Discover why stronger customer tracing is critical before financial product closures to help reunite customers with lost or dormant assets.
by Andy Davies, Financial Institutions Relationship Manager at Estatetrace
When banks and financial institutions realign their business objectives, they may decide to cancel a product or even shut down an entire department. Part of this process involves contacting customers to let them know their accounts are scheduled to close. Ideally, this gives customers ample time to transfer their assets either to another part of the business that remains open or to a different provider altogether.
That’s the theory. In practice, however, not all customers respond. As a result, hundreds—or even thousands—can become disconnected from their assets, which ultimately end up being placed into trust after the department has closed.
Why Customers Lose Contact with Financial Institutions
There is often a good reason why a customer does not respond to official correspondence. They may have moved house without notifying their bank, be living abroad, suffer from mental incapacity, or may even have passed away.
Logically, it would seem that a financial institution should not be allowed to fully wind down a department until all customer assets have been accounted for. However, the challenges of tracing unresponsive customers often make this impossible. As a result, departments frequently close while still holding thousands of pounds worth of unclaimed assets.
In light of the Consumer Duty principle, it is worth questioning whether this approach truly delivers good outcomes for customers.
Reconnecting Customers with Their Assets
If a customer returns from an extended period abroad, how would they reconnect with their assets? With the department shut down, who are they gonna call? Overcoming the challenge of tracing one’s own assets after a department has closed is no easy task — the assets can effectively become a “ghost in the machine.”
We understand these challenges firsthand. Our sister business, Estatesearch, works with private client solicitors to help rediscover lost assets during estate administration after someone has passed away. When a department has closed, banks may simply lack the capacity to respond to requests from legal representatives. As a result, unidentified funds can, for all intents and purposes, become lost.
While this currently happens in only a small proportion of cases, the risk is likely to grow in the coming years as more departments streamline, evolve, and discontinue products.
Why Enhanced Customer Tracing Is Critical Before Closure
There is a strong argument for improved regulation to ensure that enhanced tracing efforts are undertaken before winding down a department. Proactive tracing would help reunite customers with their assets, putting money back into the hands of individuals who can contribute to the economy, rather than allowing funds to sit dormant in trust. Customers could be invited to move their funds to a more appropriate area of the business or transfer them to another provider. Either way, the money would remain accessible and active within the economy.
Estatetrace: Helping Financial Institutions Solve the Problem
At Estatetrace, we help firms track down gone-away customers. Through our sister business, Estatesearch, we assist representatives of deceased account holders in repatriating assets, preventing them from becoming lost in the system. Recently, I was contacted by a financial firm winding down its consumer-facing operations. They had a residual pool of assets belonging to thousands of customers, but basic mailing and tracing efforts had been unsuccessful.
The challenge was that although our enhanced customer tracing services were readily available — and have a high success rate — key staff had already been moved on, leaving no one to manage onboarding new suppliers. Fortunately, Estatetrace works with a network of strategic partners, allowing us to facilitate the tracing exercise without the need for formal onboarding, even in the final stages before closure.
Setting Higher Standards for Better Customer Outcomes
Implementing this final step would greatly strengthen the winding-down process. Many financial institutions are already making significant strides to improve customer outcomes in these situations — particularly by moving valued customers into more relevant areas of their business, such as wealth management — and they should be applauded for these efforts. However, there are still circumstances where more can and should be done.
At a time when the government is seeking every opportunity to drive economic growth, it would be wise to consider how regulators might assess applications to move dormant accounts into trust — and whether stronger requirements for final tracing efforts should be part of that process.