Proposed Modernization of Canada’s Unclaimed Balances Regime
Background
In many jurisdictions globally, a financial asset is considered unclaimed when there has been no customer-initiated activity or contact for a certain period, usually for a few years. After this period, a designated body takes over custody of the unclaimed asset. The body administers a central registry through which it facilitates the processing of claims to reunite owners with their assets.
In Canada, since 1944, the Bank of Canada (Bank) has been the federal custodian of unclaimed balances – that is, Canadian-dollar deposits or negotiable instruments issued or held by federally regulated banks or trust companies, which have had no owner activity for a period of 10 years.The Bank holds unclaimed balance for 30 years if the amount is under $1,000, and for 100 years, if the amount is $1,000 or over. At the end of the prescription period, if the balance is not claimed by the owner, the Bank transfers it to the Receiver General for Canada.
As part of efforts to modernize the Bank’s unclaimed deposit program, in June 2018, the Department of Finance (Department) launched a consultation soliciting comments from stakeholders. In this update, I address six key questions raised in the consultation document.
Should financial institutions provide the Bank with further information (e.g., social insurance number, date of birth, signature card and business number) to streamline the validation process for claimants and to protect against fraudulent claims?
Following no owner activity for a period of 10 years, a bank, retail association or a company (financial institution) covered under the Bank Act, the Cooperative Credit Associations Act, and the Trust and Loan Companies Act, respectively, is required to pay an unclaimed balance to the Bank.
In support of the payment, a financial institution should be required to provide minimum information that is necessary to assist to identify or locate an owner – for this purpose, the owner’s social insurance number (SIN) and date of birth would be sufficient. This is even more so as there are opportunities for the financial institution to furnish additional identifying information where necessary.
Section 438 (2.1) of the Bank Act, s. 385.03 (2.1) of the Cooperative Credit Associations Act and s. 424 (2.1) of the Trust and Loan Companies Act allow the Bank to submit a written request for copies of signature card and signing authorities relating to unclaimed balances. It is expected these requirements will be retained and can be relied on in situations where the Bank requires additional information to assist it identify or locate an owner.
Approach in Alberta
A holder is required to transfer an unclaimed personal or vested property to Tax and Revenue Administration (TRA), provided the abandonment period for the property has been met. At the time of the transfer, s. 7 (2) of the Unclaimed Personal Property and Vested Property Act and General Regulation (Alberta) requires the holder to provide the last known address and the SIN, if known, of the owner, and any other information respecting the owner as prescribed in the General Regulation.
Addressing ‘other information’ to be provided, s. 12 (1) of the General Regulation requires a holder to volunteer all information known to it that is relevant in identifying or locating an owner.
Given that copies of signature cards and signing authorities will fall into this category, it is fair to state that this provision is close to the requirement at the federal level which allows a financial institution to provide the same information, when requested.
Should the definition of unclaimed balances in legislation be expanded to include foreign-denominated accounts?
Given the objective of the unclaimed deposit program, which is to reunite consumers with their unclaimed balances, I recommend the definition of unclaimed balances should be expanded to include foreign-denominated accounts. Doing so would serve to better protect the interest of these consumers.
In Alberta, for instance, s. 29.1 and 29.2 of the Alberta Treasury Branches (ATB) Regulation (Alberta) applies to deposits in the form of deposit accounts, bank drafts, certified cheques, money orders or term deposits. The section does not distinguish between Canadian dollar-denominated accounts and foreign-denominated accounts.
Australia and Exemption of Foreign-denominated Accounts
In 2015, the Australian Government, through Banking Laws Amendment (Unclaimed Money) Bill 2015, exempted foreign-denominated accounts from its unclaimed accounts program. Citing that foreign currency accounts were generally used by sophisticated consumers to settle business transactions in foreign currencies, the Australian Government on that basis opted for an exemption.
While it is true that consumers sometimes open foreign-denominated accounts to allow them settle business transactions in foreign currencies, it is also not unusual for consumers to open these accounts primarily for other purposes, including as a means of portfolio diversification. As such, expanding the definition to include foreign-denominated accounts will, no doubt, be a welcome development.
Foreign Exchange Fluctuations and Value Preservation
Should the Government proceed to include foreign-denominated accounts within the suite of covered accounts, it must recognize and address potential foreign exchange fluctuations implications for these accounts.
Pertinent issues the Government must address include considering whether financial institutions are to:
• make payments to the Bank in foreign currencies. If yes, what are likely implications?; or
• convert unclaimed balances to Canadian dollars before payments are made to the Bank. If yes, given that the owners may not be claiming these payments for a long while, how does this approach ensure value preservation for them?
Should financial institutions be required to notify balance owners through electronic means such as email, if possible, in addition to mail?
For consumer convenience, financial institutions should be allowed to notify owners by electronic means, in addition to mail. While writing to the last known address of a customer may be a great option, it is likely to be unhelpful where the customer has since left the address and failed to notify the financial institution of their current address.
Also, with technological advancements and changing consumer preferences, financial institutions are now able to serve their customers through new service delivery channels and non-traditional platforms, such as digital and mobile banking. The Government must consider revising relevant provisions on unclaimed balances to ensure alignment with this reality.
Approach in Alberta
Sections 117 (1) and 118 (1) of the Credit Union Act (Alberta), similar to s. 29.1 and 29.2 of the ATB Regulation, require credit unions in Alberta to make reasonable endeavours to locate an owner. The term ‘reasonable endeavours’ appears quite broad enough to accommodate notices sent through mediums such as mail, telephone call, email, etc. This broad approach will be equally good for the federal unclaimed deposit program.
Should the prescription time for smaller balances be reduced and, if so, for which amounts and for how long?
The Government should consider reducing the prescription time for smaller balances. In this regard, I would recommend a prescription time of 7 years and for an amount of $100 or less. If implemented, this prescription time is likely to more adequately balance the trade-off between preserving the value of unclaimed balances and efficiently reducing related administrative burden.
Of course, as part of efforts to ensure compliance, a financial institution is likely to incur cost on adapting its automated systems and/or manual processes to suit the prescription time. However, given the statistics that ‘unclaimed balances under $100 account for approximately 70 per cent of all unclaimed balances held by the Bank, with the vast majority of these balances never claimed,’ the prescription time will ensure reduced administrative cost over time.
Approach in Alberta
Section 29.2 (1) of the ATB Regulation and s. 118 (1) of the Credit Union Act allow small unclaimed balances of less than $250 and $100, respectively, to be transferred to a financial institution’s income provided the following conditions are met:
• it has been two years since the customer last transacted through the related account or provided written acknowledgment of the balance; and
• following the two years of no activity, the financial institution made reasonable endeavours to contact the customer.
Alternatively, under the ATB Regulation, the financial institution could decide to follow 12 years prescription time for larger unclaimed balances and transfer to income afterward.
Should the Bank stop paying a rate of interest on unclaimed balances? Should the Bank have the ability to charge administration fees, such as on a cost recovery basis?
Consistent with unclaimed property regimes in many other jurisdictions, the Government may consider allowing the Bank to stop paying interest on unclaimed balances. The Government must not been seen as indirectly incentivizing deliberate customer abandonment of account balances. More so, given the current low interest rate environment, the current 1.5 per cent interest payable on unclaimed balance, prescribed by a 1944 Order in Council, is much higher than interest on a traditional savings account, at least today.
On charges, the Government should allow the Bank to charge administration fees on a cost-recovery basis. In Alberta, the TRA is allowed to charge reasonable administration fees, consistent with unclaimed property regimes of many other jurisdictions. Allowing the Bank to similarly charge may be an effective way to sustain the unclaimed deposit program.
Should exiting financial institutions be allowed to transfer unclaimed balances to the Bank of Canada prior to reaching the 10-year dormancy period?
The Government should allow exiting financial institutions to transfer outstanding unclaimed balances to the Bank prior to reaching the 10-year dormancy period. A financial institution should not be made to hold on to unclaimed balances in situations where it is impracticable or unreasonable to do so – an obvious example is where a financial institution is exiting the market.
In Alberta, for instance, the Unclaimed Personal Property & Vested Property Act allows a holder to voluntarily transfer unclaimed personal or vested property to the TRA before the property becomes abandoned. The holder does not have to be in the process of exiting to be able to voluntarily transfer – this makes for a sensible approach, particularly in situations where it is impracticable to do otherwise.
Conclusion
The modernization of the Bank’s unclaimed deposit program remains an important element of broader and ongoing efforts to review the federal financial sector framework. It is hoped the objective of the modernization, which is to better serve Canadians, will be achieved over time – of course, this will depend largely on how the Department manages to resolve the above questions. In the meantime, the Department should be commended for this very important decision to modernize.
*Olakunle Komolafe is a financial sector law and policy expert. He holds an LL.M. from Harvard Law School, United States of America and another LL.M. in Energy, Natural Resources and Environmental Law from the University of Calgary, Canada.