COMMISSON ON DORMAN ASSETS: CALL FOR EVIDENCE

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1 8 June 2016 Commission on Dormant Assets 4 th Floor 1 Horse Guards Road London, SW1A 2HQ Submitted via to: consultations@dormant-assets.com RE: COMMISSON ON DORMAN ASSETS: CALL FOR EVIDENCE Dear Sirs, BlackRock, Inc. ( BlackRock ) [1] is pleased to have the opportunity to respond to the Call For Evidence on Dormant Assets issued by the Commission on Dormant Assets. As a fiduciary for our clients, BlackRock supports a regulatory regime that increases transparency, protects investors, and facilitates responsible growth of capital markets while preserving consumer choice and assessing benefits versus implementation costs. We welcome the opportunity to address, and comment on, the issues raised by this consultation and we will continue to contribute to the thinking of the Commission on Dormant Assets on any specific issues that may assist in improving an expanded Dormant Asset Regime. Executive summary Following our review of the Call For Evidence, we believe the following are the most pertinent in relation to an expanded Dormant Asset Regime: The Dormant Asset Regime should be consistent with the CASS regime on unclaimed client assets, in order to limit the extra regulatory or operational burdens on firms that are already complying with CASS. The Dormant Asset Regime should be voluntary for companies that already comply with a similar regime (e.g. CASS), and the commission should provide a list of such regimes. Firms that comply with the Dormant Asset Regime should be given a choice of transferring their assets to Reclaim Fund Ltd and/or Big Lottery fund; or to a charity of their choice. The investment industry will benefit from representation at the funds created by the Dormant Asset Regime in the capacity of a trustee, non-executive director, or investment manager; in order to assist the Commission in their oversight and governance of the regime. We would welcome any further discussion on any of the points that we have raised. Yours faithfully, Martin Parkes martin.parkes@blackrock.com 12 Throgmorton Ave, London EC2N 2DL June Abrams June.abrams@blackrock.com 12 Throgmorton Ave, London EC2N 2DL [1] BlackRock is one of the world s leading asset management firms. We manage assets on behalf of institutional and individual clients worldwide, across equity, fixed income, liquidity, real estate, alternatives, and multi-asset strategies. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers and other financial institutions, as well as individuals around the world. 1

2 Responses to questions 1. Which types of asset within your organisation do you think include a dormant element which could be considered in a potentially expanded dormant assets scheme? At BlackRock Investment Management (United Kingdom) Limited (BIM), cash is the only type of asset within the remit of an expanded dormant asset regime. 2. In your view, are there any assets within your organisation that should be excluded from an expanded dormant asset scheme? Please explain why you think this is the case. We feel dormant assets that fall under the CASS regime should be excluded, on the basis that CASS rules around how dormant assets should be treated before - being paid away to charity, are more stringent than those required under the Dormant Asset Regime. 3. If not covered by legislation or regulation, how are the dormant assets within your organisation currently dealt with? Do you currently make any charitable contributions from dormant assets? All dormant assets are currently dealt with in accordance to CASS to 55. In addition, we also intend to treat assets for which it is not possible to identify the clients, as dormant assets. As of the 3rd June, we have not made any charitable donations; however it is our intention to donate all dormant assets to the BlackRock Charity of the year once we have followed the steps in CASS to In your view, what are the advantages and disadvantages of defining dormancy by (a) a period of no contact and (b) lack of client traceability? For (a): The main advantage is that clients are given sufficient time to make a claim by themselves if BlackRock cannot trace the clients. The main disadvantage is that the period of no contact that is most appropriate for a firm, will depend on the nature of a firm s business model and their clients. As such, it is unlikely a singular period of 'no contact' will be appropriate for all firms. For (b): We feel the main advantage is that demonstrating a lack of traceability, is more likely to take into account the nature of a firm's business model and their clients. This is because the logistics of tracing the clients will most likely include considerations around a firm's business model and their clients. In addition, the notion of traceability is also consistent with general law, in situations where firms need to establish clients' ownership to their assets. 2

3 The main disadvantage is that sometimes it is not possible to trace the clients, or the costs of tracing the clients will be unduly burdensome to the firm. Given the advantages and disadvantages described above, we feel the definitions of dormancy should include a nominal period of no contact, as well as discrete steps that are needed to trace the clients, before money can be paid away to charity. There should an option for firms to opt out of either step, if they can demonstrate full compliance with these steps will either be unduly burdensome for the firm, or will not yield additional benefits to the clients. 5. The current definition of 'dormant' for bank and building society account is 15 years of nil customer contact. How would you define dormancy for each of the dormant assets identified under question 1 in your organisation? Why do you consider these definitions to be appropriate? We feel dormancy should be defined as 6 years of no movement in the account that belongs to the client, and if the clients cannot be traced following 3 separate attempts to contact them. These rules are defined in the CASS handbook, and these are the guidelines followed by all financial service companies in the UK that fall within the scope of CASS. Our internal definition of dormancy is consistent with CASS. 6. In your organisation, what is the current internal definition of dormancy that is used. See above. 7. What are the key identifiers your organisation uses to identify and/or contact customers. Please state what is (are) the most frequent cause(s) of loss of contact. The key identifiers are the client's postal address, , and phone numbers. In addition, we also use Experience Auto Trace to find out whether the client has updated their contact details without informing BlackRock. The most common causes of loss of contact are: 1. Clients who have gone away and not informed BlackRock of their new address. 2. Clients who have forgotten to cash in their payment 3. Situation where companies that has been acquired by BlackRock, do not contain sufficient information for monies to be reunited with the client. 8. Using your definitions from question 5, what is the estimated value of each asset within your organisation today? At BIM, there is an estimated 701,796 of unclaimed client money as of 16th May Again, using your definitions from question 5, what would be the estimated future annual value of assets becoming dormant. At BIM, the estimated future value is difficult to determine due to our continuous effort to return these balances to our clients. As a guide, we have returned around 200,000 of such monies in the previous year. 3

4 10. What are the legal, regulatory, accounting and operational issues which might inhibit the assets you listed in question 1 being contributed to an expanded scheme. The main barrier will be regulatory and operational. Our operations and systems are set up to comply with the CASS regime around unclaimed assets, and there will be significant burdens if we are to comply with an expanded dormant asset scheme that is different from CASS. 11. Do you anticipate material adverse effects on profit or capital from contributing the dormant assets you have listed in question 1 to the dormant asset scheme. There will be no impact on profit or capital, because these assets are not recorded in our financial statements, nor are we using these assets to generate profits for the firm. 12. What are your views on whether participation in an expanded scheme should be voluntary or mandatory? What are the reasons for your preference? We feel the expanded scheme should be voluntary, on the basis that we are already complying with a strict regime on dormant assets, as defined by the CASS handbook. We will find it operationally burdensome to comply with an expanded Dormant Asset Scheme without exposing us to a breach of the CASS rules. 13. What do you see as the advantages and disadvantages of (a) a voluntary scheme and (b) a mandatory scheme. For a voluntary system: The advantage is that it will not introduce unnecessary regulatory, or operational burden on firms who are already complying with an equivalent regime on unclaimed asset. The disadvantage is that there will be missed opportunities to provide social good, as companies are more likely to treat unclaimed assets as their own assets if this practice is not prohibited by an existing regime. For a mandatory system: The advantage is that it ensures all monies that should be donated to good causes, will be donated. The disadvantage is that organisations may have less accountability over how their charitable donations are being spent. 14. Have you tried to deal with dormant assets within your organisation but have found that legislation or regulation has prevented you from doing so? If so, what caused this? NA. We have not encountered any legislative or regulatory obstacles that prevents us from paying away unclaimed client monies under the CASS regime. 15. The commission would also like your views on how your sector would benefit from being part of an expanded dormant assets regime. We are broadly supportive of the expanded dormant asset regime, provided that it does not conflict with existing regimes. We feel our sector will benefit if there are opportunities for our 4

5 investment committee to be more involved in the investment decisions of the Big Lottery Fund ; either as a trustee, non-executive, or as an investment manager. Conclusion We appreciate the opportunity to address and comment on the issues raised by the Call For Evidence on Dormant Assets and will continue to work with the Commission on Dormant Assets on any specific issues which may assist in the Expanded Dormant Asset Regime. 5