Guidance

Factsheet Two: Policy context and background

Updated 24 November 2021

1. How the Scheme Operates

The UK Dormant Assets Scheme was established by the Dormant Bank and Building Society Accounts Act 2008 (the Act). It is led by industry and backed by government, with the aim of reuniting owners with their financial assets. Where this is not possible, this money supports important social and environmental initiatives across the UK. Dormant assets remain the property of their owners, who can reclaim any money owed to them in full at any time. However, only a small percentage do so. The rest of the money lies dormant. The Scheme responds to the imperative to put this money to better use.

A dormant asset is a financial product, such as a bank account, that has sat unused for many years, and which the provider has been unable to reunite with its owner, despite efforts based on industry best practice.

The Scheme is underpinned by the following principles, which the government has committed to upholding as part of any expansion:

1. Reunification first: Customer protection is at the heart of the Scheme. Businesses’ first priority is therefore to reunite customers with their assets;

2. Full restitution: Customers are always able to reclaim the amount they would have been owed had their assets never been transferred into the Scheme; and

3. Voluntary participation: The Scheme allows businesses to voluntarily transfer funds from dormant assets. They can decide if they want to join and how much they transfer.

Businesses’ first priority is to reunite owners with their assets. This includes trying to locate people who might have moved house – for example, by tracing them via Royal Mail, email, telephone, a tracing service, or a credit reference agency.

If the asset has been classified as dormant and cannot be reunited with its owner, participating firms can transfer the funds to Reclaim Fund Ltd (RFL), an authorised reclaim fund, which takes on the liability to meet any reclaims. RFL manages the funds, retaining enough to meet any reclaims and distributing the rest to social and environmental initiatives via The National Lottery Community Fund (TNLCF).

A transfer and agency agreement (TAA) is held between RFL and the bank or building society, and establishes a contractual framework between the two parties. The TAA outlines the operational arrangements for transfers and reclaims, and includes further details of participants’ obligations to undertake reunification efforts prior to transferring eligible assets into the Scheme.

RFL is legally obliged to retain a portion of the funds it receives in order to repay owners who come forward to reclaim their money. RFL currently releases circa 60% of the money it receives to social and environmental initiatives, and reserves 40% for reclaims, of which a portion is invested. This approach is based on actuarial modelling and Financial Conduct Authority guidance.

The funds that RFL releases go to TNLCF and are apportioned to each nation in the UK according to the Distribution of Dormant Account Money (Apportionment) Order 2011, based on the Barnett formula. The 2008 Act sets out specific purposes for which the English portion of the funds can be distributed; while the devolved administrations can, by secondary legislation, set the specific purposes or people to which their portion of funding can be distributed. Relevant ministers in each nation can also issue broad policy directions to TNLCF on how to allocate their portion of the funding to social or environmental causes.

The 2008 Act requires TNLCF to report on its policy and practice in relation to the additionality principle: that dormant assets funding should be used for projects, or aspects of projects, for which funds would be unlikely to be made available by central or devolved governments.

Scotland and Wales use TNLCF as their delivery partner for projects focusing on young people, climate change, and sustainability, while Northern Ireland has worked with TNLCF to establish a £20.5m Dormant Accounts Fund for the voluntary, community, and social enterprise sector. In England, the funds are currently dedicated to initiatives focused on youth, financial inclusion, or social investment. TNLCF distributes dormant assets funding to four specialist independent dormant assets organisations (The Youth Futures Foundation, Fair4All Finance, Big Society Capital and Access – The Foundation for Social Investment. Their operations are regularly reviewed by the independent Oversight Trust – Assets for the Common Good, which ensures optimal accountability and transparency around each of the organisations’ activities.

There are more than 30 firms participating in the current Scheme, including HSBC Bank plc, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, and The Co-operative Bank plc. There is also an alternative Scheme available for small banks and building societies. The alternative Scheme enables firms with balance sheets below £7bn to transfer dormant account funds to RFL and nominate a local or aligned charity to receive the surplus. The alternative Scheme will be maintained but will not be expanded.

A full list of participants of the Main Scheme for larger banks and building societies can be found here and details of the Alternative Scheme can be found here.

Dormant assets remain the property of their owners. Owners are able to reclaim the cash amount of what they would have been owed had their asset not been transferred into the Scheme at any time. The Scheme responds to the imperative to put the money that isn’t reclaimed to better use.

Owners can trace their dormant assets through a variety of means. In the first instance, owners should contact the business that held their money. Please see sector-specific resources and advice below:

Banks and building societies	Owners should trace their dormant bank accounts through mylostaccount.org.uk.
Insurance and pensions	• Owners can use the gov.uk site to search for a lost pension • Owners can also visit the Association of British Insurers’ (ABI) website for guidance on tracing lost assets • Owners can also refer to the ABI’s register of consolidations, which can be used to trace policies should an acquisition or brand change have occurred that clients may not have been notified of
Investment and wealth management	Owners should contact firms directly to trace lost assets, using the Investment Association’s website to access a searchable list of firms for the sector
Securities	Owners should reach out to their individual issuer in the first instance, who can then direct them to the correct registrars to support tracing.

2. How is money from the Scheme spent

The Dormant Bank and Building Society Accounts Act 2008 dictates that all dormant accounts money must be used to fund initiatives which have a social or environmental purpose.

Funds from the Scheme are split between the four nations to be spent on social and environmental causes. Since 2011, £800m has been released to good causes in these areas across the UK.

The Scheme allows responsible businesses to have a positive impact on society and the environment by contributing dormant assets for systemic change.

In England, funding is allocated to expert organisations to deliver innovative projects addressing entrenched social challenges. The Scheme plays an important role in society. It provides long-term, flexible funding that enables expert organisations to focus on creating positive systemic change to important issues such as youth unemployment, problem debt, and environmental issues. This has never been more important than in the aftermath of the coronavirus pandemic.

In England, expenditure is currently ring-fenced for initiatives focused on social investment, youth or financial inclusion. To date over £650m has been allocated to four organisations working across the three causes:

1. Big Society Capital (£425m)
2. Access – The Foundation for Social Investment (£40m)
3. The Youth Futures Foundation (£90m)
4. Fair4All Finance (£96m)

In Wales, £36.4m of dormant assets funding has been allocated. The money has been spent on a mix of projects focusing on climate change and sustainability and supporting young people with disabilities into employment. This includes £15m invested in young people, learning, education and employment; and £4.5m in climate change action.

In Scotland, £62.4m of dormant assets funding has been allocated. The Scottish government uses dormant assets funding to improve the physical and mental wellbeing of young people by supporting them to learn new skills and enter employment through the Young Start programme.

In Northern Ireland, dormant assets funding will be used to increase the capacity, resilience and sustainability of the voluntary, community and social enterprise sector via a £20.5m Dormant Accounts Fund, which will provide multi-year, flexible support for the sector. Applications for the Fund opened in January 2021.

3. RFL as an HM Treasury Non-Departmental Public Body

In September 2019, the Office for National Statistics (ONS) informed the government of its decision to classify RFL as a central government body, effective from the date of its establishment by the Co-operative Banking Group (now Angel Square Investments Ltd).

The government worked extensively with RFL and Angel Square Investments Ltd to respond to the ONS’ classification in a way that safeguards the effective operation of the Scheme, both now and in the future, making sure that plans for Scheme expansion are not affected.

RFL is now a Non-Departmental Public Body (NDPB) of HM Treasury, operating at arm’s length from the government. RFL will continue to manage the Scheme in an open and transparent way, governed by a separate board of Directors.

RFL’s funds remain financially separate from central government funds. Surplus funds will continue to be transferred to TNLCF for onward distribution in accordance with legislation.

4. Expansion

Since 2016, industry has been working with the government to consider how best to expand the Scheme.

In 2017, the Commission on Dormant Assets reported on the potential to expand the Scheme to include a wider range of asset classes. In 2018, the government confirmed its support for Scheme expansion and asked industry to explore how this would happen in practice.

Four senior Industry Champions took on this challenge in 2018. Their report, published in April 2019, made recommendations to industry, the government and regulators on broadening the current Scheme beyond banks and building society accounts to include assets from the insurance and pensions, investment and wealth management, and securities sectors. It concluded that primary legislation would be needed to expand the Scheme.

In preparing their report, the Industry Champions convened sector-specific working groups involving around 80 different organisations from across the four sectors.

The responses showed widespread support for expanding the Scheme from bank and building society accounts to include assets in the insurance and pensions, investment and wealth management, and securities sectors.

Building on this, the government launched a public consultation on expansion in 2020 to gather an even wider set of views on the proposed approach to expanding the Scheme. There were 89 responses to the consultation, representing more than 500 organisations and individuals in total. The government response, which you can read here, was published in January 2021 and committed to introducing legislation to enable Scheme expansion. Responses to the consultation have informed the development of the Bill.

The expanded Scheme will function in a similar manner to the existing Scheme, with a participant signing a transfer and agency agreement before transferring money to RFL. Such an agreement gives RFL the flexibility to tailor certain provisions to the assets in question, ensuring that the relevant consumer protection requirements, including tracing, verification and reunification, are followed.