UNATHI KAMLANA: An approach to reduce unclaimed financial assets in SA

The Financial Sector Conduct Authority (FSCA) has released a discussion paper on a proposed framework for unclaimed financial assets in SA. The paper is intended to progress the debate on how to effectively address the challenge of unclaimed assets in the sector, uniting the assets with their rightful owners, and taking steps to minimise the risk of such assets accumulating in future.

The paper will also further inform the FSCA’s regulatory and supervisory approach on dealing with unclaimed assets across the financial sector.

An estimated R88.56bn of unclaimed assets are held by financial institutions across the SA financial sector. Given the lack of a common understanding in certain sectors of what constitutes unclaimed assets, and the lack of reliable data, the amount of such assets may be much higher. At least 53% of this total estimated unclaimed asset value is in retirement funds, with most of the balance being in collective investment schemes and in the life insurance sector, which together hold 38% of these assets.

Comparable data in the banking and other sectors is limited mainly due to lack of reporting and the absence of a common definition of what constitutes an unclaimed asset. Data from the banking sector that has been included in the FSCA paper comes from five banks and is limited to dormant retail transaction accounts.

The type of assets included within the scope of the proposed framework are retirement fund benefits, bank deposits including foreign currency deposits, and participatory interests in collective investment schemes. Others are life and non-life insurance policies and securities — any investment, return, income, dividend or other proceeds in respect of or derived from financial products that are payable or due to customers or their beneficiaries by financial institutions, including assets held by  central securities depository participants.

Apartheid years

The problem of unclaimed assets in SA has its genesis in the apartheid years, particularly the legacy of the migrant labour system, but it is not a challenge unique to our country. The Australian Securities & Investments Commission reports that Australia has the equivalent of R27bn in unclaimed assets. In that country funds are considered lost if a bank account has been inactive for seven years, or an insurance policy matures and is not claimed for the same period.

Ireland introduced legislation governing dormant accounts in 2001 covering funds held by all financial institutions, including post office savings accounts, bank deposit accounts, savings bonds and certificates, instalment savings and certain life insurance policies. Under the legislation if the rightful owner cannot be contacted funds are transferred to the Dormant Accounts  Fund Disbursement Board, and eventually to the Social Innovation Fund, which administers the money used to support various social causes. Since the fund was established, nearly R20bn has been recovered from dormant accounts. Of that amount, about an equivalent of R6bn has been reclaimed by account holders.

Japan’s Dormant Deposit Utilization Act of 2016 facilitates the channelling of funds from bank accounts that have been dormant for 10 years or more to finance social welfare activities, supporting children and young adults, people facing severe financial constraints, and to champion the revitalisation of local communities. The government estimates that there is about R9bn in dormant assets in the country. Closer to home, the Kenyan government has established a central fund that now holds almost R36bn in unclaimed assets.

The FSCA is calling for a co-ordinated and consistent approach to ensure the financial sector, which houses these unclaimed assets, prioritises improvements and that financial customers are treated fairly. As just one role player in this ecosystem the authority hopes the discussion paper will stimulate debate and develop ideas that can be considered to deal with this challenge.

It recognises that consultation with stakeholders is critical in understanding where and when potential dormancy and unclaimed assets may arise; the criteria that should be applied in the classification of dormant accounts and unclaimed assets across the various sectors and financial products; and the practical challenges in identifying and reuniting these assets with beneficiaries, including how these assets can be productively used if tracing genuinely fails.

Consultation process

The paper is a first step in our consultation process. In it we propose 13 recommendations in support of a holistic and consistent approach to the treatment of lost accounts and unclaimed assets within the sector. One of the most significant proposals is the establishment of a single Central Unclaimed Assets Fund into which all unclaimed assets, once identified as such, should be transferred and managed on behalf of the sector. Alternatively, such unclaimed assets can be transferred into the National Revenue Fund for the same purpose.

Given the complexity of this matter we encourage stakeholders to fully engage and ensure that all aspects are appropriately canvassed and considered. The paper does not include the following potential pools of unclaimed assets: the SA Revenue Service, the Road Accident Fund, medical schemes, the Compensation Fund, the Government Employees Pension Fund and the Guardian’s Fund. It similarly does not include unclaimed assets that may be harboured in loyalty programmes or informal arrangements such as stokvels and burial societies. These additional dimensions can form part of later work, as may be necessary.

Feedback received will be reviewed and used to strengthen the proposals, and where appropriate for submission to the National Treasury. All interested stakeholders are invited to comment on the discussion paper by November 30.

• Kamlana is commissioner of the Financial Sector Conduct Authority. The discussion paper is a first step in the FSCA’s consultation process.