Unclaimed assets and dormant accounts

The existence of dormant accounts may result from a wide variety of different situations, such as the death of a customer who has omitted to pass on to his heirs the necessary information enabling them to trace and identify the bank in which his assets are deposited, failure by account-holders systematically to notify their bankers in the event of a change of address, the fact of the account-holder himself having forgotten about the existence of an account opened by him many years previously, or cases in which a person has opened an account in the name of another without informing the latter person of it (e.g. an account opened in the name of a minor by his grandparents).

The international character of Luxembourg as a financial market-place and the fact that many customers are physically located, in geographical terms, at some distance from the Grand Duchy, coupled with the fact that, very often, arrangements are in place for customers’ mail to be delivered to and/or held by the bank, may bring about a proliferation of dormant accounts. This phenomenon arises more frequently in the case of banks dealing mainly with an international clientele than in the case of local banks.

The existence of dormant accounts or unclaimed assets does not in itself impose any particular legal obligation on the bank concerned. It is up to each institution to determine its own policy and to decide what is to be done (or, at the very least, what should not be done) in such cases. The ABBL’s Code of Conduct states in this connection as follows: “Professionals shall set up appropriate procedures to supervise dormant accounts and unclaimed assets. In such cases, they shall apply the principles of loyalty, good faith, diligence and due care to the management of the customers’ assets.”

 

Definitions:

  • Dormant account: an account in respect of which, throughout a given period of time (1), no movements take place and no instructions, communications or declarations are given by the account-holder or his authorised representatives. In this regard, operations which are not carried out on the initiative of the customer or of his authorised representatives (automatic renewals of deposits, collection of charges or commissions, payment of coupons or interest, operations carried out in respect of discretionary management accounts, etc.) are not deemed to constitute account movements for the purposes of this definition. It should be noted that, where a customer maintains more than one account, a contact in relation to one of them precludes the others from being characterised as dormant accounts.
  • Unclaimed assets: where attempts on the part of the bank to establish contact and/or enquiries made by it have failed to bear fruit, and it is thus prompted to conclude that there is or will be no person entitled to the assets in an account, those assets are deemed to constitute unclaimed assets.

(1) Since credit institutions have different internal procedures, it is for each institution to determine the period upon the expiry of which an account is to be regarded as dormant.

Legal position

The position in respect of dormant accounts and unclaimed assets is not governed, in Luxembourg, by any legislation (unlike in some countries, such as Belgium, the United Kingdom, Ireland, etc.).

Under Article 2258 of the Civil Code, there is no limitation period for the assertion by a beneficiary heir of any claims that he may have against the estate.

Where a bank is the depositary of a customer’s assets, it will never under any circumstances enjoy any right of acquisitive prescription in respect of those assets. It thus remains at all times the depositary of the assets of the customer or of the persons entitled thereto, and is subject to an obligation to return those assets.

Where the bank is contacted by heirs who are capable of carrying on in the shoes of the deceased – and who are duly identified as such – those heirs have the right to receive from the bank the same information and documents as the account-holder was entitled to receive.

The fact that an account is dormant in no way affects certain legal obligations owed by the bank to its customer. In particular, since existing contracts generally subsist (unless terminated) for an indeterminate period of time, they continue to produce their effects.

In the context of their obligations with regard to the fight against money laundering and the financing of terrorism, credit institutions are required to apply customer due diligence measures. In that regard, they are obliged in particular to identify the customer, to constantly monitor the business relationship and to keep documents, data or information held up to date (2). This means, in particular, that the credit institution must maintain regular contact with the customer. Similarly, the legislation transposing the MiFID Directive provides, among other reporting obligations, for the making available of statements of account and reports on the management of the customer’s portfolio (3). Compliance with these obligations can help institutions to identify dormant accounts.

(2) Article 3(2) of the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended.

(3) Articles 46 to 50 of the Grand-Ducal Regulation of 13 July 2007 concerning organisational requirements and rules of conduct in the financial sector, transposing Commission Directive 2006/73/EC of 10 May 2006.

Management and monitoring of dormant accounts

In their day-to-day practice, banks have their own internal policies with regard to dormant accounts.

Preventing loss of contact with the customer

In drawing up their procedures, banks must take steps to ensure that they do not permanently lose contact with their customers, even where a customer temporarily instructs his bank not to contact him.

As far as possible, the customer’s attention should be drawn to the joint responsibility of the bank and the customer as regards the maintenance of contact between them, and to the problems which may arise in relation to the management of the assets held by the bank in the event that it ceases to be able to contact the customer. It is recommended that, when any new relationship is being opened, an agreement be reached with the customer on the steps to be taken in various different circumstances, as follows:

  • in the event of a change of address, the customer should notify his bank of his new contact details;
  • a prior arrangement should be mutually agreed to cover the eventuality of the customer’s death, or any loss of contact with him. One way of avoiding a loss of contact with the customer is to ask him to state the name of a third person who is to be contacted in the event of death or loss of contact.

Identification of dormant accounts and organisational measures

Circular CSSF 12/522 as amended by Circular CSSF 13/563 on central administration, internal governance and risk management provides: “Special attention must be paid to dormant accounts. To that end, institutions must put in place appropriate verification and follow-up procedures”. Similarly, the ABBL’s Code of Conductrequires institutions to “set up appropriate procedures to supervise dormant accounts and unclaimed assets” (Point 2.1.4 of the ABBL’s Code of Conduct).

Thus, an inventory of dormant accounts should be compiled from time to time by means of an appropriate control system (computerised tracking), enabling such accounts to be monitored and thus protecting assets against any unlawful manipulation. It should be noted that the fact that a dormant account suddenly becomes active may constitute an indication of money laundering or fraud.

Where it is established that an account is dormant, it would be advisable for the bank to stop sending communications intended for the customer (in particular, statements of account or other documents containing personal data) to an address which is no longer valid, on account of the risks of fraud.

Protective measures

1. Management of assets

The ABBL’s Code of Conduct provides that institutions must “apply the principles of loyalty, good faith, diligence and due care to the management of the customer’s assets” when an account is dormant.

In order to safeguard the customer’s interests, banks are required to establish internal procedures guaranteeing the uniform treatment of dormant assets. In particular, deposits should, where necessary, be renewed in such a way as to best protect the customer’s interests. Portfolio management mandates should continue to be exercised in accordance with the relevant contractual provisions.

2. Charges and costs

The charges and costs usually debited by banks should continue to be debited in the case of dormant accounts. Banks may in addition debit to the account any costs incurred in carrying out investigations or enquiries with a view to tracing the customer.

3. Retention of documents

The fact that an account is dormant in no way affects the bank’s obligation to keep, throughout the statutory period of ten years, all contracts, documents, vouchers, summaries, statements and correspondence.

Moreover, banks must make sure that they have available the historical material needed to enable them to respond to any demand for restitution of funds made by the accountholder or by those entitled through him.

Possible options

Where it is established that an account is dormant, a number of options are possible:

1. The bank continues to retain the customer’s assets, by investing or managing them, as the case may be, until such time as the account-holder or those entitled through him reappear on the scene.

2. The bank tries to re-establish contact with the customer. Initially, this may be done by means of internal enquiries, for example by using public telephone directories or the internet. Where those attempts prove fruitless, the institution may decide – but without being bound to do so – to take specific steps to trace a customer or those entitled through him by having recourse to the services of specialist professionals. It is for the institution to assess the expediency of such enquiries in the light of the amount of the customer’s assets and the costs involved, in accordance with the principle of proportionality. The steps to be taken to trace the customer, or those entitled through him, are to be decided on in each individual case by the institution concerned. Thresholds may be fixed in accordance with its internal policy.

If the institution chooses this option, it may be advisable to state in the general terms and conditions that, in the event of loss of contact with the customer, the bank reserves the right to undertake such enquiries, the costs of which will be charged to the account or to the assets held by the institution.

It goes without saying that enquiries must be carried out in due compliance with the rules of professional secrecy. For that reason, institutions sometimes instruct a lawyer who will himself take the necessary steps to contact, for example, a company specialising in genealogical research. It may also be advisable to procure a confidentiality undertaking from such company.

3. Where the institution considers that it is not possible to trace potential claimants, and that the assets may be regarded as unclaimed, it may transmit the assets in the customer’s account to the Caisse de Consignation in accordance with the Law of 29 April 1999 on the lodging of assets with the State.

That Law enables bankers to deposit with the State assets of which they are otherwise unable safely to divest themselves. Unless claimed in the meantime, the assets become vested in the State after thirty years have elapsed (4).

(4) Article 1 of the Law of 29 April 1999 on the lodging of assets with the State provides: “Any asset to be consigned voluntarily by a debtor in order to escape liability vis-à-vis a creditor may be lodged, with the effect of releasing the debtor from liability, with the Caisse de Consignation, in accordance with the provisions of this Law, where the lodgement is effected pursuant to Articles 1257 to 1263 or 1264 of the Civil Code or where the debtor, without fault on his part, is unable safely to divest himself thereof for reasons relating to the creditor.”

Prescription: Article 8 of the Law of 29 April 1999 provides: “Moveable assets which have been lodged shall vest in the State where thirty years have elapsed without any application having been made to the Caisse de Consignation for a restitution decision in accordance with Article 6(1) [of the Law of 29 April 1999] and without any of the acts referred to in Article 2244 of the Civil Code having taken place. That period of thirty years shall start to run on the date of the receipt referred to in Article 4(1) [of the Law of 29 April 1999]. Not later than six months before the expiry of that period, the Caisse de Consignation shall, by registered letter, notify the persons entitled whose addresses are known from the documents in its possession that they imminently face the risk of finding their claims time-barred. Where there is no known address, or in the absence of any claim by the persons entitled within two months following the despatch of the said registered letter, information enabling the persons entitled to come forward shall be published forthwith in the Mémorial.”