James Mews, Counsel
A new Dormant Bank Accounts (Jersey) Law 2017 (the “Dormant Accounts Law”) is now in force. The aim is to enable the use of monies held in dormant bank accounts for charitable and related causes. Find out more below.
Summary of the Dormant Accounts Scheme
After trying to contact customers, banks will have to transfer balances from dormant bank accounts (i.e. accounts that have been dormant for 15 years) to a central repository called the Jersey Reclaim Fund. The Jersey Reclaim Fund will be administrated by the Treasury and Resources Department.
A similar procedure is optional for precious metals and precious stones held in safe custody accounts.
Customers will be able to claim their money back from their bank at any time. The bank will pay the customer their money and ask for the sum back from the Jersey Reclaim Fund to ensure that the bank is not out of pocket. Proceeds will be used for charitable and related good causes.
What is a dormant bank account?
A bank account is classed as dormant if there have been no transactions carried out on the account that were initiated by a holder of the account for 15 years, and there is no evidence held by the bank of the account holder having made any contact with the bank in relation to that account by any means of communication for 15 years.
The rationale for the test excluding transactions not initiated by the holder is to exclude bank charges or transactions such as direct debits from preventing the dormant period commencing.
Further, an account is not to be treated as dormant if there is evidence held by the bank of contact having been made in relation to that account or a linked account. As a matter of practice, it is only if the bank holds evidence that can be traced that this test would be met. As a matter of practice unless evidence can be traced it should be assumed that none exists.
All accounts regardless of who they are held by (for example whether an individual or a corporate entity) may become dormant. Accounts that are held in currencies other than pound sterling are included.
Banks may close accounts before a 15-year period has passed for Anti-Money Laundering reasons. Where a dormant account is closed by a bank without the funds being paid out to the account holder, such an account is still to be classed as a dormant account.
How does the Dormant Accounts Law apply to other financial services firms and assets held in safe custody?
The Dormant Accounts Law applies to any business that takes custody of precious stones or precious metals as well as a bank. As indicated above, precious metals and precious stones (but not jewellery) held in dormant accounts may also be subject to the scheme at the election of the provider.
What notifications must a bank make?
Once a bank identifies that a bank account is dormant two notifications should be made. Article 7 gives 3 months from 30th June in each year to give notice of the number, and balances of, each dormant account to the administrator. The customer must also be contacted one last time at the person’s last address known to the bank, unless the bank believes that writing to that address may lead to a risk of fraud. In practice, it is expected that not many banks will write to their customers. Complications arise and advice should be sought relating to notifications if there are AML concerns.
Paying over the monies – what currency?
The Minister may decide not to accept the monies by 30th November in each year. Otherwise a bank must notify the administrator of the balances being transferred to convert foreign currencies (or precious stones or precious metals) to sterling and pay such to the Jersey Reclaim Fund in sterling.
Record Keeping – what requirements are set?
Even though the account has been closed and the balances transferred across, the bank must retain the records that the bank has created or acquired relating to the relevant dormant account and to any holder of that account. The bank is the point of contact for the customer and acts as the agent of the Minister and the Jersey Reclaim Fund. This includes complying with the necessary record-keeping as well as the fulfilment of any legal or regulatory obligations arising out of client relationships. There is no time limit placed on the length of time that records must be kept.
Paying back the Customer – who bears the risk?
Banks must act with regard to their former customers as if they were existing customers. Therefore, banks must retain records. Banks must carry out CDD and AML checks on the customers and verify that they are entitled to the balance of an account. Once a bank is satisfied of such, it must pay the monies over to the customer before seeking a refund from the Jersey Reclaim Fund.
The bank can choose whether to pay the customer the money through a bank transfer or through reopening the account. Repayments are made in sterling. A bank is at risk if it repays the wrong customer.
For dormant foreign currency accounts or those containing precious stones or precious metals, the customer bears the risk of fluctuations against sterling once the currency or assets are held in the Jersey Reclaim Fund. However, where appropriate, the Minister may agree to pay enhanced sums to deserving claimants when certain conditions are met and the fluctuation has affected them.
Once monies are transferred from the bank to the Jersey Reclaim Fund the level of interest is set at zero. However, the bank is liable if it failed to pay the full amount of interest due prior to the transfer.
Expenses of the bank – can they be recharged?
A bank may only deduct fees and expenses provided for in the terms and conditions relating to the account. If the terms and conditions are not known then the bank is unable to charge the fees and expenses to the account.
Reasonable fees may be charged by a bank for the costs of selling precious stones or precious metals in order to be able to transfer the proceeds to the Jersey Reclaim Fund.
When must financial institutions act?
The Dormant Accounts Law will be in force on 17th July. Accordingly, a bank must start complying with the obligations this year.
In the case of accounts that are dormant for less than 15 years, if a bank so wishes and the Minister agrees, the bank may transfer the account early. The Dormant Accounts Law then applies to the transfer as if all the other provisions in the Law have been complied with.
Transitional provisions state that no criminal sanctions apply if a bank fails to start the process of transferring dormant accounts. The transition provisions apply if a bank has no system in place to identify dormant accounts, or if the system can only identify accounts that are dormant for less than 15 years. In such cases, providing that the bank has no reasonable means of discovering whether accounts are dormant, no criminal penalties will be applicable. If a computerized search would reveal which accounts are dormant under the criteria set out in the Dormant Accounts Law then the penalties would be applicable instantly. In contrast, if a bank would have to do a manual review of documents to determine dormancy, the criminal sanctions would not be applicable.
How will the monies be spent?
The assets in the Jersey Reclaim Fund will be invested by the Treasury and Resources Department. Provisions permit the Minister to appoint an independent organization to determine who will receive grants. The Minister also has a power to determine the policies and procedures for any distributions. The monies may be used for charitable purposes or to defray the costs of the Charities Commissioner. However, the Department has determined that no initial appointments will be made until they have a clearer idea of the flow of assets. The primary obligation is to pay back holders of dormant accounts who wish to reclaim their monies.
Do banks need to make changes to their terms and conditions?
There are a number of changes to client documentation which are prudent to protect a bank from challenge by their customers. They relate to foreign currency accounts, safe custody accounts, levels of interest and a number of additional matters. Advice should be sought to ensure that these are changed in the optimum manner.
Will Guernsey and the Isle of Man follow Jersey’s lead?
It is likely that the other Crown Dependencies will also enact legislation similar to that enacted in Jersey. The governments should be encouraged to enact similar legislation to that in Jersey in order to assist those with branches or subsidiaries in multiple islands.
Possible Future changes?
The Dormant Asset Commission in the UK are likely to extend the equivalent UK law to assets such as share certificates, unclaimed pensions and the proceeds of insurance policies. In due course, these are likely to be adopted in Jersey as well.