Why Does CBN Want to Take Over Dormant Assets from Banks?

Toni Kan

Tews of the Central Bank of Nigeria’s (CBN) plans to set up an “Unclaimed Balances Trust Fund (UBTF) Pool Account” under the guidance of a management committee to oversee the operation of the UBTF roiled the airwaves and blogosphere last week.

The response from the generality of informed and uninformed Nigerians was swift and mostly negative. Many commentators, however, spoke from a position, if not of ignorance, then a lack of understanding, which was also informed by the seeming lack of clarity regarding the CBN’s proposed policy.

According to the CBN’s July 19 2024 circular announcing the “Guidelines on Management of Dormant Accounts, Unclaimed Balances and other financial assets in banks and other financial institutions in Nigeria,” it is setting up the UBTF pool account with clearly stated objectives that include: Identify dormant accounts/unclaimed balances and financial assets with a view to reuniting them with their beneficial owners; Hold the funds in trust for the beneficial owners; Standardise the management of dormant accounts/unclaimed balances and financial assets; and Establish a standard procedure for reclaim of warehoused funds.

Under this scheme, unclaimed balances are defined as “Account Balances and other financial assets that remained dormant for a minimum of ten years in the books of financial institutions and qualify for transfer to CBN.”

The detailed circular went on to add that the “CBN shall treat unclaimed balances (dormant accounts and financial assets) as follows: Open and maintain the ‘UBTF Pool Account’; Maintain records of the beneficiaries of the unclaimed balances warehoused in the UBTF Pool Account; Invest the funds in Nigerian treasury bills (NTBs) and other securities as may be approved by the ‘Unclaimed Balances Management Committee’; Refund the principal and interest (if any) on the invested funds to the beneficiaries not later than ten (10) working days from the date of receipt of the request; where it is imperative to extend the timeline, a notice of extension shall be communicated to the requesting FI stating reasons for the extension.”

Why is the CBN doing this and why this focus on dormant assets?

A report in Leadership has put the volume of dormant assets at N20 trillion naira. This is a huge sum of money and when money is involved it gets people’s hackles up.

However, a consideration of the policy’s letter and spirit will indicate that this is one policy for which CBN Governor Olayemi Cardoso and his team deserve praise, and this article will attempt to show why.

The idea of providing a warehouse for dormant assets in Nigeria’s financial institutions was first mooted via an October 7, 2015 circular. The stated objective was to “curb abuses in the operation of dormant and inactive accounts and set operational standards.”

The Banks and Other Financial Institutions Act, 2020 (BOFIA 2020) empowers the CBN to assume this function. Eight years after the idea was first mooted, it was revisited in a CBN circular of April 6, which drew further attention to the need to take action.

Olayemi Cardoso’s CBN in issuing the July 19, 2024, circular has shown leadership in two distinct ways; one is that monetary policy leadership is a continuum especially where the health of a country’s financial system is concerned. Secondly, the CBN is showing that tough actions need to be taken to ring fence dormant assets and unclaimed dividends from criminal activity.

According to the circular, “dormant and unclaimed balances are increasingly susceptible to fraudulent transactions or abuse” putting undue pressure not just on the financial system but causing financial losses to the affected financial institutions.

Commenting further on the susceptibility of dormant accounts to the activities of fraudsters, the CBN Governor noted at the 296th Monetary Policy Committee (MPC) meeting said, “With respect to dormant account… most times, they are more susceptible to fraudsters copying your identity and trying to gain hold of the system to grab your money. So, that is a problem I think most money banks face”.

The warehousing of dormant assets is not peculiar to Nigeria. In the UK, the Dormant Assets Scheme has been in operation since 2011 and is held by the Reclaim Fund Ltd (RFL), which would be equivalent to the CBN’s UBTF Pool Account. RFL is regulated by the Financial Conduct Authority (FCA), which regulates the financial services industry in the UK.

Since its inception in 2011, RFL has received £1.98 billion from 46 financial institutions, and £982m has been released via the scheme to various charities for social investment and other good causes that include Youth, Social Investment, Community Wealth Fund, Climate change; Environmental; Sustainability; and the Voluntary Community & Social Enterprise (VCSE) Sector, which for lack of a better word, we would call NGOs and charitable organisations.

the UK, to qualify as a dormant asset, a bank or building society account must have been inactive for 15 years. Other financial institutions have other dormancy periods. According to RFL, a key point to note is that financial organisations “need to demonstrate that they have taken extensive efforts to trace the original asset owners and reunite them with their money.” At the same time, participation in the scheme is voluntary.

Ideas are spontaneous overflows that often require refining of the finer details when it comes to implementation and execution. This has happened in the UK and will ultimately happen in Nigeria.

In the UK, the bulk of the £982 million had been allocated to four major VCSEs: Better Society Capital, Access – The Foundation for Social Investment, Youth Futures Foundation, and Fair4All Finance. These organisations, led by and primarily focused on white charities and fund managers, raised concerns about inclusion and diversity. This prompted the establishment of the Adebowale Commission, which found that “social investment continues to have a serious problem with inclusion and equity, particularly in relation to race.” The commission recommended revising the fund distribution to include qualified Black and Minority Ethnic VCSEs and BME fund managers.

The above shows that the warehousing of dormant assets can be a force for societal good, in addition to curtailing fraud and financial losses. This brings us to what the CBN intends to do with the UBTF funds, estimated to be about N20 trillion.

But before we answer this question, let us ask how accounts go dormant. People die without putting their affairs in order or fall sick and lose their memories and so become unable to issue instructions. Others may be stuck abroad for one reason or another, unable to access funds because of their source, or embroiled in legal cases that drag on. In the case of Nigerian banks before the advent of technology, most of the funds in dormant assets came from youth corps members compelled to open accounts in their places of primary assignment, which they subsequently do not use when they leave.

Like the RFL, the CBN plans to invest the UBTF funds. In this case, they would be invested in “Nigerian treasury bills (NTBs) and other securities as may be approved by the ‘Unclaimed Balances Management Committee’. While this is important to ensure that owners or beneficiaries who emerge to make claims receive their “principal and interest (if any),” questions remain. Is it enough to warehouse the funds and the accruing interest?

The CBN has answered this question in part, noting that in implementing the scheme, its decisions and actions would be based on approvals by the Unclaimed Balances Management Committee, which means that the scheme is open to tweaking.

In that sense, one may then propose that where the bulk of these dormant assets are indeed traceable to accounts opened by youth corps members, then the CBN may consider expending the interest accruing on these funds in executing youth-centric projects that would benefit in the immediate term, serving youth corps members and younger Nigerians. This will provide the UBTF fund with some agency and currency as a source of good for the youth and society.

N20 trillion is a lot of money; many would be watching to see how transparently it is managed and utilised.

*Toni Kan is a PR expert who has worked in the UK Social Investment sector with the first Black Social Investment Vehicle