3. iii
TABLE OF CONTENTS
EXECUTIVE SUMMARY..................................................................................iv
Objective................................................................................................................iv
Background...........................................................................................................iv
Analysis of the Unclaimed Financial Assets In Kenya......................................iv
Way Forward.......................................................................................................vii
Financial Implications..........................................................................................ix
Recommendations ................................................................................................ix
1.1 INTRODUCTION....................................................................................... 1
1.1.1 Background Information..................................................................... 1
1.2 REVIEW OF GLOBAL EXPERIENCE .................................................. 2
1.2.1 Australia................................................................................................ 2
1.2.2 Canada................................................................................................... 3
1.2.3 Malaysia ................................................................................................ 3
1.2.4 Ireland ................................................................................................... 4
1.2.5 Uganda................................................................................................... 4
1.2.6 United Kingdom (UK).......................................................................... 4
1.2.7 United States of America (USA).......................................................... 5
1.3 LESSON LEARNT FROM THE ABOVE REVIEW.............................. 5
2.0 ANALYSIS OF THE SITUATION/PROBLEM..........................................7
2.1 THE BANKING SECTOR......................................................................... 7
2.2 THE CAPITAL MARKETS SECTOR................................................... 11
2.3 THE PENSIONS SECTOR...................................................................... 13
2.4 THE INSURANCE SECTOR .................................................................. 13
3. 0 MAIN STUDY FINDINGS..........................................................................15
4.0 OPTIONS ON THE WAY FORWARD......................................................18
4.1 FINANCIAL IMPLICATIONS............................................................... 20
5.0 RECOMMENDATIONS..............................................................................20
6.0 APPENDICES A ...........................................................................................23
7.0 APPENDICES B............................................................................................44
4. iv
EXECUTIVE SUMMARY
Objective
1. The objective of this Executive Summary is to provide a brief of the Final
Report of the Taskforce on Unclaimed Financial Assets. The Taskforce set out to
ascertain the current practice, size and extent of unclaimed financial assets in
Kenya and to recommend a national policy framework on unclaimed financial
assets based on international best practice, including reviewing existing legislation
and /or developing new legislation for unclaimed financial assets.
Background
2. The Minister for Finance, represented by the Economic Secretary,
inaugurated the Taskforce on Unclaimed Financial Assets on 19 March 2008.The
aim of the Taskforce was to ascertain the nature, extent and value of unclaimed
financial assets in Kenya. The Taskforce members are drawn from the key sectors
of Kenyan’s financial system. It comprises representatives of key regulatory
bodies, including the Central Bank of Kenya (CBK), the Insurance Regulatory
Authority (IRA), the Capital Markets Authority (CMA), the Retirement Benefits
Authority (RBA), the Commissioner of Cooperatives, and the Consultant, the
Unclaimed Property Assets Register (K) Limited (UPAR).
3. The mandate of the Taskforce includes reviewing existing practices in
Kenya and comparing them to practices in selected international jurisdictions. The
Taskforce is required to ascertain or estimate unclaimed financial assets held in
relevant sectors by conducting appropriate inventories of those assets. The
Taskforce is also required to make recommendations for an appropriate legal,
regulatory, and institutional framework to govern unclaimed financial assets in
Kenya.
Analysis of the Unclaimed Financial Assets In Kenya
4. Many developed countries have explicit policy frameworks for the
management of unclaimed financial assets. The current international best practice
for managing unclaimed financial assets, including the management of
information and data related to such assets, is the establishment of a mandatory
legal and regulatory framework. This typically entails the mandatory
identification of unclaimed financial assets according to prescribed definitions as
well as the segregation, reporting and remittance of such assets into a central
5. v
reclaim fund or trust and the establishment of an unclaimed assets agency to
regulate and manage these assets. The portion of remitted funds in excess of those
required to meet claims of asset owners is invested for social, community, and
economic benefit.
5. The current situation in Kenya contrasts sharply with the best international
practice. It is estimated that the overall universe of unclaimed financial assets in
the financial system, the corporate sector and other institutions, including utilities,
may exceed KSh. 200 billion. Actuaries estimate that about 60% or more of these
unclaimed assets may never be reunited with their owners or beneficiaries.
Reasons behind this lack of unification include the passage of time, death of
owners, missing records, lack of asset tracking mechanisms and the absence of
legal and regulatory requirements for institutions to declare the unclaimed assets
that they hold.
6. The current framework in Kenya does not provide for a system of
mandatory notification or reminders to potential unclaimed financial asset owners
nor the disclosure or publication of unclaimed financial assets. Implementing an
effective reunification system would help protect the interests of potential
unclaimed financial asset owners, particularly the most vulnerable owners and
beneficiaries such as widows, orphans, dependents and others who are less
financially literate. A robust reunification service should include third-party
unclaimed financial assets service providers who work in the best interest of asset
owners as well as financial asset holders.
7. An analysis of unclaimed financial assets in Kenya revealed the following:
• Surveyed institutions in the Banking, Capital Markets, and Insurance sectors
reported total unclaimed assets of KSh.9.1 billion. Of this total, banks reported
KSh.7.4 billion, listed companies KSh.1.5 billion, insurance companies
KSh.283 million, one pension fund (NSSF) KSh. 243 million and one utility
firm (KPLC) KSh.66.8 million. The reported unclaimed assets was far below
the originally estimated KSh. 200 billion. This could be attributed to a number
of factors. The main ones being exclusion of non-financial assets like land and
property, significant under-reporting by holding institutions surveyed
particularly in the pensions and insurance sectors, and non-reporting of
unclaimed assets by government agencies like the Public Trustee.
• There is considerable variation in the treatment, accounting and reporting of
unclaimed financial assets within sectors, as well as across different sectors.
Many holding institutions have weak policies on unclaimed financial assets
6. vi
that do not match the best practices in their industry. This gives rise to the
need for setting uniform rules, definitions and accounting and reporting
requirements on dormant and unclaimed assets across the financial system.
• Respondents to the Taskforce’s survey on the proposed structure of an
unclaimed financial assets framework indicate broad support for the
introduction of uniform best practices within industries as well as the creation
of an independent unclaimed financial asset agency and trust fund, particularly
by large banks, insurers and other listed entities. The respondents placed more
emphasis on recognition of the contractual relationship between the holding
institutions and the asset owner. The respondents however noted that
transferring the unclaimed financial assets minimizes the risks of holding the
assets in their books.
• In the absence of a mandatory regulatory frame work (as opposed to a
voluntary regime) holding institutions have no legal compulsion or
commercial incentive to identify, segregate, report and manage unclaimed
assets with due consideration to the interests of asset owners.
• An unclaimed financial assets regime will assist the financial system to
minimize fraud by employees of holding institutions, curb corporate
malpractices by holdings institutions, and promote sound corporate social
responsibility (CSR) through re-unification services. It will also raise
standards of corporate governance (CG) through increasing transparency and
accountability in the management of third party assets.
• A long-term investment policy and strategy be part of the overall unclaimed
financial assets framework. This will increase buy-in by other stakeholders
and, in addition, accord the Government an opportunity to exercise its
responsibility as bona vacantia holder of assets in the public interest.
• Re-unification services are critical in both the temporary and permanent
phases of separation, particularly the reunification of financial assets with
widows, orphans, dependants and beneficiaries of the assets.
• Dormant and unclaimed financial assets resulting from owners relocating
overseas points to the need for a robust framework to reunite Kenya’s
Diaspora with the financial assets they leave behind. This offers tangible
benefits to the Diaspora and helps to increase Diaspora remittances,
recognized under Kenya’s Vision 2030 as an important source of long-term
financing and which is slated to increase from the current 5% to 10% of GDP.
7. vii
• Several listed companies are avoiding paying unclaimed dividends to the
regulator under the Investor Compensation Fund by amending their Articles of
Association to allow them to write back unclaimed dividends after short
periods of non encashment, thus avoiding the seven-year statutory period for
holding of the assets as defined under the CMA Act. Some companies are
selling shares whose owners are inactive to third parties such that the six years
of accumulated unclaimed dividends of the original shareholders would be
funneled back to the company through its profit and loss statement.
• A reasonable transition period of 1 to 3 years is deemed as appropriate in
complying with the requirement to transfer all financial assets that qualify as
unclaimed as opposed to immediate transfer. This is because immediate
transfer could result in a liquidity constraint, particularly for banks while
companies could resort to selling of assets to meet such a requirement leading
to unanticipated financial burden.
Way Forward
8. FOUR possible options have emerged from the assessment by the
Taskforce on unclaimed financial assets in Kenya. These are:
Option 1: Maintain the current legal and regulatory framework largely
unchanged .The current legal and regulatory framework continues unchanged
with a reactive approach to policymaking and regulation.
The Taskforce views this option as unfavourable given Vision 2030’s social and
economic pillars of a free, equitable, and just society with access to affordable and
competitive financial services. In addition, from international best practice, the
government would be abdicating its mandate as “bona vacantia” holder of
unclaimed asset in trust. Moreover, there is convergence of opinion on the matter
that these assets should be under regulatory oversight.
Option 2: Introduce a voluntary legal and regulatory framework. This option
requires that all participating institutions holding unclaimed financial assets
volunteer to participate in a self-regulatory regime. This option would imply that
institutions holding unclaimed financial assets exercise their discretion either to
participate or not as they are not compelled to do so either by law or principle.
This option is also rejected given that the holding institutions have been
beneficiaries of the current absence of statutory requirements. In the absence of a
8. viii
mandatory regulatory framework, holding institutions have no legal compulsion
or commercial incentive to identify, segregate, report and manage unclaimed
financial assets with due consideration for the interests of the asset owners.
Option 3: Introduce a mandatory legal and regulatory framework within
Regulator(s). This option entails use of the existing systems and infrastructure of
regulators to domicile the unclaimed financial assets agency. Given the
Government policy stance of not creating new agencies but rather consolidating
agencies, this option requires that such an agency be domiciled in an existing
regulator, such as the Retirement Benefits Authority (RBA), which has the
capacity of overseeing Trust Funds or under the Capital Markets Authority
(CMA), which has the Investor Compensation Fund. This will be similar to the
practice in Australia where the Australia Securities and Investments Commission
(ASIC) is responsible for regulating and managing Unclaimed Assets across all
sectors. The CMA currently possesses some limited legal and regulatory powers
to manage unclaimed dividends. This option would be consistent with the trend
towards consolidation of the regulation of financial services under a unified
financial sector regulator.
Option 4: Introduce a mandatory legal and regulatory framework with
creation of a new Regulatory Agency. The option entails establishment of an
new unclaimed financial assets agency tasked solely with the responsibility of
regulating, supervising, and managing unclaimed financial assets across all
sectors in Kenya. The framework would address the most common causes of
dormancy, provide for uniform definitions and standards of accounting and
disclosure, and establish regular reporting requirements.
This option would further ensure that the four pillars of a robust unclaimed assets
framework identified by the Taskforce are catered for, namely (i) mandatory
accounting and reporting obligations on holding institutions including
requirements to identify, segregate, report and remit unclaimed financial assets;
(ii) enactment of a mandatory legal regime for unclaimed assets that includes the
creation of a regulatory authority and a central trust fund; (iii) robust reunification
measures guaranteeing owners the indefinite right to reunification; and (iv)
provisions for investment of Unclaimed financial Assets funds for long term
economic development.
The Task Force recommends this option.
9. ix
Financial Implications
Option 1: There are no additional costs involved under this option. However,
there would be continued accumulation of unclaimed financial assets across all
sectors in the financial system with no re-unification. There would be limited
intermediation or productive use of these dormant and unclaimed assets for
economic development.
Option 2: The Government may draft guidelines on voluntary management of
these unclaimed financial funds. There would be minimal additional costs for
drafting new guidelines and harmonizing laws as well as amending existing Acts.
Other additional costs would accrue from creating new regulations to be
administered by existing regulators.
Option 3: There will be costs related to the set up, establishment, and revision of
existing legislations to incorporate unclaimed financial assets. There will also be
costs for capacity building for existing and/or new staff within the existing
regulatory agency identified to domicile unclaimed financial assets.
Option 4: There will be more resource commitments with this option. This entails
creation of an Unclaimed Assets Agency to regulate and administer the new
institutional structure. New resources will be required to cover the set up costs,
establishment of infrastructure, staffing, and training. The initial costs would be in
the region of KSh. 80 million per annum as set out in Appendix B at page 55.
Recommendations
The Taskforce recommends Option 4 as the ideal structure that takes into
account the four pillars of a robust unclaimed assets framework, namely (i)
mandatory controls, accounting and reporting obligations on holding institutions
(ii) indefinite right of reunification for owners; (iii) a mandatory legal framework
that includes creating a regulatory agency and trust fund, and (iv) provisions for
investment of unclaimed financial assets for long-term socio-economic
development.
In this regard, the Taskforce has developed a draft unclaimed assets bill for
consideration by the Ministry of Finance. The draft bill contains guidelines for a
regulatory and institutional structure for the administration of unclaimed financial
assets.
10. 1
1.0 OBJECTIVE OF THE REPORT
The objective of this report was to ascertain the current practice, size, and extent
of unclaimed assets in Kenya and recommend a national policy framework on
unclaimed financial assets based on international best practice, including
reviewing existing legislation and/or developing new legislation for unclaimed
financial assets.
1.1 INTRODUCTION
1.1.1 Background Information
Unclaimed Assets are tangible or intangible property that has gone unclaimed by
its rightful owners, or assets where there have been an absence of owner-
generated activity for a defined period.
Common examples of unclaimed financial assets include the following:
a) Customer and client accounts and balances held at banks, building societies
and other depository financial institutions but which have been inactive for a
long time (“dormant” accounts);
b) Unclaimed income from stocks and shares in the form of dividends and
interest earned;
c) Unclaimed utility deposits in the books of power and water companies;
d) Unclaimed or uncollected retirements benefits at insurers and pension
administrators including unidentified or un-credited contributions to private
and public pension schemes;
e) Unclaimed death benefits and annuities from insurance companies;
f) Unclaimed or uncollected bail and bond monies deposited in Courts of law;
g) Unclaimed deposits and benefits in collapsed institutions like banks, building
societies, insurance companies and stock brokerages; and
h) Uncollected lottery prizes and other prize monies
Many developed countries have explicit policy frameworks for the management
of unclaimed financial assets. The current international best practice for managing
11. 2
unclaimed financial assets, including information and data relating to unclaimed
financial assets, is predominantly a mandatory legal and regulatory framework.
These usually require identification of unclaimed financial assets according to
prescribed “definitions,” followed by segregation of these assets, periodic
reporting, and remittance to a central agency upon expiry of prescribed dormancy
periods. The portion of funds remitted to the central reclaim funds in excess of
amounts needed to satisfy claims is normally invested for social and economic
benefits.
The picture in Kenya contrast sharply with current international best practice. It
was originally estimated that unclaimed financial asset holdings in Kenya
exceeded KSh. 200 billion in the financial system, corporate sector and other
institutions including utilities.
Estimates from international jurisdictions indicate that about 60% or more of
unclaimed financial assets are permanently separated from their owners or
beneficiaries. The cause include the passage of time, death of owners, missing
records, lack of asset tracking mechanisms and the absence of legal and regulatory
requirement for institutions that hold these assets to declare or report the
unclaimed assets that they hold.
Under the principle of bona vacantia, government is the ultimate custodian and
owner of unclaimed property in any modern state. Prior to reverting to
government, reasonably thorough, effective, and cost efficient efforts need to be
made to re-unite unclaimed assets with their owners and discharge holding
institutions of the liability to the owners. Only where the owners and beneficiaries
of the assets cannot be found or traced should unclaimed financial assets be
remitted to agencies of government or independent reclaim or trust funds for
investment in social and economic development.
1.2 REVIEW OF GLOBAL EXPERIENCE
1.2.1 Australia
The unclaimed financial assets framework in Australia includes individual state
laws that pertain to unclaimed balances. These laws are not consistent or uniform
across all state jurisdictions. Other laws include the Disposal of the Uncollected
Goods Act, the Warehousemen’s Lien Act, and Trustee’s Act. The Banking Act
and Commonwealth Corporations Law affect the laws established by individual
states. Australia offers wide coverage with separate legislation for each financial
sector. Reunification measures include public access to an online, searchable
unclaimed assets database and a consumer website (FIDO), which is maintained
12. 3
by the Australian Securities and Investments Commission (ASIC), the capital
markets regulator. They operate an unclaimed moneys service unit as a public
service and settlement mechanism for state treasurers. All unclaimed moneys are
forwarded to the ASIC independent of the sector from which they originate. ASIC
pays unclaimed balances to the Treasury as revenue ASIC’s responsibility to act
as the reclaim and re-unification services provider may conflict with its
regulatory role. Australia’s unclaimed financial assets funds are not intended for
re-investment for long-term economic development but used for local investment.
1.2.2 Canada
Canada provides a framework for managing unclaimed balances from inactive
accounts on defined thresholds for a total of 40 years. Under the Canadian
framework, unclaimed balances from federally regulated banks and trust
companies are managed for 10 years at the original holding institution. After
expiry of this period, they are remitted to the Bank of Canada which manages
them at the Central Bank for an additional 30 years before transferring them to
ordinary government revenue. The Office of the Superintendent of Financial
Institutions (OSFI), equivalent to the Bank Supervision Department of the Central
Bank in Kenya, publishes an extensive register of unclaimed balances in the
Canada Gazette.
1.2.3 Malaysia
Malaysia’s unclaimed financial assets framework is based on the Unclaimed
Moneys Act of 1965. Its regulatory framework offers some of the best
international practices that Kenya could draw from in terms of defining unclaimed
assets as well as mandatory provisions for identifying, segregating, reporting, and
remitting unclaimed financial assets. Its regime provides universal coverage over
all sectors in the economy and casts the net over unclaimed assets wide enough to
include all unclaimed monies held by any person or individual. This means that
Malaysia offers potentially the most extensive coverage. All categories of
unclaimed monies are remitted to the Registrar of Unclaimed Moneys and are
designated as ordinary government revenue after being for 15 years.
Malaysia’s unclaimed financial assets framework provides for reunification
measures that include mandatory publication of unclaimed financial assets by
holding institutions and the Registrar of Unclaimed Monies in the national
gazette. However, it has few guidelines on the use and investment of unclaimed
funds for social causes or economic development.
13. 4
1.2.4 Ireland
Ireland’s framework is based on the Dormant Accounts Act of 2001 (revised in
2005) and the Dormant Life Assurance Policies Act of 2003. Both Acts offer
detailed guidelines, definitions, procedures, and purposes for the unclaimed
financial assets regime. The regulatory framework in Ireland expressly adopts four
main pillars as goals for unclaimed balances; namely, consumer protection,
orderly regulation of the unclaimed balances held by financial services industry,
right to reunification; and minimizing risks on institutions of holding dormant
accounts. Ireland offers one of the most robust and extensive unclaimed financial
assets frameworks, one that is probably more comprehensive and thus more
complex than the requirements of Kenya. Ireland’s unclaimed assets framework
explicitly provides for investment of funds for social and community
development. It requires separate funds and reserves to be maintained to satisfy
reclaims and expenses of the Unclaimed Assets Board and Trust funds. However,
Ireland lacks a central national unclaimed assets database and independent
consumer search and reunification services.
1.2.5 Uganda
Uganda’s Financial Institutions Act of 2004 (section 119) defines its regulatory
framework for unclaimed balances. The framework is simple and brief, but makes
reasonable provisions for the identification, segregation, and management of
dormant and unclaimed assets while held at holding institutions. Unclaimed
balances are transferred to the Bank of Uganda (BoU) after prescribed periods.
This places significant re-unification responsibilities upon the BoU. The
unclaimed moneys remitted to the BoU may be used to offset the costs of
supervising financial institutions or used as may be prescribed. The Act is
however silent on who prescribes the expenditure of unclaimed funds. Uganda’s
unclaimed financial assets framework does not specify objectives and mandates
for the use of unclaimed funds for long-term economic development. It lacks an
institutional structure and does not provide for an independent unclaimed assets
agency or trust fund. It does not include provisions for private sector reunification
measures that are critical to effective unclaimed assets regimes.
1.2.6 United Kingdom (UK)
An unclaimed assets framework for the UK has not been fully established and is
currently a work in progress. The UK’s proposed unclaimed assets scheme seeks
to make provisions for using money from dormant accounts for social or
charitable purposes, distinct from government revenue and spending. The purpose
of the proposed legislative framework is to transfer unclaimed assets to a central
14. 5
reclaim fund to be used to assist society while protecting owner’s rights to reclaim
their money. Proposed laws seek to set up a Central Reclaim Fund regulated by
the Financial Services Authority (FSA), which would extinguish liabilities to
owners upon transfer of dormant accounts balances to the Central Reclaim Fund.
The UK’s proposed framework is a voluntary and self-regulatory scheme. It
would require banks and building societies to proactively identify and reunify
customers with their unclaimed balances prior to the start of the scheme. Separate
provisions would apply for smaller banks with assets under UK Sterling 7 billion.
The investment of dormant funds into society is the one pillar of the UK’s
unclaimed assets scheme that holds strong lessons for Kenya.
The voluntary nature and reliance on self-regulation among banks and building
societies is in sharp contrast with mandatory regimes that comprise best
international practices in other jurisdictions. The UK’s proposed framework
includes a considerably long dormancy period of 15 years and has weak statutory
provisions on the management of unclaimed balances in situ during the 15-year
dormancy period. The proposed level of coverage is relatively narrow for modern
financial systems by covering only banks and building societies, thus excluding
unclaimed balances from the insurance and pensions sectors as well as unclaimed
dividends from the capital markets segment.
1.2.7 United States of America (USA)
The unclaimed assets framework of the United States includes extensive and
comprehensive state-level Uniform Unclaimed Property Acts. These provide
mandatory provisions for identifying, reporting, and remitting unclaimed property
to State Treasurers. US regulations make State Treasurers responsible for
reunification efforts. Kenya’s unclaimed financial assets framework can draw
many valuable lessons from the USA, including rules and regulations for the
identification, reporting, and remitting of unclaimed amounts. However, the
extensive legal and regulatory requirements in the USA could also be burdensome
in the Kenyan context.
1.3 LESSON LEARNT FROM THE ABOVE REVIEW
Pillars of an Effective Unclaimed Financial Assets Framework: The Taskforce
identified four key pillars of an effective unclaimed financial assets framework:
1. Strong Controls and Reporting Requirements over Unclaimed Assets at
Holding Institutions: Strong internal controls are required at holding
institutions with guidelines on application of uniform accounting treatment
and best practices in each industry. These should include the identification,
15. 6
segregation, reporting and remitting of unclaimed financial assets.
Regulations, policies, and procedures are essential to the proper management
of unclaimed assets while they lie dormant in situ at holding institutions.
2. A Mandatory Legal And Regulatory Framework: A mandatory legal and
regulatory framework with legislation that creates a regulatory institution and
trust fund to regulate, supervise, and manage unclaimed assets at all stages of
separation of assets from the temporary separation phase to the permanent
phase. Once holding institutions have exhausted reunification efforts and upon
expiry of a prescribed period, unclaimed assets should be remitted to an
independent regulatory institution and trust fund for further management.
There is broad support for an independent unclaimed assets agency and an
independent trust fund to regulate, own, and manage unclaimed assets. Such
an agency would also be responsible for the appointment of fund managers
and custodians to assist in discharging their mandate as well as provide for the
licensing of unclaimed financial assets service providers offering reunification
services.
3. Reunification of Unclaimed Assets with Owners & Beneficiaries: Strong
provisions for re-unification measures and services are required that cover the
periods of temporary separation (when dormant and unclaimed financial assets
are held by holding institutions) as well as during the transition to permanent
separation (when unclaimed assets are transferred to an independent agency or
trust fund). Central to reunification is the indefinite right of reclaim by owners
of unclaimed assets, whether held at holding institutions or after remittance to
an independent unclaimed assets agency or trust fund. “Owners” are inclusive
of widows, orphans, and dependents. The experience from other jurisdictions
indicates that about 25% to 40% of unclaimed assets are eventually reunited
with owners, leaving the balance available for long-term investment in
economic development that benefits society.
4. Investment of Unclaimed Funds for Long-Term Development: The
investment of unclaimed funds for long-term economic development is
ultimately the primary justification for an unclaimed financial assets
framework. The returns from these investments are the benefit that the country
targets to obtain.
16. 7
2.0 ANALYSIS OF THE SITUATION/PROBLEM
The Taskforce examined existing practices in Kenya’s banking, insurance,
pensions, and capital markets sectors. Companies in each sector were identified
and asked to participate in a survey to ascertain the nature, extent, and size of their
unclaimed assets and assess their current practices with regard to dormant and
unclaimed assets. The findings for each sector are outlined below.
2.1 THE BANKING SECTOR
The Taskforce received responses from 40 of the 45 licensed institutions that were
surveyed. Overall, the banking sector provided quality responses to the survey.
Active and hands-on assistance was provided by the sector regulator in getting
institutions to participate. The 40 responding banks collectively held KSh.7.4
billion in dormant and or unclaimed balances. The values reported for various
types of unclaimed assets are summarized at Table 1.
Table 1: Unclaimed Assets held at Banks by Type of Asset
Unclaimed / Dormant Assets Reported Number KSh. %
Unclaimed Account Balances
Savings Accounts 263,112 3,625,393,572 49.2%
Current Accounts 29,258 1,783,816,755 24.2%
Deposit, Call Accounts 3,522 629,583,663 8.5%
Subtotal - Account Balances 295,892 6,038,793,990 81.9%
Unclaimed Financial Instruments
Un-Presented Cheques, Unclaimed Drafts 34,059 1,264,665,847 17.2%
Customer Receipts, Remittances not credited 24,322 17,990,203 0.2%
Bearer Certificates of Deposits Unredeemed 2 5,385,211 0.1%
Treasury Bills, Bonds 9 202,563 0.0%
Wholesale A/c - Western Union 185 2,091,215 0.0%
Wholesale A/c - Money Gram 0 0.0%
Unclaimed Dividends 3,575 40,786,797 0.6%
Subtotal - Financial Instruments 62,152 1,331,121,837 18.1%
Unclaimed Assets Reported by Banks 358,044 7,369,915,826 100.0%
Survey data shows that 295,892 accounts holding unclaimed balances of KSh.6.0
billion or 81.9% of the total were unclaimed or dormant in the banking sector.
62,152 unclaimed financial instruments amounting to KSh.1.3 billion or 18.1% of
the total were unclaimed or dormant in the banking sector. The largest subset of
the former is savings accounts (49%) followed by current accounts (24.2%) and
17. 8
deposit accounts (8.5%). The largest component of unclaimed financial
instruments was un-presented bankers cheques and drafts (17.2%).
The Taskforce examined the number of deposit accounts in the Kenyan banking
sector as outlined at Table 2.
Table 2: Deposit Accounts in Kenyan Banking Sector
2007 Number of
Bank Deposit Accounts
Bank Deposits
(KSh. Billions)
Insured Deposits 4,129,162 114.2
Uninsured Deposits 608,982 595.6
Total Deposits 4,738,144 709.8
Source: Unclaimed Asset Task Force July 2007. Data from CBK Bank Supervision Report 2007.
The Kenyan banking sector held KSh.114.2 billion in insured deposits (balances
below KSh.100,000) and KSh.595.6 billion in un-insured deposits (above
KSh.100,000) as at 31 December 2007. The banking sector held KSh.709.8 billion
in 4,738,144 deposit accounts. The 40 participating banks reported 295,892
dormant accounts. As such, dormant accounts made up 6.2% by number of all
accounts in the Kenyan banking system (295,892 / 4,738,144).
The survey carried out by the Taskforce further indicates that in the banking
system, unclaimed assets were separated from their owners for periods as long as
seven or more years. Some banks were not able to identify the length of time for
which balances were unclaimed.
Table 3 shows the age of unclaimed account balances in the banking sector
reported by the 40 participating banks.
Table 3: Age of Unclaimed Account Balances
Age Analysis Of Unclaimed Balances Reported –Banking Sector (KSh.)
6 Months 1,369,566,337 27.7%
More than 6 Months to 2 Yrs 1,378,780,015 27.9%
More Than 2 Yrs 2,191,250,461 44.4%
Total Aged Analysis of Unclaimed Balances 4,939,596,813 100.0%
Sub-Total - Balances Not Analyzed by Age 2,430,319,013
Reported Dormant Accounts 7,369,915,826
Source: Unclaimed Assets Taskforce Survey: April-November 2008
18. 9
Table 3 indicates that 44.4% of unclaimed account balances were unclaimed for
more than 2 years. The remaining 56.6 % were separated from their owners for
less than 2 years, with 27.6% of unclaimed balances dormant for 6 months. This
finding outlines the need for regulatory requirements to properly manage
unclaimed assets while they lie dormant “in situ” at holding institutions. It also
highlights the need for robust reunification requirements as specified in the four
pillars of an unclaimed financial assets regime.
Overall, comments from participating banks indicate the following preferences:
• An indefinite right of reclaim by customers;
• Provisions for requisite proof of customer’s claims on unclaimed balances;
• Emphasis on the banks’ fiduciary duty of care to customers;
• The importance of the bank-customer contractual relationship; and
• Holders retaining custody and control over unclaimed assets.
These preferences are consistent with recommendations for the management of
unclaimed assets “in situ” during the temporary separation phase. Holding
institutions guided by requirements to adopt best practices and applying uniform
guidelines and procedures across industries would not gain any advantage in
having custody and control.
Overall, the survey identified wide variations in the treatment of unclaimed assets
with regard to accounting and banking practices within the sectors, as well as
across sectors. This makes a strong case for setting uniform definitions, rules and
requirements on the treatment of dormant and unclaimed assets.
Other findings include:
• The bank reporting the largest amount in dormant or unclaimed assets in the
country holds over KSh.1.0 billion. With more rigorous definitions of
unclaimed and dormant assets, The Taskforce expects significantly larger
amounts to be reported in the banking sector as unclaimed.
• Large banks use their contractual bank-customer relationship as a guide to
setting policies on dormant and unclaimed accounts. This needs to carry
19. 10
through to the new unclaimed financial assets framework to avoid breaching
existing contracts.
• Many banks as holding institutions recognize unclaimed deposits and other
customer dues as liabilities that are payable on demand, but nevertheless
invoke the 7-year statute of limitation in their policies on unclaimed balances.
• A majority of banks transfer unclaimed balances on dormant accounts into
their profit and loss accounts after periods determined by their internal
policies. These periods range from as short as 2 to 5 years to the more usual 6
to 7 years. One bank recognizes unclaimed assets as income after 10 years of
dormancy. Current practices by some of the banks in may breach international
best practices in cases where they depart from the legal status for unclaimed
deposits and dormant accounts – which is that these amounts remain as
liabilities of the holding institutions (contingent liability disclosures as per
International Accounting Standards).
• The few banks with strong policies and internal controls over unclaimed assets
are burdened by the absence of laws regarding the ultimate disposition of the
assets. This leads to uncertainty on applicable legal and regulatory provisions.
• The most common reasons for customers to be separated from their accounts
are death, relocation overseas and incorrect customer and or account details.
This means that re-unification services are critical at both phases of temporary
and permanent separation, extending to reunification of assets to widows,
orphans, dependants, and beneficiaries of account holders.
• A robust unclaimed assets framework in Kenya must demonstrate to Kenya’s
Diaspora that the country’s financial and regulatory regime safeguards their
interests and encourages Diaspora remittances from abroad. Kenya’s Vision
2030 identifies Diaspora remittances as an important source of external
financing and expects these to increase substantially, doubling to 5% of GDP.
• The most common definition of dormancy is “absence of user generated
activity for a defined period”. The most common dormancy periods in the
banking sector are 6 months to 2 years from the initial recognition of
dormancy to the transfer to internal unclaimed or dormant registers.
• The most common periods for ultimate disposition and recognition into profit
and loss accounts are between 5 to 7 years and up to 10 years.
20. 11
2.2 THE CAPITAL MARKETS SECTOR
According to Kenyan practice, dividends become “unclaimed” on expiry of a 7-
year period after declaration and payment if the company paying the dividend is
not able to effect the dividend payment or unify the unclaimed dividends with the
shareholder, for whatever reason.
The Capital Markets Authority (CMA) Act was amended by the 2007 Finance Act
to include provisions for the collection of unclaimed dividends. This was
accomplished through the introduction of an Investor Compensation Fund1
.
The primary goal of the survey of the capital markets segment was to determine
the value of unclaimed financial assets involving capital market stakeholders,
intermediaries and financial instruments in the capital markets. These include
shares, stocks, dividends, collective investment scheme units, bonuses and rights
issues. The survey assessed how listed companies currently treat unclaimed assets
and gathered the opinions of the sector on the future unclaimed financial assets
framework and its design.
The value of unclaimed dividends for the 29 listed companies and 1 stockbroker
that participated in the survey totaled KSh.1.0 Billion in FY2006 and KSh.1.53
Billion in 2007 as shown at Table 4.
Table 4: Capital Markets Unclaimed Dividends
Unclaimed Dividends By Counter 2007
KSh.
2006
KSh.
Industrial and Allied 682,480 422,420
Commercial and Services 90,436 85,525
Finance and Investment 732,905 510,046
Alternative Investment 3,553 2,193
Client Nominee Accounts 23,129 -
TOTAL 1,532,503 1,020,184
Source: Unclaimed Assets Taskforce Survey: April-November 2008
1
The Fund is sanctioned to collect any unclaimed dividends from listed companies that have been
outstanding for more than seven years and is responsible for “paying beneficiaries from collected
unclaimed dividends when the rightful owners are found.
21. 12
About 75% of the participants indicated that their policies on unclaimed dividends
were incorporated into their Articles of Association and that they followed the 7-
year period from the statute of limitation Act to define dormancy.
One company indicated that the 7-year policy was the most equitable for all
shareholders and that writing back unclaimed dividends into the company tends to
benefit all shareholders, not just one or two. The company also indicated that its
Articles of Association only covered dividends and not untraceable shareholders.
The Rights Issue Prospectus of a listed company indicates that any shareholder
not notifying the company that they will take up their rights will forfeit those
rights. This implies that all missing shareholders will automatically be giving up
their rights without their knowledge.
The sole respondent from the list of CMA licensees stated that they did not have
any policies on unclaimed financial assets. However, currently they were holding
KSh.23 million in unclaimed stocks, bonds, and client securities.
The most common reason respondents gave as to why unclaimed assets arise
included; shareholder account details that are incorrectly updated due to the wrong
postal code; death; lack of knowledge of the assets; relocation of shareholders
overseas into the Kenyan Diaspora. The small size of many dividend payments,
especially those which attracted bank charges exceeding the dividend amount, was
a significant reason many shareholders simply did not cash in their dividends.
The majority of survey participants indicated that unclaimed assets should
ultimately be paid to an independent agency rather than the Capital Markets
Authority’s designated Investor Compensation Fund or the Government. They
indicated that an independent trust fund should take ownership of unclaimed
assets until such assets could be reunited with their rightful owners. Of those who
indicated that funds should be paid to an independent party, most favoured an
independent trust as opposed to an independent agency. One participant, however,
felt that unclaimed dividends and shares should be held and revert to the holding
institutions since it was most equitable to shareholders.
They also preferred an option of shareholders having an indefinite time to reclaim
any unclaimed dividends and shares. However, one participant proposed a special
resolution to its shareholders that would cause shareholders of dormant assets to
permanently lose their right to such assets.
About 80% of respondents indicated that companies should be required to identify
and segregate unclaimed assets as well as prepare and issue audited annual
statements or reports on unclaimed dividends and shares.
22. 13
About 60% of respondents indicated that deadlines should be established for
remitting unclaimed assets. The remaining 40% indicated that a deadline should
be established, but that it should be gradual. They indicated that a transition period
should be established, e.g. five years, to allow companies sufficient time to move
all unclaimed assets off their balance sheets.
2.3 THE PENSIONS SECTOR
The Pension sector is a significant part of the financial system having grown its
assets in total from KSh.40 billion in 2003 to KSh.263 billion in 2007.
Participating respondents from this sector indicated satisfaction with current
practices and the existing absence or lack of a clear legal and regulatory
framework regarding unclaimed financial assets.
Trustees in this sector noted that they had a legal obligation to pay benefits when
they become due and payable. Trustees are presented with the highest risk of
litigation since, by law, trustees are liable if they release unclaimed benefits to any
entity other than the beneficiary. The sector does not have clear provisions with
regard to payments of claims beyond the statutory period of 60 days. In addition,
existing trust laws provided for trustees to hold dormant and unclaimed benefits,
which is a method preferred by trustees.
Some pension schemes include provisions that allow for benefits to revert to the
scheme if not claimed within 3 to 5 years. However, the Retirement Benefits
Authority does not permit this practice. The sector regulator prefers these benefits
to revert to their managed Unclaimed Benefits Trust. In the event that no
unclaimed assets regime is put in place these assets would be managed under that
regime.
The industry would accept an independent unclaimed asset trust that is properly
managed with the tracing of beneficiaries handled in a professional and
accountable way, but also requires that assets be vested in the trust, not in
Government.
2.4 THE INSURANCE SECTOR
The Taskforce requested members of the insurance industry to provide responses
in detailed survey questionnaire. The Insurance Regulatory Authority used a
circular as the tool to seek information from life insurance offices. However, the
quantitative response was poor. The Taskforce attributed this to the following
factors:
23. 14
Some companies did not give the circular the attention it deserved. Some
responses were, at best, casual. They lacked depth and accuracy because this
assignment was delegated to junior officers within their organizations.
The values reported by the companies that responded appear to be extremely
low, and thus, inaccurate. Most life insurance companies have evolved
significantly over time due to mergers, buy-outs, and acquisitions. This trend
has been visible throughout the insurance sector.
Most life insurance companies’ underwriting policies included policies
denominated in British pounds sterling prior to independence. Most of these
policies remain unclaimed, as the holders have emigrated.
The modernization of management systems by many life insurance companies
caused the loss of significant historical data. In the early nineties, when life
insurance offices began computerizing their management systems, most of the
data captured was primarily for current policies. Older policies may have been
inadvertently omitted, or deliberately left out given that such policy types
ceased to be underwritten a long time ago and there were no templates in the
system to capture the details.
In view of the difficulty in obtaining timely and accurate responses from
the insurance industry, The Taskforce recommends that the process of
obtaining information on unclaimed policy benefits be entrenched in
regulatory and licensing requirements, and be extended to the other
sectors in the banking and financial system as well.
24. 15
3. 0 MAIN STUDY FINDINGS
The main findings from the work carried out to date are summarized below:
1. Size and extent of unclaimed assets: Surveyed institutions reported total
unclaimed assets of KSh.9.1 billion. Of this total, banks reported KSh.7.4
billion, listed companies KSh.1.532 billion, insurance companies KSh.283
million and one utility firm KSh.66.8 million.
2. Estimates of unclaimed assets in the financial system: The Taskforce
estimates that complete reporting by all institutions holding unclaimed assets
using tighter rules on identifying dormant and unclaimed assets would yield
unclaimed assets of 3.2% to 6.2% of customer deposits in the banking sector,
and 2.4% to 2.8% of claims payable in the insurance subsector. The Taskforce
estimates that three sub-sectors of Kenya’s financial system hold unclaimed
assets amounting to between KSh.19.9 billion to KSh.46.3 billion.
3. Wide variations in industry practices: There is a wide variation in the
treatment, accounting and reporting of unclaimed assets within and across
different sectors. Many institutions have weak policies on unclaimed assets
that are below the standards of best industry practices. This justifies setting
uniform rules, definitions, and accounting and reporting requirements for
dormant and unclaimed assets across the financial industry.
4. Preferences on institutional structure: Respondents surveyed on the
proposed unclaimed assets framework and institutional structure, particularly
large banks, insurers and listed entities, indicated broad support for the
introduction of uniform best practices within sectors as well as creation of an
independent unclaimed asset agency and trust fund.
5. Preferences of large holding institutions: The large holding entities placed
greater emphasis on recognition of the contractual relationship between the
holder and the asset owner and recognized the need to minimize the risks of
holding dormant assets.
6. Preferences of small holding institutions Many smaller holding institutions
exhibited significant resistance to remitting unclaimed assets to an
independent agency or trust fund. Much of this resistance may be due to the
current short-term market circumstances of tight liquidity and the view that
unclaimed funds form part of these institutions long-term capital. Thus,
smaller holding institutions supported regulations, policies, and rules to
25. 16
enhance the management of unclaimed assets by holding institutions in situ
without remitting them to an independent agency or trust fund.
7. holding institutions lack of Incentives to protect interests of owners: In the
absence of a mandatory legal and regulatory frame work (as opposed to a
voluntary regime and codes of practice within industries) holding institutions
have no legal compulsion or commercial incentive to manage unclaimed
assets with due consideration for the interests of the unclaimed assets owners.
8. Benefits of unclaimed assets regime are compelling: An unclaimed assets
regime will assist the financial system to minimize fraud by employees of
holding institutions, curb corporate malpractices by holdings institutions,
promote sound corporate social responsibility (CSR) through re-unification
services and raise standards of corporate governance (CG) through increasing
transparency and accountability in the management of third party assets.
9. Unclaimed funds need to be invested for long-term economic development:
A policy of investing unclaimed balances for long-term economic
development and on should be adopted as one of the key pillars of Kenya’s
unclaimed assets framework. This will increase buy-in by other stakeholders
and provide an opportunity for the Government to exercise its responsibility as
bona vacantia holder of “owner-less” assets in the public interest.
10. Re-uniting owners with their unclaimed assets is a critical pillar: Re-
unification services to unite unclaimed balances with their owners are critical
in both the temporary and permanent separation phases, particularly
reunification of unclaimed assets to widows, orphans, dependants, and
beneficiaries of account holders.
11. Re-uniting Kenyans in the Diaspora with their unclaimed assets fits into the
country’s Vision 2030: Dormant and unclaimed assets resulting from owners
relocating overseas points to the need for a robust framework to reunite
Kenya’s Diaspora with the unclaimed assets left behind. This can offer
tangible benefits to the Diaspora as well as help to increase Diaspora
remittances that Kenya’s Vision 2030 recognized as an important source of
external financing. Diaspora remittances under Vision 2030 are slated to
increase from the current 2.5% to 5% of GDP.
12. Common definitions and periods of dormancy: The most common definitions
and periods of dormancy are “no user generated activity for a defined period.”
Common periods for the initial recognition of dormancy and transfer to
internal unclaimed or dormant ledgers are 6 months to 2 years. The most
26. 17
common ultimate disposition of unclaimed financial assets is recognition and
transfer into the holding institution’s profit and loss accounts after 5 to 7
years, and up to 10 years in on institution.
13. Regulatory requirements need to cover unclaimed assets at all stages in their
entire cycle: There is need to define dormancy, dormancy periods and the best
practices for internal controls, accounting, reporting and disclosure of
unclaimed financial assets while held in situ at holding institutions. There is
also a need to specify the ultimate disposition of unclaimed financial assets
after holding institutions exhaust reunification efforts. An appropriate
unclaimed financial assets regime for Kenya would need to include regulatory
requirements for re-unification that adequately cover unclaimed assets
separated from their owners temporarily as well permanently.
14. Stricter compliance with Limitation Act limit of 7 years: The Statute of
Limitation Act Cap 22 at s.4 (1) defines a 7-year limitation period for
initiating a cause of action. In the banking sector, this would imply the
statutory limitation period starts to run when a customer makes a demand for
his deposit to be repaid and the bank is unable to do so for any reason. The
legal point where a “cause of action” arises appears to be independent of how
long the customer’s account may have been dormant or when the customer
last performed a deposit or withdrawal transaction on his account. Banks and
holding institutions may be mis-interpreting the 7-year Statute Of Limitation
period as starting on the date the customer last made a deposit or withdrawal
on his account.
15. Unclaimed dividends are not being paid into Investor Compensation Fund:
Several listed companies are avoiding paying unclaimed dividends to the
Investor Compensation Fund of the Capital Markets Authority by amending
their Articles of Association. They propose to sell the shares of members after
shorter periods of dormancy, (when dividends are not collected) thus avoiding
the statutory period to surrender unclaimed dividends as required under the
CMA Act. As such, companies are proposing to sell the shares to other parties
such that the accumulated unclaimed dividends of the original shareholder
would be funneled back to the company through its profit and loss statement.
16. An unclaimed financial assets regime needs to phased in gradually: A
reasonable transition period is deemed as appropriate to ease compliance with
requirements to transfer unclaimed assets, as opposed to immediate transfer.
The latter due to current market conditions could result in a liquidity crisis,
particularly for banks while companies could resort to selling of assets to meet
such requirements leading to unanticipated financial burdens.
27. 18
4.0 OPTIONS ON THE WAY FORWARD
The first of the four main pillars of an effective unclaimed financial assets
framework that the Taskforce identified requires implementing best practices for
managing these assets while they lie dormant “in situ” at holding institutions. The
Taskforce has identified the best practices to be incorporated in Kenya’s proposed
framework for unclaimed financial assets. These practices have been documented
and discussed with relevant stakeholders in the financial system.
Best practices for an effective unclaimed financial assets framework begins with
the adoption of definitions for unclaimed assets relevant to each sector. This
requires for each sector precise definitions of unclaimed assets and their periods
of dormancy, embedding strong internal controls, specifying uniform accounting
and reporting requirements, and introducing new regulatory returns or schedules.
The latter can be used as information gathering instruments to facilitate regular
and accurate reporting. The purpose of these would be to ensure that regulations
have an accurate definition of unclaimed assets and holding institutions make
standard defined returns, on a regular basis to the regulator.
The Taskforce has considered FOUR possible options from the assessment on
unclaimed financial assets in Kenya. These are:
Option 1: Maintain the current legal and regulatory framework largely unchanged.
The current legal and regulatory framework continues largely unchanged with a
reactive approach to regulation and policymaking.
The Taskforce views this option as unfavourable given Vision 2030’s social and
economic pillars of a free, equitable, and just society with access to affordable and
competitive financial services. In addition, from international best practice, the
Government would be abdicating its mandate as bona vacantia holder of
unclaimed assets in trust as well as the general obligation to protect property
including property that may be separated from its owners. Moreover, there is
convergence on the matter that unclaimed assets need to be placed under
regulatory oversight.
Option 2: Introduce a voluntary legal and regulatory framework. This option
requires that all holding institutions unclaimed financial assets volunteer to
participate in the self-regulatory regime. Under this option, institutions holding
unclaimed financial assets can exercise discretion to participate or not as they are
not compelled to do so either by law or principle.
28. 19
This option is also rejected given that the holding institutions have been
beneficiaries of the absence of a mandatory regulatory framework. Currently,
holding institutions have no legal compulsion or commercial incentive to identify,
segregate, report and manage unclaimed assets with due consideration for the
interests of asset owners.
Option 3: Introduce a mandatory legal and regulatory framework with creation of
a regulatory framework under an existing regulator. This option entails use of the
existing infrastructure of regulators to domicile unclaimed financial assets agency.
Given the Government policy stance of not creating new agencies and
consolidating agencies, it was recommended that the agency could be domiciled
in an existing regulator such as the Retirement Benefits Authority (RBA), which
has the capacity of overseeing Trust Funds (Unclaimed Financial Assets Act) or in
the Capital Markets Authority (CMA), which has the Investor Compensation
Fund. The CMA under current law has limited regulatory provisions on managing
unclaimed dividends.
The latter would be similar to the practice in Australia where the Australia
Securities and Investments Commission (ASIC) is assigned responsibility for
holding unclaimed assets emanating across all sectors.
This is consistent with the trend worldwide with consolidation of the regulation of
financial services under a unified financial sector regulator.
Option 4: Introduce a mandatory legal and regulatory framework with creation of
a new unclaimed assets regulator. The option entails establishment of a new
unclaimed assets agency created from scratch and tasked sorely with the
responsibility of regulating, supervising, and managing unclaimed financial assets
across all sectors. The framework would address the most common causes of
dormancy, provide guidelines on controls, and establish uniform accounting,
reporting and disclosure requirements.
The Taskforce recommends this option.
29. 20
4.1 FINANCIAL IMPLICATIONS
Option 1: There are no additional costs involved. However unclaimed financial
assets are likely to continue to accumulate in the financial system with no re-
unification or use of unclaimed financial assets for economic development
Option 2: The Government drafts guidelines on voluntary management of
unclaimed funds. Costs expected to be minimal are incurred in the use of
consultant(s) for drafting new guidelines and harmonizing laws. This would
include amending existing Acts and drafting new regulations to be administered
by existing regulators.
Option 3: The Government would incur minimal establishment costs, as well as
costs in revision of the existing legislations to incorporate unclaimed financial
assets. There will be need for capacity building for existing and/or new staff
within the regulatory agencies identified to domicile unclaimed financial assets.
Option 4: The Government would incur establishment costs of the Unclaimed
Assets Authority and Trust Fund, as well as costs in revision of the existing
legislations to incorporate unclaimed financial assets. There will be more resource
commitments required under this option associated with the new regulatory
Agency. These costs would specifically cover establishing systems and
infrastructure, as well as recruitment, and training of staff. The initial costs would
be in the region of KSh. 80 million (see Appendix B).
5.0 RECOMMENDATIONS
The Taskforce recommends Option 4 as the most optimal unclaimed
financial assets framework for Kenya.
This option and the institutional structures established take into account the four
pillars of strong controls, accounting and reporting obligations on holding
institutions; re-unification with owners; a mandatory legal and regulatory
framework; and provisions for investment of unclaimed funds for long-term
socio-economic development.
Additional Recommendations
The Taskforce also makes the following further recommendations:
1. Accounting, reporting, and disclosure requirements on the institutions
holding unclaimed assets should be incorporated in their regular reporting to
30. 21
their respective regulators. The purpose of these is to introduce regular
reporting of unclaimed financial assets prior to remittance to any external
agency and to prepare the financial sector for compliance whilst providing the
sector regulators with accurate and complete information periodically on
unclaimed financial assets.
.
2. Unclaimed assets rules and regulations: In the event that Option 4 (above) is
adopted, the Minister should consider formulating and issuing detailed
regulations and guidelines that implement the proposed Bill tailored to the
respective financial sectors. These guidelines are necessary for uniformity of
accounting treatment, internal controls and reporting of unclaimed financial
assets within and across the financial sectors.
32. 23
6.0 APPENDICES A
Page Description
24 Proposed Regulatory Reporting Structure
25 Proposed Regulatory Agency Organogram
26 Pillars of an effective Unclaimed Financial Assets Regime
27 Overview of Unclaimed Assets Funds Flow
28 Overview of Proposed ICT infrastructure
30 Comparison with International Jurisdictions
41 Capital Markets Unclaimed Dividends
42 Insurance Firms Unclaimed Benefits
43 National Social Security Funds (NSSF)
33. 24
Proposed Regulatory Reporting Structure
(Option 4)
Ministry of Finance
Unclaimed
Financial Assets Agency
Holding
Institutions
Unclaimed Assets
Central Reclaim Fund
Appointed
Service Providers
• Custodians
• Fund Managers
• Administrator
• Re-unification
Owners and
Beneficiaries
34. 25
Proposed Regulatory Agency Organogram
(Option 4)
Unclaimed
Financial Assets
Agency Board
Head-Legal &
Compliance
Head-Finance,
Operations &
IT
Head-Policy &
Regulation
Officer-Legal,
Policy & Research
Officer – Finance,
Operations & IT
Administrative
Assistant
Receptionist
Support Staff (2)
Examiner/(s)
Director
35. 26
Pillars of an Effective Unclaimed Financial Assets Regime
4 Pillars of An Effective
Unclaimed Financial Assets Regime
1. Holders
(Temporary separation phase)
strong Internal controls to
manage Assets in situ
comply with regulatory guidelines
and requirements
exhaust re-unification efforts (write,
issue notices, Publish in Gazette)
Identify, segregate, report
Remit to Agency unclaimed funds
3. Owners & Beneficiaries
(Temporary & Permanent separation
phase)
Indefinite right of reclaim
Unclaimed Assets Service Providers
licensed by Agency provide
reunification services
Unclaimed Assets database (online,
searchable National database,
Published Gazette Registers)
2. Legal & Regulatory
Regime
(Temporary & Permanent
separation phase)
Mandatory legal and regulatory
framework
Creation of independent Agency as
Regulator to administer Act and
supervise Framework
Holds Funds in Trust Fund to meet
claims
Invests Funds balance for long-term
economic development (Strategic
Investment Plan)
4. Investments for Long-
term Economic Growth
(Permanent separation phase)
Investment of Unclaimed Funds for
long-term economic development
Agency Strategic Investment Plan,
prepared, approved by Minister
Investments approved based on agreed
criteria (e.g. Catalyze growth,
maximum economic impact and
benefits for country
36. 27
Overview of Unclaimed Assets Funds Flow
Legal & Regulatory Structure
Mandatory Regime Covers Temporary &Permanent Separation Phases
Temporary separation phase Mostly permanent separation phase
Holders Owners &
Beneficiaries
Agency and
Trust Fund
Agency and
Trust Fund
40%
Pay OWNERS
for Unclaimed
Assets expected
to be re-united
40%
Pay PRINCIPAL
Funds into
account for
settling future
claims
Owners &
Beneficiaries
Income
Pay INCOME
into claims
Account for
settling future
claims
100%
CONTROLS,
ACCOUNTING,
REPORTING
strong internal
controls over
dormant and
unclaimed funds
Identify,
segregate
Re-unify by
letters, publish
notices,
comply with
accounting,
reporting
guidelines and
requirements
REMIT
remit amounts
eventually
unclaimed to
Agency
Comply with Act
60%
REMIT TO
AGENCY FOR
INVESTMENT
FUNDS
For Unclaimed
Assets Not
expected to be
Re-united
60%
Pay PRINCIPAL
Unclaimed Funds
into Investment
Account.
INVEST for long-
term economic
development per
approved
Strategic
Investment Plan
Income
Pay INCOME
into Investment
Account for long-
term economic
development
Note: Estimates of the unclaimed amounts that will eventually be reunified with
owners (above) are purely for illustrative purposes to assist in understanding the
broad outlines of the flow of funds in the proposed unclaimed assets framework.
37. 28
Overview of Proposed ICT infrastructure
An automated or online Unclaimed Assets Register can be designed to offer
simple search services to help owners and beneficiaries find unclaimed assets and
re-establish contact with the holding institutions.
Outline of a Reclaim Transaction
Holders of unclaimed assets submit names and unique identification details
into the database.
Owners and potential beneficiaries (searchers) input the specified search
details onto the database.
The system queries the database and sends the matching results to the asset
holding institutions and to the searcher.
Whether the search is successful or not, the system continues to hold the
searcher’s details indefinitely
The system continually runs searches through all new incoming asset data and
sends a notification when an asset is located.
Verification and authentication of the searches are confirmed by the Asset
Holding Institutions
38. 29
Electronic Document
Imaging
Unclaimed Assets
Owner
Statutory Authorities:
CBK, IRA, CMA,
KRA, RBA, NSSF,
NHIF, Immigration,
Judiciary, Police
Potential Beneficiary
Workflow, Training, Support
Reporting
Searches Unclaimed Asset
Databank
Fund Managers
Holders Database
Payments
Holders of Unclaimed
Assets
Web
Portal
Owner
Submit Names and Asset Details
Unclaimed Asset Register - High Level System Structure
39. 30
COMPARISON WITH INTERNATIONAL JURISDICTIONS
(Source: Unclaimed Assets Task Force, July 2008)
Table 1a: Broad Principles
Jurisdiction Broad Principle
Australia A particular state may be affected by one or more of the
following:
• The Disposal of the Uncollected Goods Act
• Warehousemen's Lien Act
• Trustee's Act
• Banking Act
• Commonwealth Corporations Law
Unclaimed money is generally held by the state/territory in
which the holding company is incorporated. Other legislation
dealing with abandoned funds varies by state / territory, but is
not legally bound.
Canada Legislation requires banks, federally chartered trust and loan
companies to remit unclaimed balances to the Bank of Canada.
Provinces have detailed Unclaimed Property Acts that cover all
other unclaimed assets and property, such as insurance policies,
annuities, and securities transaction balances.
Ireland Ireland’s Dormant Accounts Act 2001 (revised in 2005) and the
Dormant Life Assurance Policies Act 2003. Both have broad and
well thought out definitions, procedures and purposes for
unclaimed bank accounts and financial instruments.
Kenya Kenyan Banking Code, effective 1 October 2001.
Capital Markets Authority (CMA) Act amendments under the
2007 Finance Bill.
Malaysia The Unclaimed Moneys Act 1965 (Act 370) takes a broad
approach and includes all categories of unclaimed monies.
Uganda Uganda’s Financial Institutions Act of 2004.
United
Kingdom
The United Kingdom’s Dormant Accounts Bill as adopted the
House of Commons in March 2008. The unclaimed assets
scheme was proposed as early as 2005 report, but remains a work
in progress.
United
States of
America
The 1995 Uniform Unclaimed Property Act (UUPA) that has
been adopted by 10 states. Twenty states have adopted the 1981
UUPA while fourteen states and the District of Columbia retain
the original 1954 UUPA. Eight states have their own unclaimed
property statutes. State-level UUPAs have mandatory provisions
for identifying, reporting, and remitting unclaimed property to
State Treasurers.
40. 31
Table 1b: Unclaimed Asset Definition
Jurisdiction Unclaimed Asset Definition
Australia Unclaimed Balances:
Accounts that have not recorded a deposit or withdrawal by the
owner for 7 years for accounts exceeding $500.
Canada Unclaimed Balances:
Canadian dollar deposit or negotiable instruments issued or held
at federally regulated banks or trust companies, which have had
no owner- generated activity for 10 years and where the owner
cannot be contacted by the holding-institution.
Ireland Dormant Accounts:
Accounts where no transactions have been effected by the holder
for a defined ‘‘dormancy period’’ of not less than 15 years.
Kenya Dormant Accounts (from voluntary banking code):
“Any account where the volume and nature of transactions has
fallen to a level, which we believe, is inappropriate for the
account or product type.”
Dividends become “unclaimed” after a 7-year period of the
company paying the dividend and not being able to unify the
dividend with the shareholder for whatever reason.
Malaysia Unclaimed Money:
All unclaimed sums of money held in companies and firms,
Public authorities, Government agencies, Parastatals,
Cooperative societies, Superannuation funds
Unclaimed financial instruments:
Money held which is legally payable to an owner and has
remained unpaid for 1 year or more after it become payable.
Unclaimed Account Balances:
All sums of money to the credit of an account that has not been
operated in whatever manner by the owner for 7 years.
Unclaimed Payables On Creditor Ledgers
• All sums of money to the credit of a trade account, which
have remained dormant for more than 2 years.
• Money or any security paid into, or to any account of, a court
upon expiry of 15 years after it was placed in court or last
showed any activity
41. 32
Uganda Unclaimed Balances:
• Any current or savings accounts that have not been operated
for a period of two years or a time deposit account (that) has
not been operated for a period of two years after the date of
maturity of the deposit.
United
Kingdom
Dormant Accounts:
Accounts that have had no owner- initiated transactions (carried
out by or on the instructions of the account holder) for a period
of 15 years, unless the bank or building society was not able to
communicate with the owner under express instructions or under
the terms of the account or product
United
States of
America
Unclaimed Assets are defined as per the Uniform Unclaimed
Property Act for a particular state jurisdiction.
42. 33
Table 1c: Industry Scope
Jurisdiction Industry Scope
Australia Authorized Depository Institutions, include all of the following:
• Banks and Building societies
• Credit unions
• Cooperatives / SACCOs
• Listed Corporations
• Insurance
• Pensions
• Superannuation Funds:
• Legal trusts
• Estate trusts
• Unclaimed salaries & wages
Canada Banks & Trust companies:
• Deposit accounts
• Bank drafts
• Certified cheques
• Deposit receipts
• Money orders
• Term deposits
• Credit card balances
• Traveler’s cheques
Ireland Bank account balances:
• Current & savings accounts
• Fixed & call deposits
• Share certificates
• Savings bonds
• Installment savings accounts
Financial instruments
Insurance Policies
Kenya Proposed Unclaimed Financial Assets framework to include all
institutions in the financial system
Malaysia Extends the definition of “holders” of unclaimed assets to
virtually all businesses and firms of all sizes in all sectors
Uganda Banks
United
Kingdom
Banks & building societies.
United
States of
America
The scope of USA States laws covering financial and non
financial assets are very extensive
43. 34
Table 1d: Ultimate Disposal
Jurisdiction Ultimate Disposal
Australia Unclaimed balances and money from all sectors paid through the
Australian Securities & Investments Commission (ASIC) to the
Treasury as revenue.
Annually, all authorized depository institutions:
• Must enter all specified and required details on unclaimed
accounts in the Register of Amounts Unclaimed by 31
January for the first six years. Amounts over $10 are reported
to the Registrar General to be published in the Gazette.
• Must publish in the Gazette by 31 March all amounts over
$10 and dormant after the 6th year.
• must remit to the Registrar General all amounts remaining
unclaimed 1 year following publication
Under the Corporations law, abandoned stock and securities are
reported to the ASIC after a 6- year dormancy period.
Unclaimed money held by retirement savings accounts are
received and administered by the Registrar-General.
Unclaimed moneys held in legal practitioner’s trust accounts
and real estate agents trust accounts are paid to the Registrar-
General.
Canada Banks and Trust companies for all dormant accounts held:
• After 2 years - send written notification to customer.
• After 5 years - send written notification to customer.
• After 9 years - send written notification to customer &
publish in Gazette.
• After 10 years - pay to the Bank of Canada (i.e. on 11th
year)
• After 30 years - take into revenue if less than C$1,000; if
unclaimed balance is greater than C$1,000, continue holding
in Bank of Canada
• After 100 years – Transfer to Treasury as revenue.
Ireland Annually, unclaimed balances on dormant accounts are
transferred to the Dormant Accounts Fund at the Treasury
Management Agency on strict deadlines.
Amounts not transferred become a Contract Debt of the holder
that is recoverable by the Minister on application to a Court.
44. 35
Kenya CMA’s Investor Compensation Fund seeks to collect any
unclaimed dividends from listed companies that have been
outstanding for more than three years.
Malaysia Unclaimed Balances lodged with the Registrar of Unclaimed
Moneys are first credited to a Consolidated Trust Account and
held in that fund for 15 years
Amounts remaining unclaimed after 15 years are transferred to
the Consolidated Revenue Account.
Uganda Holding institutions are required to:
• Transfer unclaimed accounts into separate Dormant Accounts
Registers after 2 years of dormancy, and to provide a written
notice to owners at their last known address.
• Advertise in print media accounts that have been on the
Dormant Accounts Registers for 3 years (for a combined
dormancy period totaling 5 years)
• transfer to the Bank of Uganda (BoU) balances that remain
unclaimed 5 years from the date of advertisement (for a
combined 10 year dormancy period)
United
Kingdom
The proposed unclaimed assets scheme requires a comprehensive
reunification exercise in advance of its establishment to
minimize claims for monies transferred to Central Reclaim
Funds.
The proposed regime seeks to maintain the relationship of
dormant account owners with their original holding institutions
and does not introduce direct links to the Reclaim Fund.
Appoints holding institutions as agents of the Central Reclaim
Fund upon transfer of dormant funds for purposes of record
keeping, processing, and paying owners’ claims.
United
States of
America
Each state has large holder reporting instructions and stringent
data requirements for the electronic submission of reports.
45. 36
Table 1e: Ultimate Asset Holder
Jurisdiction Ultimate Asset Holder
Australia All unclaimed moneys and the associated detailed records are
grounded in separate legislation for each sector, but are all
forwarded to the ASIC, the capital markets regulator,
independent of the sector from which they originate. As capital
markets regulator, ASIC, takes on consumer responsibility roles
by acting as a reclaim and reunification services provider for
depository institutions, stocks and securities. The Registrar
General carries out that role for retirement savings trust and real
estate agents trust accounts.
Canada The Bank of Canada (BoC) holds unclaimed balances as a
custodian on behalf of the owners and assumes responsibility for
reunification and processing claims. The BoC is required to keep
records in perpetuity for dormant accounts.
Ireland The Dormant Accounts Fund Disbursements Board manages and
regulates the Fund including preparing an annual Strategic
Investment Plan. The Dormant Accounts Act and Unclaimed
Life Assurance Policies Act separately provide complete stand-
alone legislation covering bank accounts and financial
instruments.
Kenya Deposit Accounts: Bank or financial institution
Dividends: Investor Compensation Fund is responsible for
paying beneficiaries from unclaimed dividends when the rightful
owners make claims.
Malaysia The Unclaimed Moneys Act provides for a Registrar of
Unclaimed Moneys who regulates and administers the Act. It
requires remittance of all amounts reported in the Register of
Unclaimed Moneys. Amounts are held in a Consolidated Trust
Account or a Consolidated Revenue Account.
Uganda Bank of Uganda after 10 years of dormancy. The Bank of
Uganda has re-unification responsibilities in paying claims after
unclaimed moneys are remitted.
United
Kingdom
The proposed Central Reclaim Funds to be regulated by the
Financial Services Authority (FSA). The scheme proposes to
extinguish liabilities to owners by participating banks and
building societies upon transfer of dormant accounts balances to
the central Reclaim Fund.
United
States of
America
Individual states have extensive legal and regulatory
requirements.
46. 37
Table 1f: Disclosure
Jurisdiction Disclosure
Australia Section 69 of the Banking Act requires all authorized depository
institutions to submit annual Unclaimed Moneys Statements to
ASIC by 31 March of each year with a cheque in the amount of
the total balances on the statements.
Canada Canada’s Privacy Act explicitly authorizes disclosure for the
purposes of helping account holders locate balances due to them.
Ireland Balances less than Euro 100 are not included in the overall
framework. However, holders of balances below Euro 100 must
publish notices of these accounts in Gazette and two or more
national dailies.
Kenya Banks will advise owners if their account is classified as dormant
due to insufficient account operations over a given period of
time. They will also advise owners of the actions required to re-
activate their account (voluntary banking code)
Malaysia All firms and institutions holding unclaimed money are required
to maintain a Register of Unclaimed Moneys and to file a copy of
the register with the Registrar of Unclaimed Moneys annually for
publication in the Gazette.
Uganda Holding Institutions are required to
• give written notices to owners after 2 years of dormancy
• Publish advertisements in the print media to the owners of
accounts that have stayed on the Dormant Accounts Registers
for 3 years (i.e. on their 5th
year of dormancy after the last
owner generated transaction).
United
Kingdom
Dormant Accounts Bill specifically proposes an unclaimed assets
scheme for investment in social and environmental purposes.
United
States of
America
Specific rules and regulations on the identification, reporting,
and remittance of unclaimed amounts.
47. 38
Table 1g: Publicly Available Info
Jurisdiction Publicly Available Info
Australia Companies are required to maintain a Register of Amounts
Unclaimed for 6 years that is open for public viewing.
Annually, all unclaimed accounts, after the 6th
year of dormancy,
are published in the Gazette by the ASIC.
Electronic reporting requirements and a searchable online
database provide public information on unclaimed balances
Canada Information available to the public without charge from the Bank
of Canada’s Unclaimed Balances Services through the Internet,
by mail or fax.
Ireland No central database or online consumer search mechanisms.
Kenya No central database or online consumer search mechanisms.
Malaysia Mandatory publications of the unclaimed registers in the gazette.
Uganda No central database or online consumer search mechanisms.
United
Kingdom
No central database or online consumer search mechanisms.
United
States of
America
State Treasurers maintain or have responsibility for maintaining
unclaimed assets registries.
48. 39
Table 1h: Reunification
Jurisdiction Reunification
Australia Amounts held in legal & estate trusts; unclaimed salaries &
wages under federal and state awards can be claimed with the
assistance of the federal-level Commonwealth Department of
Industrial Relations.
All other owners may claim balances at the bank or online where
the account was opened. The Treasury refunds the money to the
bank, which passes it on to the claimant. Refunds are processed
and paid when claims are made.
Canada Owners of unclaimed amounts under C$1,000 must submit
written claims to the Bank of Canada before December 31st of
the 40th year after the date of last owner generated account
activity and before the 100th year for amounts greater than
C$1,000.
Ireland No reunification methods specified.
Kenya No regulatory mechanism for re-unification in place
Malaysia Owners of unclaimed moneys have an indefinite right of reclaim
for moneys lodged with the Registrar Of Unclaimed Monies,
whether funds are held in the Consolidated Trust Account or
Consolidated Revenue Account.
Uganda Owners can claim their unclaimed balances at any time within
the 5-year period from initial dormancy to publication by the
original holding institution.
Withdrawals on dormant accounts are allowed from the Bank of
Uganda upon fulfilling specified requirements and approvals.
United
Kingdom
Account holders have an indefinite legal right to reclaim and
repayment from a reclaim fund through the original bank or
building society.
However, upon transfer of dormant accounts balances to the
Reclaim Fund, liabilities to owners by participating banks and
building societies are extinguished.
Reunification of account holders is a central pillar of the scheme.
Customers are given extensive assistance and reclaim rights
including the use of the Financial Ombudsman Service (FOS).
United
States of
America
State Treasurers are responsible for reunification.
49. 40
Table 1i: Investment
Jurisdiction Investment Of Unclaimed Funds
Australia Unclaimed amounts paid to the Treasury as revenue.
Canada Unclaimed amounts paid to the Treasury as revenue on the
expiry of the 40th
year if less than C$1000, or held for 100-year
by the Bank of Canada and then paid t Treasury as revenue.
Ireland The Dormant Accounts Fund comprises
• a Reserve Account for paying expenses, inspection costs and
repayment claims and
• an Investment and Disbursement Account.
Unclaimed balances paid to the Dormant Accounts Fund above
the level needed to satisfy estimated claims and administration
expenses are invested annually pursuant to a Strategic
Investment Plan prepared by the Dormant Accounts Fund
Disbursements Board. The Strategic Investment Plan explicitly
specifies unclaimed assets as investments to benefit the economy
and society.
Kenya -
Malaysia Unclaimed amounts paid to Consolidated Revenue account as
ordinary government revenue 15 years after lodgment in the
Consolidated Trust Account.
Uganda Unclaimed funds are used to “off set costs of supervising
financial institutions or as may be prescribed.”
United
Kingdom
Unclaimed moneys exceeding estimated amounts needed to fund
reclaims are proposed to be distributed to, or used to fund social,
community and charitable causes, including:
• Big Lottery Fund,
• Youth schemes
• Financial inclusion
• Social and community investment.
United
States of
America
Unclaimed property and assets paid to State Treasurers comprise
tax revenues.
50. 41
CAPITAL MARKETS UNCLAIMED DIVIDENDS
Serial CAPITAL MARKETS UNCLAIMED DIVIDENDS
Unclaimed Dividends 2007 2006
1 *Athi River Mining 2,057 2,057
2 *Bamburi Cement 20,000 20,000
3 *EA Cable 1,681 1,031
4 EA Portland Cement 36,340 36,340
5 EA Breweries 250,587 120,645
6 *Kenol Kobil 18,984 9,874
7 KPLC 30,934 27,573
8 *Mumias Sugar 286,853 176,672
9 Total Kenya 12,162 6,746
10 *Unga Group 21,482 21,482
11 Crown Berger (Kenya) Limited 1,400
- Industrial And Allied (KSh. 000s) 682,480 422,420
12 Access Kenya - -
13 *Kenya Airways 40,000 40,000
14 ScanGroup 4,841 -
15 Standard Group 5,429 5,425
16 TPS Serena 166 100
17 *Uchumi 40,000 40,000
- Commercial & Services (KSh. 000s) 90,436 85,525
18 Barclays Bank 163,116
19 *CFC Bank 9,909 83,050
20 Diamond Trust Bank - -
21 Housing Finance (HFCK) 11,137 11,272
22 *Centum Investments 44,929 35,634
23 *Jubilee Holdings 69,515 59,068
24 *NIC Bank 30,136 26,427
25 *Pan Africa Insurance 23,328 23,328
26 Standard Chartered Bank Limited 205,829 -
27 *National Bank of Kenya 109,564 271,267
28 Kenya Commercial Bank Limited 65,442
-
Finance and Investment (KSh.
000s) 732,905 510,046
29 *Williamson Tea Kenya 3,553 2,193
- Alt Investment (KSh.000) 3,553 2,193
30 Discount Securities Limited 23,129
- Stock Brokerages /Investment Banks 23,129 -
- TOTAL 1,532,503 1,020,184
* Unclaimed Dividends Extracted From Published Annual Accounts
51. 42
INSURANCE FIRMS UNCLAIMED BENEFITS
INSURANCE COMPANIES Number of Value of
Holding Institutions
Unclaimed
Policies
Unclaimed
benefits
KSh.
TOTAL 9,046 234,834,169
(Source: Unclaimed Assets Task Force, July 2008)
52. 43
NATIONAL SOCIAL SECURITY FUNDS (NSSF)
NSSF Return Number of Value of
Unclaimed
Policies
Unclaimed
benefits
KSh.
1
NSSF – Un-Presented Benefits
Cheques 0 242,873,153
2 NSSF – Suspense Account*
TOTAL 0 242,873,153
(Source: Unclaimed Assets Task Force, July 2008)
At a meeting with the Consultant, the National Social Security Fund (NSSF)
indicated that the Value of benefits lying to the credit of the suspense account is
KSh. 5.6 billion. They indicated that this value is not currently treated as
unclaimed as it represents amounts waiting to be credited to beneficiaries.
53. 44
7.0 APPENDICES B
Page Description
47 Task Force Membership
49 Proposed Unclaimed Assets Agency Budget
51 Report on the Stakeholders Forum
56. 47
TASKFORCE ON UNCLAIMED FINANCIAL ASSETS
MEMBERSHIP
Members of the Task Force on Unclaimed Financial Assets that was
constituted on 19 March 2008:
1. Mr. George Omino
Deputy Director, Economic Affairs Department, Ministry of Finance
Task Force Chairman
2. Mr. Barrack Amollo
Deputy Secretary, Ministry of Finance
3. Mr. Henry Rotich
Deputy Director, Economic Affair Department, Ministry of Finance
4. Mr. Allan Sitima
Senior State Council, State Law Office, Representing Attorney General
5. Mr. Wilson Wananga
Principal Cooperative Officer, Ministry of Cooperatives Development &
Marketing
6. Mr. Kennedy K. Abuga
Head of Legal Services, Central Bank of Kenya (CBK)
Alternate: Ms. Elizabeth W. Njogu
7. Mr. Luke Ombara
Senior Research Officer, Capital Markets Authority (CMA)
8. Mr. Gerald W. Kago
Senior Actuarial Officer, Insurance Regulatory Authority (IRA)
9. Mr. Lazarus K. Keizi
Senior Research Officer, Retirement Benefits Authority (RBA)
10. Mr. Joe Ngigi
Project Team Leader, UPAR Kenya Limited (Consultants to the Taskforce)
57. 48
TASKFORCE ON UNCLAIMED FINANCIAL ASSETS
SUPPORTING TEAM
The Task Force on Unclaimed Financial Assets was assisted in its work by the
following
Ministry of Finance
1. Ms. Naomi Matheri
2. Mr. Dennis Muganga
3. Mr. Kennedy Nanga
4. Mr. Peter Chacha
UPAR (Kenya) Limited Consultants
1. Mr. Alexander G. Owino Banking Sector
2. Mrs. Karen Rimita - Mwanza Banking Sector
3. Mr. Henry Njage Insurance Sector
4. Ms. Renee Blasky Capital Markets Sector
5. Mr. Roger Urion Pensions Sector
6. Mr. Paul Mukoba ICT Sector
7. Mr. Gad Awuonda Legal Expert
8. Mr. Amoyo Andibo Utilities and Other Sectors
9. Ms Shiru Thiongo UPAR Secretariat
58. 49
TASKFORCE ON UNCLAIMED
FINANCIAL ASSETS
BUDGET FOR THE PROPOSED
UNCLAIMED FINANCIAL ASSETS
AUTHORITY
Initial Establishment and Operations
First 3 years
60. 51
STAKEHOLDERS FORUM ON
UNCLAIMED FINANCIAL ASSETS
HELD AT THE LAICO REGENCY HOTEL,
NAIROBI ON 30TH OCTOBER 2008
REPORT ON THE STAKEHOLDERS FORUM
October 2008
Ministry of Finance Unclaimed Property Assets Register (K) Limited
61. 52
REPORT ON THE STAKEHOLDERS FORUM
ON UNCLAIMED FINANCIAL ASSETS
HELD AT THE LAICO REGENCY HOTEL,
NAIROBI ON 30TH OCTOBER 2008
Submitted on 30th
October 2008
Ministry of Finance Unclaimed Property Assets Register (K) Limited
RAPPORTEUR: Stella Simiyu - Wafukho
62. 53
TABLE OF CONTENTS - STAKEHOLDERS FORUM
Page Description
54 Introduction
55 Opening Remarks
55 Remarks by the Permanent Secretary, Treasury
56 Presentation on Findings of the Task Force
63 Suggested Revisions on the Draft Bill
64 Conclusion
63. 54
Introduction
It is estimated that unclaimed assets held in institutions in Kenya may exceed
KSh. 200 billion. A greater percentage of these are normally not reunited with
their owners for various reasons. These include among others, death, relocation,
change of address or transformation of holding institutions. This situation is
further complicated by the lack of a legal requirement for holding institutions to
declare these assets. The process of reconciling these assets with their owners is
largely voluntary, and with the passage of time, is forgotten or abandoned.
Unclaimed assets are in various forms including real property and finances.
According to the preliminary report presented to the macro-economic committee
of the National Economic and Social Council (NESC) by Unclaimed Property
Assets Register (K) Limited, it was noted that these assets can provide a non-tax
revenue base for the government. These funds can be used for long term
investment projects such as infrastructure development, with an appropriate
policy, legal and regulatory framework to guide the administration of unclaimed
financial assets.
NESC recommended to the Ministry of Finance to look into the merit and
viability of this situation, and thus the establishment of the Unclaimed Assets
Taskforce, assisted by the consultant UPAR (K) Limited. The Ministry of
Finance (MoF) inaugurated the Taskforce on 19th
of March 2008 and mandated it
perform the following functions:
Ascertain the size and extent of unclaimed financial assets in the country;
Review exiting practices in Kenya and compare to practices in select
jurisdictions;
Develop and recommend a national policy framework on unclaimed financial
assets based on international best practice;
Make appropriate recommendations through the policy framework;
Offer a draft legislation for unclaimed financial assets; and
Develop a policy strategy to guide the Government in the development of an
appropriate regulatory and institutional structure.
So far, the Taskforce has completed a large portion of its work and the
Stakeholders’ Forum, which is part of the milestones, is aimed at providing a
platform for sharing of the findings of the survey and deliberating on the Draft
Unclaimed Financial Assets Bill. The recommendations made in the Forum will
be integrated into the final report for presentation to the MoF for implementation.
64. 55
Opening Remarks
Participants were welcomed to the Forum by representatives of the Ministry of
Finance (MoF) and the Consultants (UPAR). The team expressed confidence that
the stakeholders would provide vital input into the process of finalizing the work
of the Taskforce and told the participants that presentations would be received
from the Permanent Secretary, Ministry of Finance, the Taskforce members,
followed by an interactive session by all participants.
Remarks by the Permanent Secretary, Treasury
The Permanent Secretary2
, Ministry of Finance; Mr. Joseph Kinyua thanked
stakeholders from various sectors for finding time to participate in the Forum. He
said that the presentation of the findings of the Taskforce marked an outcome of
an initiative of the NESC that began in July 2007.
Providing the background, he indicated to the stakeholders that a preliminary
report by UPAR, pointed out the estimates of unclaimed financial assets, showing
the existing structures in some institutions, the state of reunification and evaluated
the potential for investment of Unclaimed Assets under Vision 2030. The
responsibilities of the Taskforce were as follows:
ascertaining the nature, size and extent of unclaimed assets
developing a national policy framework based on international best practice
making appropriate recommendations on the national strategy
reviewing existing legislation and making appropriate recommendations
drafting unclaimed financial assets legislation and
Developing a policy strategy to guide the Government in the development of
an appropriate regulatory and institutional structure for the administration of
unclaimed financial assets.
He indicated to the stakeholders that deliberations on the Taskforce’s3
report and
the discussions that would follow would inform the policy direction on unclaimed
assets. He called upon the stakeholders to review the findings of the survey,
deliberate on the draft bill and make recommendations that will be taken up in the
final report.
2
PS’ speech read by Mr. Barrack Amollo, Deputy Director, Economic Affairs Department, MoF
3
Composed of representatives from the State Law Office, the Central Bank of Kenya, the Capital
Markets Authority, the Retirement Benefits Authority, the Insurance Regulatory Authority, the
Commissioner of Cooperatives and the Ministry of Finance (Treasury).
