The FSCA has proposed establishing a single central unclaimed assets fund into which all unclaimed assets should be transferred. This is one of 13 recommendations in its discussion paper on unclaimed assets, which are approaching R90 billion across the financial sector.
Read: Financial institutions may hold far more than R88bn in unclaimed assets
The Authority said the discussion paper builds on work by the FSCA and National Treasury to find a solution that will lead to increased disbursements of unclaimed assets to beneficial owners.
“It seeks to contribute towards the debate on unlocking unclaimed assets across all industries within the financial sector for social, environmental and/or developmental initiatives and aims to foster a conversation on how lost accounts and unclaimed assets should be treated.”
It said the inconsistent approach, both within market segments and across the financial sector, to identifying and treating unclaimed assets contributes to the high amount of unclaimed assets.
Although progress has been made in the retirement, collective investment scheme (CIS) and life insurance sectors with reuniting unclaimed assets with their beneficial owners, a high value of unclaimed assets remains.
“This raises questions about how to minimise the accumulation of unclaimed assets in future, enhance reporting on unclaimed assets, further improve tracing mechanisms, and best utilise assets of beneficial owners that cannot be traced – and are likely to never be traced – for the greater good of the country.”
The FSCA said that unclaimed assets should not be retained by financial institutions over the long term.
“Not only does this potentially compromise an entity’s commitment to finding and maintaining contact with its customers, but it is not a fair outcome for the rightful beneficiary.
“Where it is not possible to reunite those assets with their rightful owners, the FSCA considers whether such assets can be used for positive impact – for example, social, and environmental initiatives.”
The FSCA said it was “very aware” of the risks this may bring, particularly relating to governance and conflicts of interest.
Proposed central fund
The main objectives of the central unclaimed assets fund will be to accept and manage unclaimed assets, prioritise the reunification of those assets with their beneficial owners, pay valid claims and distribute funds that are not reserved for valid claims for the benefit of positive impact, the discussion paper said.
“Achieving the correct governance structure will be a critical success factor because the board of the central fund will be responsible for taking operational decisions, including the levels of reserves that must be held to meet future claims and the level and purpose of any distributions.”
An alternative option that may be considered is to require financial institutions to transfer the unclaimed assets directly to the National Revenue Fund (NRF), instead of creating a new structure with the associated costs.
Beneficial owners’ right to claim
The paper also proposes that beneficial owners must have the right to reclaim, in perpetuity, the value of the assets at the point of transfer into the receiving fund (a central fund or the NRF), as well as any accrued interest between the date of transfer and the date of reclaim.
The paper does not recommend “full restitution” – in other words, placing a beneficial owner in the position in which he or she would have been if the asset had not been transferred into the central fund or NRF.
It recognised that not providing a right to full restitution may be a potential disadvantage for beneficial owners.
However, it said this disadvantage will occur only if:
- The customer does not provide a product or service provider with his or her current contact details;
- The proposed enhanced processes to be implemented for the treatment of unclaimed assets have been unsuccessful; and
- The interest earned on the unclaimed asset transferred to the central fund is less than the market return by an identical asset that had not been transferred.
Common definition
Another recommendation is that the approach to dealing with unclaimed assets be aligned across all segments of the financial sector.
To this end, the paper proposes that the definition of unclaimed asset, as far as possible, be aligned to the definition of an unclaimed benefit in the Pension Funds Act. In other words, an asset becomes unclaimed if the asset has not been paid by a financial institution to a beneficial owner, or has not been claimed by a beneficial owner, within 24 months of the date on which it becomes legally due, payable or claimable.
This proposed definition may not be suitable for assets with open-ended contract terms that have no fixed term date – for example, deposits in transactional bank accounts or investments in collective investment schemes.
Regulation of tracing agents
The document recommends that tracing agents be regulated.
Currently, there is no specific requirement for tracing agents to be registered. Consequently, tracing agents are operating in an unregulated environment, “which poses risks for retirement funds that engage them”, the paper said.
Tracing agents contracted by retirement funds, in most instances, are paid only if they have successfully traced a beneficiary of an unclaimed asset. This fee structure appears to mitigate against abuse by the tracing agents to bill for unsuccessful traces. However, of concern is the variance in cost across the different tracing agents; fees charged are not always commensurate with the services being rendered.
There are scamsters purporting to be tracing agents, who charge a fee to “assist” the member in reclaiming their unclaimed benefit, but simply make enquiries with funds or enter the name of the individual in the FSCA’s unclaimed retirement benefits search engine.
Some legitimate tracing agencies have indicated their support for a mechanism to differentiate themselves from unscrupulous tracing agencies, the paper said.
Deadline to comment
To download the discussion paper, go to www.fsca.co.za > Regulatory frameworks > Documents for consultation > Discussion papers.
The public has been asked to respond to the key questions in its discussion paper by 30 November.
The FSCA said the responses will inform its recommendations to National Treasury and the extent to which some recommendations can be implemented on “a prioritised and accelerated basis”.
