affairs of the dormant accounts fund disbursements board, whose remit will be to disburse moneys from the dormant accounts fund for specified purposes on receipt of successful applications for such; accountability of the chief executive of the National Treasury Management Agency and the chairperson of the dormant accounts fund disbursement board to the Committee of Public Accounts for the functions of the agency and the board, respectively – this includes provision for annual reports from each of those bodies; maintenance of confidentiality in relation to ownership of the moneys in dormant accounts and extension of the scheme to other classes of product and-or other classes of institution at a later date by ministerial regulation.
While this Bill does not purport to address all the issues or to provide for a complete solution to the issue of dormant accounts, it makes an ambitious start down that road. It enables us to begin to provide for a systematic approach to the regulation of these accounts in the strive for transparency of their treatment, as well as providing for an equitable and socially beneficial use of any surplus moneys identified. The Bill is innovative and I commend it to the House.