Dormant assets can bolster coronavirus charity aid

Out-Law News | 29 May 2020 | 4:07 pm | 3 min. read

The ability of charities and social enterprises to help businesses and communities recover from the economic impact of coronavirus could be enhanced if a greater range of 'dormant' assets held by financial services firms were made available for good causes, the chief executive of the UK's Reclaim Fund has told Out-Law.

The UK government is currently consulting on expanding the existing dormant asset scheme to insurance, pensions, securities and investment and wealth management. Under the current scheme, bank and building society cash accounts that are untouched for more than 15 years are considered 'dormant' and can be used for good causes. Customers retain the right to reclaim any asset that has been classified as dormant.

The dormant assets scheme was established in 2011. Since then 30 financial firms, including all the high street banks, have moved funds from dormant accounts to Reclaim Fund Ltd (RFL). RFL was set up for the specific purpose of funding future customer re-claims in perpetuity and distributing the surplus for the benefit of good causes across the UK.

Adrian Smith, chief executive at RFL, said: "Optimising the scheme by extending it to new asset classes, could unlock substantial sums which would otherwise be left to sit idle. These funds could aid many charities, social enterprises and others in their resurgence and growth following the current health crisis together with establishing new and emerging organisations. We look forward to working with industry to make this a reality and encourage all companies who operate within the proposed sectors to utilise the government’s public consultation to help develop the future of the scheme – which will continue to protect consumer rights to reclaim whilst enhancing communities."

The government's consultation, which closes on 16 July 2020, seeks to address the logistics of differing approaches and regulatory requirements across the proposed sectors. It is anticipated that trade associations will promote sector-specific principles and best practice guidance. 

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Good causes benefit from the ability to use inactive funds that would otherwise continue lying dormant, while the end customer remains protected

Smith was commenting on the proposals after the UK government announced which organisations would benefit from the latest tranche of funds – totalling £150 million – being made available for good causes from the dormant assets scheme.

Organisations helping to tackle a range of issues exacerbated by the Covid-19 pandemic, notably youth unemployment, emergency loans for organisations and increasing access to fair and affordable credit, will benefit from a share of the funds, according to the government.

Alice Bell, investment funds expert at Pinsent Masons, the law firm behind Out-Law, said: "It is great to have some positive news and hear that the scheme, which already makes valuable contributions to charitable endeavours, can play a part in the response to the Covid-19 pandemic. With government plans to expand the dormant asset scheme from dormant cash accounts held with banks and building societies to insurance, pensions, securities and investment and wealth management, there should hopefully be potential for the industry to make an even greater contribution in future."

Consumer finance expert Andrew Barber of Pinsent Masons said: "Core principles of the current scheme are that firms participate voluntarily and assets are only transferred from dormant accounts to RFL once the firm has made significant efforts to reunite them with the customer. Because the customer always retains the right to reclaim the asset from the scheme it means good causes benefit from the ability to use inactive funds that would otherwise continue lying dormant, while the end customer remains protected."

To date, RFL has received more than £1.35 billion from dormant bank and building society accounts and has now made available more than £745 million to tackle social and environmental issues in the UK including youth unemployment and problem debt.

Smith said: "We are proud of the role we play in facilitating the dormant assets scheme. It has been a significant achievement over the last nine years to establish the scheme on behalf of the UK government and be witness to the impact it has made on so many lives. RFL has worked closely with government over the last month to accelerate the distribution for 2020, in order that it can be used to support those most in need during these challenging times. We have done this prudently and in line with consumer protections."

The Youth Futures Foundation, which supports unemployed, disadvantaged young people across the country into jobs, Big Society Capital, which enables better access to investment for charities, social enterprises and some small businesses, and Fair4All Finance, an organisation that helps people struggling financially to access affordable lines of credit will receive a share of the £150m 2020 pot along with Access – The Foundation for Social Investment.