FCA PS24/10: Expansion of the Dormant Assets Scheme – Second Phase

Overview

The Dormant Assets Scheme

The Dormant Assets Scheme (DAS) is a UK government initiative designed to reunite people with their dormant financial assets, such as bank accounts, insurance policies and pensions. If the owners cannot be located, the funds are redirected to support social and environmental initiatives across the UK.

The DAS was created by the Dormant Bank and Building Society Accounts Act 2008, to allow banks and building societies to pay dormant monies to an Authorised Reclaim Fund (ARF), which would then put this money towards funding good causes.

The DAS is underpinned by three principles:

1. Reunification first: assets are only classed as dormant and made available to the DAS after satisfying strict criteria. Firms’ priority should be to trace and reunite people with their assets.
2. Full restitution: asset owners can reclaim the amount that would have been due to them had a transfer into the DAS not occurred.
3. Voluntary participation: firms can choose whether to contribute to the DAS and to what extent.

The DAS was expanded under the Dormant Assets Act 2022 (DAA 2022) to facilitate the inclusion of dormant assets from the following new sectors:

1. Insurance
2. Pensions
3. Securities
4. Investment assets
5. Client money

The DAA 2022 expands on the full list of assets in scope and provides new definitions of dormancy and reclaim values.

The first phase of the expansion, which covered insurance, pensions and securities, was consulted on in CP22/9 and the changes were implemented on 1 August 2022. The second phase of the expansion covers investment assets and client money and came into effect on 02 August 2024.

These new rules primarily affect managers and depositaries of authorised collective investment schemes as well as firms holding client money. The DAS does not apply to overseas recognised schemes, or to unregulated CIS such as hedge funds and other alternative investment vehicles.

The new rules

Investment assets

Investment assets are eligible amounts owing by virtue of a collective scheme investment, i.e. sums of money attributable to units or shares in collective investment schemes authorised by the FCA (“authorised funds”). Over time, firms may have lost contact with some of these long-standing customers. The investments of such ‘lost’ investors in a fund may now qualify as dormant investment assets.

There are different ways in which a collective scheme investment can turn into an ‘investment asset’:

1. Where either the authorised fund manager (AFM) or the depositary of the fund have been holding a cash amount comprised of:
2. the proceeds of redemption of units;
3. amounts of income distributed to unitholders; or

• orphan monies remaining in a fund that is being wound up,

which has eventually become dormant. The amount may be regarded as “dormant” if no communication has been received from the unitholder (or a representative) during the previous six years.

2. Where a registered holding of units has become dormant. In this case, this cannot happen until 12 years have passed since the AFM and depositary received any communication from the unitholder or their representative.

The AFM will redeem the units for their current market value and pay the proceeds (less any charges and expenses) into the ARF.

Client assets

The Client Assets Sourcebook (CASS) provides detailed rules for a firm to follow when it holds or controls client money and/or custody assets (collectively ‘client assets’) as part of their business. The expansion of the DAS now provides firms subject to the CASS rules with an option for the transfer of unclaimed client money to the DAS, providing it meets the relevant dormancy conditions set out in the DAA 2022; in the case of client assets, this is 6 years since the last communication with the client.

Participation in the DAS is voluntary and subject to the ARF’s decision whether to accept an applicant as a new participant to the scheme. Participants are also required to put in place adequate arrangements for the ARF to accept transfers of assets. Firms subject to the CASS rules will be able to decide whether they wish to apply to participate.

Dealing with client reclaims

An effect of the DAS is that, once the money is transferred to the ARF, liability is transferred from the firm to the DAS, i.e. the firm’s client money responsibilities will be extinguished when money has been transferred to RFL (or another ARF); that is, provided that the firm can demonstrate it took reasonable steps to trace the client concerned and to return the balance prior to making such a transfer. As such, the unitholder will cease to have any rights as an investor in the authorised fund and, where applicable, the released amount will cease to be ‘client money’ under CASS 7.

The client will be entitled to make a claim against the ARF at any time in the future for the ‘reclaim amount’, i.e. the sum transferred to the ARF, plus any interest due, but adjusted for any fees and charges payable. This is in contrast to where unclaimed money is paid away to charity under CASS 7.11.50R and where, if the client ultimately requests the money back, the refund is paid by the firm.

What happens next

RFL will be able to accept contributions from the investment assets and client money sectors. Before any transfers can take place, RFL will need to put in place contracting agreements with participants and announce a start date for these expanded sectors.

If your firm is interested in participating in the DAS, you can find more information in the RFL website.

Complyport can assist you to understand the new rules, as well as their impact to your firm. We can support you by providing:

1. Regulatory Guidance: helping your firm understand the FCA’s expectations and providing expert advice on the relevant regulatory requirements;
2. Ongoing Support: providing ongoing support to ensure that your firm remains compliant as regulations evolve;
3. Training: providing training sessions to educate staff on the practical requirements and best practices for compliance.

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