Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2009

The purpose of this order is to extend the scope of FSA regulation to cover reclaim funds as part of the framework for a UK dormant accounts scheme. I will begin by setting out the purpose and operation of the scheme, before turning to the draft order before us. The primary legislative framework for this scheme was established by the Dormant Bank and Building Society Accounts Act, which received Royal Assent on 26 November 2008. The Act was widely supported during its passage through both Houses. The scheme was strengthened greatly by the contributions made by other noble Lords during debates on the Act. The UK dormant accounts scheme allows banks and building societies to make funds in dormant accounts available for distribution to the benefit of the community, while ensuring that the right of account holders to reclaim their money is protected. Banks and building societies are committed to reuniting account holders with their dormant accounts. Where reuniting is unsuccessful and an account meets the statutory definition of dormancy, a bank or building society may transfer the balance of that account to a reclaim fund. Following a transfer, the bank or building society’s liability to repay the account holder is extinguished. Instead, the customer gains a legally enforceable right to repayment from the reclaim fund. Money that the reclaim fund does not require to meet reclaims or cover its own reasonable costs will then be passed on for reinvestment in society. The Big Lottery Fund will distribute the money for social or environmental purposes. Finally, there is an optional scheme for small and locally based institutions, allowing them to focus on the needs of their communities, in which they often play such an important role. Since the purpose of this draft order is to extend the scope of FSA regulation to cover reclaim funds, I turn now to explain how we envisage the reclaim fund will operate, according to requirements set out in legislation. The Act itself sets out what a reclaim fund is. A reclaim fund must be a company incorporated under the Companies Act 2006. The industry is committed to leading on selecting or setting up a reclaim fund. The reclaim fund, once established, will be entirely independent of government, the banking industry and the distribution mechanism. The Act also requires the activities of a reclaim fund to be restricted by its articles of association to: the meeting of repayment claims; the management of dormant account funds to meet whatever repayment claims it is prudent to anticipate; and the transfer of money to the Big Lottery Fund or to any other bodies charged with distribution of the unclaimed funds for social or for environmental purposes. The Government’s approach to developing the scheme has focused on three key principles: first, consumer protection, by ensuring an ongoing legal right for account holders to reclaim their money at any time; secondly, reuniting, by encouraging account holders to be reunited with the assets that are rightfully theirs; and thirdly, better regulation, by adopting a proportionate regulatory approach. Although the draft order before us is largely technical in nature, it contributes significantly to these objectives by extending the scope of FSA regulation to include reclaim funds. FSA regulation will help to ensure that the reclaim fund manages dormant account funds prudently and can meet repayment risk, and that consumers continue to receive the same protections should their dormant funds be transferred into the scheme. The FSA has already consulted separately on its proposals for regulating reclaim funds. In order for the FSA to bring forward its final rules and regulations, the Government must legislate to enable the FSA to regulate reclaim funds, and that is the purpose of the order. In preparation for this secondary legislation, the Act itself amended the Financial Services and Markets Act 2000 to enable the activities of a reclaim fund to be specified in secondary legislation as regulated activities, and thus for a reclaim fund to be regulated by the FSA. Following the passage of the Bill, the Government consulted on consequential secondary legislation. All respondents to that consultation firmly supported the Government’s proposals for secondary legislation, including the order. The Government now wish to pass the order to allow the FSA to oversee the activities of a reclaim fund by amending the regulated activities order of the Financial Services and Markets Act 2000 to specify as regulated activities the meeting of repayment claims by a reclaim fund and the management of dormant account funds by a reclaim fund. In addition to the benefits I have already mentioned, FSA regulation will ensure that consumers have access to the Financial Services Compensation Scheme in the unlikely event that the reclaim fund becomes insolvent. In the event of any disputes, consumers would, subject to the usual qualifying conditions, have recourse to the Financial Ombudsman Service and could resort ultimately to the courts to enforce their legal rights. In conclusion, I emphasise that the order was entirely anticipated during the passage of the Dormant Bank and Building Society Accounts Bill. It is a technical but necessary part of the scheme to ensure that the reclaim fund is properly regulated. The principle of consumer protection that motivates this instrument is common to us all and has been agreed in previous debates on the scheme. Should concerns about any aspect of its operation remain, the Government have committed to undertake a post-implementation review of the UK dormant accounts scheme within three years of the date when a reclaim fund is first authorised. I hope that noble Lords will agree with this order and I beg to move.