The Central Bank of The Bahamas
PUBLIC CONSULTATION on Proposed Changes to the Dormant Bank Accounts Administration Regime as Effected by the: Draft Banks and Trust Companies Regulation (Amendment) (No. 2) Bill 2014, and Draft Central Bank of The Bahamas (Amendment) Bill, 2014.
TABLE OF CONTENTS
I.
Introduction
II. Background and Context III. Key Proposed Amendments to the Banks and Trust Companies Regulation Act, 2000 IV. Administrative Monetary Penalties Regulations V. Key Proposed Amendments to the Central Bank of The Bahamas Act, 2000 VI. Draft Guidelines for the Administration and Ultimate Disposition of Dormant Bank Accounts VII. Consultation Period Annex 1: Draft Banks and Trust Companies Regulation (Amendment) (No.2) Bill, 2014 Annex 2: Draft Central Bank of The Bahamas (Amendment) Bill, 2014 Annex 3: Draft Guidelines for the Administration and Ultimate Disposition of Dormant Bank Accounts
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I.
INTRODUCTION
1. Pursuant to dormant accounts legislation introduced in The Bahamas, in 1989, banks were required to transfer dormant account balances to the Central Bank of The Bahamas (“the Central Bank”) which was charged with the custody and administration of these balances. The Central Bank is now proposing changes to the laws relating to the administration of dormant accounts held by the Central Bank‟s bank licensees and the implementation of revised industry guidelines in respect of the same. The proposed changes are informed by benchmarking exercises to ascertain the prevailing international practices relating to the administration of unclaimed assets held by banks. 2. The primary objectives of the Central Bank‟s review of the dormant accounts regime were to identify ways (based on international practices) to: (i) address problematic issues that had been raised by industry, bank account holders and their representatives; (ii) fill gaps in the law vis-á-vis the Central Bank‟s existing practices relating to the administration and regulation of dormant accounts; and (iii) effect general improvements to the regulatory regime. 3. If implemented, the expectation is that the changes to the dormant accounts administration regime should markedly improve the transparency and effectiveness with which dormant accounts are administrated by banks, and enhance the Central Bank‟s oversight in this area. 4. This consultation document sets out the Central Bank‟s proposals, as contained in the draft Banks and Trust Companies Regulation (Amendment) (No. 2) Bill, 2014 and the draft Central Bank of The Bahamas (Amendment) Bill, 2014. The Consultation period will run for ninety (90) days, from 20th February, 2014 to 20th May, 2014 and we welcome your comments on these proposals.
II. BACKGROUND AND CONTEXT 5. The term „dormant account‟ applies to accounts in respect of which banks lose contact with their customers for a sustained period. Section 20 of the Banks and Trust Companies Regulation Act, 2000 (“BTCRA”), provides for transfer to the Central Bank of dormant account balances held by bank licensees. Dormant accounts are deposit accounts held by banks in respect of which – "no transaction has taken place, or no statement of account has been requested or no written acknowledgment has been received from the customer, during a period of seven years." 6. Section 24 of the Central Bank of The Bahamas Act, 2000 (“the CBBA”) empowers the Central Bank to pay interest on money that it receives, pursuant to section 20 of the 2|Page
BTCRA, and to pay such money (including interest, where appropriate) to any person entitled to it. 7. Over the years, the Central Bank has invested the dormant account funds that it has received and, to date, dormant account balances held by the Central Bank are substantial, with very few claims made annually. 8. A number of countries have introduced unclaimed assets schemes. These include Australia, Barbados, Canada, Ireland, New Zealand, the United Kingdom and the United States. These schemes have a variety of different features, but typically are mandatory and require unclaimed assets held in dormant bank accounts to be surrendered by financial institutions to the government, which then manages the unclaimed assets, including any reclaim process, and decides how the money will be spent. Financial institutions which fail to comply with the schemes may, in some cases, be subject to criminal sanctions. 9. Set out below is a summary of the Central Bank‟s proposed amendments and its rationale for recommending them.
III. KEY PROVISIONS OF THE PROPOSED BANKS AND TRUST COMPANIES REGULATION (AMENDMENT) (NO.2) BILL, 2014 10. The draft Banks and Trust Companies Regulation (Amendment) (No. 2) Bill, 2014 (“the No. 2 Bill”) proposes the repeal and replacement of section 20 of the BTCRA, which sets out obligations for banks to transfer dormant account balances to the Central Bank. The No. 2 Bill is set out at Annex 1. 11. The key provisions of the No. 2 Bill relate to the following matters. (a) Clause 2: Expansion and identification of the class of assets to be transferred to the Central Bank 12. It is proposed that the BTCRA be amended to expand and clearly identify the types of assets and facilities that are subject to dormant account requirements. These are set out in subsection (1), while subsection (6) specifically identifies the types of assets and facilities that, while being categorised as dormant accounts and therefore subject to the dormant accounts administrative regime, would be exempt from transfer to the Central Bank. 13. The proposed amendments reflect the trend among benchmarked jurisdictions of clearly identifying the types of property to which the dormant account legislation applies. Enquiries made by banks and other financial services entities indicate that there is uncertainty in the industry as to the types of assets to which section 20 applies. This may be caused by the current legislation's restriction of transferable assets to "deposit accounts", which term is not defined but has been interpreted, in the context of the section, to be restricted to cash deposit accounts and accounts of gold and silver bullion. This means that banks may be holding, as has been identified, a range of funds/assets (e.g., cheques, bank drafts, money orders, etc.) in respect of which there has been no customer initiated activity or contact for seven (7) or more years and that are not required to be transferred to the Central Bank. 3|Page
(b) Expansion of the definition of dormant account 14. Sub-section (2) of the No. 2 Bill defines the term “dormant account” as meaning – “a deposit account or other facility of a customer at a bank where the customer has initiated no transaction, for a period of seven (7) years, with respect to – (a) the aforementioned deposit account or other facility; and (b) every other deposit account and every other facility of the customer held with the bank.” 15. This proposed definition will effect three (3) significant changes in the way dormant accounts are classified. Firstly, it will expand the term dormant account to include a category of “other facilities” that banks would be required to transfer to the Central Bank. "Other facilities" is defined in the Bill as – "any account or arrangement – (a) that is provided by a financial institution to a customer; (b) by, through or with which a customer may conduct two or more transactions whether or not they are so used; (c) including instruments such as bank drafts, manager's cheques, money orders, and travellers cheques". 16. Secondly, it will cause banks to consider customer-initiated contact and communication with respect to all accounts and facilities held or operated by a customer in determining whether a particular deposit account or other facility is dormant for the purposes of clause 2 (see subsection 20(2)(b) of the No. 2 Bill) Currently, under the BTCRA, dormancy results from the inactivity of a deposit account and customer-initiated activity is required with respect to each such account held by a customer to prevent the account becoming dormant. However, under paragraph (b) of the proposed definition of dormant account, an account will not be treated as dormant where the customer has multiple accounts and/or facilities with the bank and maintains communications with the bank in respect of any one or more of those accounts and or facilities. This is because the customer‟s communication with the bank is evidence that the business relationship is still active and therefore an account which would otherwise meet the definition of "dormant" under paragraph (a) of the definition should not be treated as a dormant account. 17. Thirdly, it will permit banks to consider actions initiated by a customer with respect to a deposit account or other facility via electronic and other non-physical means in determining whether the deposit account or other facility is dormant, since “transaction” is defined in the draft Bill as meaning –
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“an action initiated by a customer, in person or by electronic or other nonphysical means, in respect of a deposit account or other facility that such customer has with a bank and includes a – (a) deposit, withdrawal, exchange or transfer of funds in any currency denomination and whether in cash, by cheque, payment order, or other instrument; and (b) communication, acknowledgement, request or instruction.” (c) Calculation of the seven (7) year dormancy period – fixed deposits with rollover instructions 18. The BTCRA currently provides that the seven (7) year dormancy period begins to run, "in the case of a deposit made for a fixed period, from the day on which the fixed period terminated". The generality of this provision captures fixed deposits that customers instruct their banks to automatically renew, unless instructed to do otherwise. 19. This lacunae is addressed by subsection (3)(a) of the No. 2 Bill, which provides for the seven (7) year dormancy period to be calculated with respect to a deposit account made for a fixed period – “from the date on which the fixed period terminated or the date the customer terminates his instructions to automatically renew the deposit, whichever is the later.” 20. As regards facilities other than deposit accounts, subsection 3(c) provides for the dormancy period to be calculated – “from the date on which the facility was issued, established, or the obligation to make a payment in respect of the facility accrued, whichever is the later.” (d) Obligation for banks to transfer eligible dormant account balances to the Central Bank 21. The existing obligation for banks to pay to the Central Bank an amount equal to any liability, in respect of dormant accounts held by them, has been retained in the proposed subsection (4) of the No. 2 Bill. Banks must make such payments to the Central Bank, unless exempted in writing by the Central Bank, within two (2) months after the end of the calendar year in which the account becomes dormant. (e) Obligation for banks to retain records of dormant accounts transferred to the Central Bank 22. Subsection (5) of the No. 2 Bill sets out the requirement for banks to retain all records relating to dormant accounts in respect of which they make payments to the Central Bank. 5|Page
(f) Reporting requirements for exempted accounts and facilities 23. It is proposed that the BTCRA be amended to impose a positive duty on banks that retain exempted dormant accounts to report to the Central Bank every three (3) years in respect of such accounts. See subsection (7) of the No. 2 Bill. 24. Some banks have sought the Central Bank's guidance on how retained assets and facilities should be treated and have developed internal procedures for this purpose. The proposed new provision is intended to increase the level of accountability, transparency and recordkeeping, commensurate with the Central Bank‟s aim of sound customer protection. The three yearly reporting requirement is seen as a pragmatic way of achieving dual objectives - viz., introducing new reporting requirements, while establishing a reporting regime that would permit the Central Bank to maintain effective oversight of dormant accounts retained by banks. 25. Banks are further required to subject exempted dormant accounts to heightened monitoring, to ensure their preservation and continued administration in the best interest of the customer. (g) Payment and calculation of interest on dormant accounts 26. The Central Bank is currently empowered, under section 24 of the CBBA, to pay interest on dormant accounts balances transferred to it, pursuant to section 20 of the BTCRA. This power is replicated in subsection (8) of the No. 2 Bill. In addition, subsection (9) of the No. 2 Bill will establish the mechanism by which the interest is to be calculated by providing that the Central Bank may “from time to time, by notice in writing, determine the rate and manner of computation of interest payable by the Bank pursuant to subsection (8)”. (h) Central Bank and banks discharged from liability 27. Subsection (10) of the No. 2 Bill provides for a bank to be discharged from liability with respect to balances owing on a dormant account when such balances are transferred to the Central Bank. 28. Similarly, subsection (11) of the No. 2 Bill provides for the Central Bank to be discharged from liability with respect to dormant account balances received by it from banks when the Central Bank either pays the equivalent of those balances to a person entitled to claim them, pursuant to subsection (8) of the No. 2 Bill, or makes a payment to the Treasurer of The Bahamas (“the Treasurer”), pursuant to subsection (3) of section 24 of the Central Bank of The Bahamas (Amendment) Bill, 2014, which is discussed below. (i) Banks required to maintain register of dormant accounts 29. Subsection (12) of the No. 2 Bill will introduce a new general recordkeeping obligation of requiring banks to maintain a register of all dormant accounts that they transfer to the Central Bank, pursuant to subsection (4) of the No. 2 Bill or retain pursuant to
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subsection (6) of the No. 2 Bill. The register is to be available for inspection by Central Bank Examiners. 30. This amendment is designed to impose a level of accountability, transparency and recordkeeping, commensurate with the aim of sound customer protection.
IV. ADMINISTRATIVE MONETARY PENALTIES REGULATIONS 31. In 2013, the Central Bank proposed amendments to the BTCRA and the introduction of related regulations which are intended, inter alia, to enhance the Central Bank‟s powers to impose administrative monetary penalties on any person if the Bank is satisfied that that person has contravened any provision of the Act or regulations made under the Act, has failed to comply with any order or direction issued by the Central Bank or breached any condition and/or limitation imposed by the Central Bank. In due course, the Central Bank will also be introducing regulations to deal with the imposition of administrative monetary penalties for contraventions of the requirements relative to dormant accounts proposed in the No. 2 Bill.
V. KEY PROVISIONS OF THE PROPOSED CENTRAL BANK OF THE BAHAMAS (AMDENDMENT) BILL, 2014 32. The draft Central Bank of The Bahamas (Amendment) Bill, 2014 (“the Bill”) retains the existing requirements for the Central Bank to accept funds transferred to it, pursuant to section 20 of BTCRA, and to pay interest on such funds. It is proposed to redesignate the existing section 24 as subsection (1) of section 24 and to introduce (9) nine new subsections immediately following it. The Bill is set out at Annex 2. 33. The key provisions of the Bill are set out below. (j) Charging of administrative fee by the Central Bank 34. The proposed new subsection (2) provides for the Central Bank to deduct reasonable expenses incurred by it in connection with its administration of dormant account balances. Currently, no administrative fee is charged; however, the Central Bank incurs associated costs, including the salaries of personnel necessary for the maintenance of records, processing of claims and investing of funds. The charging of such a fee is consistent with the practices of a number of benchmarked jurisdictions and allows for operational transparency. (k) Transfer of dormant account balances to the Treasurer 35. Subsection 24(3)(a)(i) of the Bill will authorize the Bank to transfer to the Treasurer all dormant account balances of less than $500. These balances will not accrue interest as they must be transferred to the Treasurer within two (2) months after being received.
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36. As regard dormant account balances of $500 or more, it is proposed that the Central Bank hold these amounts for twenty-five (25) years before transferring them, along with any interest accrued while held by the Central Bank, to the Treasurer. 37. The purpose of these provisions, along with the provisions of subsections (4), (5) and (6) of the Bill (discussed below), is to provide a means by which dormant account balances that remain unclaimed for thirty-two (32) years in total (including the initial seven year dormancy period) can be pooled, brought under the control of the Treasurer and employed for the benefit of the people of The Bahamas. No distinction will be made between the treatment of dormant accounts owned by residents and those owned by non-residents. 38. This proposal aligns with the practices pursued by many of the benchmarked jurisdictions, and provides for an orderly disposition of dormant account balances, which could accumulate ad infinitum if not claimed. As at 31st December, 2013, there were 34,278 dormant accounts totalling some $63.5 million (Bahamian Dollar equivalents) of which 27,774 were Bahamian dollar accounts aggregating $12.6 million. As regard the utilisation of funds transferred to the Treasurer, the Central Bank has recommended to the Government that the funds be used for societal or community benefit. For example, the funds could be used to support charitable organisations, youth programmes, sporting clubs and or community centres, in line with how dormant account balances are utilised by the state in a number of other jurisdictions. (l) Central Bank discharged from liability and required to retain dormant account records 39. Subsection (4) of the Bill discharges the Central Bank of all liability with respect to amounts paid to the Treasurer pursuant to subsection (3), and imposes an obligation on the Central Bank to retain records relating to — (i) dormant account balances of less than $500 for a minimum period of thirty (30) years after payment is made by the Bank to the Treasurer; and (ii) dormant account balances of $500 or more for a minimum period of five (5) years after payment is made by the Bank to the Treasurer.” (m) Treatment of dormant account balances transferred to the Treasurer 40. Subsection (5) of the Bill provides for funds transferred to the Treasurer to form part of the Consolidated Fund, vested in the Treasurer for the benefit of The Bahamas, to cease to accrue interest and, subject to subsections (6) and (7) of the Bill (discussed below), to be disposed of by the resolution of both Houses of Parliament. (n) Reclaiming funds and extinguishment of the right to reclaim funds 41. Provision is made for dormant account owners, their representatives or successors to reclaim dormant account balances (plus accrued interest, where applicable) at any time prior to the expiry of twenty-five (25) years after receipt of such balances by the Central Bank (see subsections (6) and (7) of the Bill). For the purposes of calculating the twenty-five (25) year period, the clock starts to run upon the transfer of dormant 8|Page
account balances to the Central Bank, and, in the case of balances of $500 or less, continues to run after the funds have been transferred to the Treasurer, but not beyond the twenty-five (25) years. Dormant account balances of more than $500 can only be reclaimed before they are transferred to the Treasurer, upon the expiry of the twenty-five (25) year period. (o) Investment of dormant account balances 42. The Central Bank proposes the inclusion of a provision in the CBBA to specifically empower it to invest dormant account balances transferred to it (see the proposed new section 24(8) of the Bill). This amendment is intended to codify the current practice since the Bank, as a prudent custodian charged with an obligation to pay interest on dormant account balances received by it, currently invests these balances. (p) Criminal Penalties for fraudulent claims 43. Section 24 of the CBBA does not currently contain a provision for imposing a penalty on a person who makes a fraudulent claim for dormant account balances. This is addressed in subsections 24(9) and (10) of the Bill. 44. Subsection (9) makes it a criminal offence for any person to make a fraudulent claim for dormant account balances. The penalty, on summary conviction, is a fine of five thousand dollars ($5,000) or imprisonment for a term not exceeding one year or both such fine and imprisonment. 45. Subsection (10) proposes that every director or other officer concerned in the management of a body corporate be liable for a fraudulent claim made by that body corporate, unless the director or other officer proves that the offence was committed without his consent or connivance, or that he exercised reasonable diligence to prevent the commission of the offence.
VI. DRAFT GUIDELINES FOR THE ADMINISTRATION AND ULTIMATE DISPOSITION OF DORMANT BANK ACCOUNTS 46. The Central Bank‟s draft Guidelines for the Administration and Ultimate Disposition of Dormant Bank Accounts are set out at Annex 3. The primary purpose of the draft Guidelines is to assist banks in understanding the dormant accounts administration regime, by explaining the respective roles and obligations of banks and the Central Bank in the protection of dormant account assets.
VII. CONSULTATION PERIOD 47. The Bank invites your comments on the proposed changes which should be submitted no later than 12th May, 2014. Your comments and questions regarding the proposed changes should be directed to:
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Bank Supervision Department Central Bank of The Bahamas Frederick & Market Streets P.O. Box N 4868 Nassau, Bahamas Tel (242) 302-2615 Fax (242) 356-3909 Email:
[email protected] 20th February, 2014
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