Section 1: Transfer of balances to reclaim fund
25.This section provides that a bank or building society’s liability to pay the balance owed to a customer in relation to a dormant account is extinguished where that balance is transferred to an authorised reclaim fund which consents to the transfer. This section will allow a bank or building society’s liability to a customer in relation to a transferred balance to be de-recognised under International Accounting Standards (IAS 39) and UK Generally Accepted Accounting Practice (“GAAP”) (FRS 26). Sections 6 to 10 contain definitions of a number of terms relevant to this provision, including “authorised”, “building society”, “bank”, “balance”, “account” and “dormant”.
26.Subsection (2)(b) gives the customer a legally enforceable right to repayment of their balance against the reclaim fund. The customer is entitled to the same right to repayment as they would have against their bank or building society had the transfer not taken place. It should be read subject to the provisions of section 8 which sets out the customer’s entitlement to interest (and permits the deduction of charges), and section 11, which explains the effects of events such as insolvency of the bank or building society on the calculation of the customer’s entitlement.
27.Subsection (3) makes it clear that the balances of deceased persons are within the scheme, and can be transferred to the reclaim fund under subsection (1) and reclaimed under subsection (2) by the people to whom the right to payment has passed.
28.The requirement that the reclaim fund must consent to the transfer of any balance enables the reclaim fund to ensure that suitable arrangements are in place to handle claims for repayment. It is expected that banks and building societies will agree to act as agents of the reclaim fund and continue to manage the customer relationship. The precise details of any agency arrangement will be a matter for negotiation between the bank or building society and the reclaim fund.