The Central Bank of Nigeria’s move to establish the Unclaimed Balances Trust Fund (UBTF) Pool Account, which will see the transfer of balances in dormant accounts and unclaimed balances to its custody, has sparked widespread reactions in various quarters. From seasoned financial experts to everyday citizens, many Nigerians have voiced their concerns, with the general sentiment leaning towards disapproval.
However, the initiative was prompted by the rapid increase in the number of dormant accounts within Nigeria’s banking sector. As these inactive accounts accumulated, they represented a significant and growing concern for financial institutions. The CBN recognised the potential issues associated with leaving these accounts unmanaged, such as security risks (fraudulent activities and terror funding), inefficiencies in the banking system and lost opportunities for financial inclusion. By addressing the rise in dormant accounts, the CBN aimed to bring greater transparency and accountability to the sector, ensuring that unclaimed funds could be efficiently managed and potentially reintegrated into the economy.
The purpose of classifying accounts as dormant is to protect both the customer and the bank from potential fraud and misuse, as inactive accounts can be more susceptible to unauthorised activities. Additionally, it ensures proper management and oversight of funds that are not being actively used.
To mitigate these risks, the CBN enforces strict regulations and maintains diligent oversight to ensure the security of these funds.
A key component of the CBN’s strategy is the requirement for banks to closely monitor and manage dormant accounts. Banks must regularly communicate with customers, updating them on their account status and encouraging them to reactivate their accounts or update their information. This proactive engagement helps prevent unauthorised access, keeping customers informed and their funds secure.
Furthermore, the CBN has established clear guidelines for handling dormant accounts. After a certain period of inactivity, banks are required to transfer the funds from these accounts into a designated “dormant account pool.”
This centralised approach not only safeguards the money but also ensures transparency and accountability in the management of dormant funds.
The CBN’s protective measures extend to digital banking platforms, where stringent security protocols are in place to prevent cyber fraud. Banks must adhere to high standards of cybersecurity, including two-factor authentication and regular system audits, to protect customers’ funds from online threats.
The rapid growth of dormant accounts in Nigeria prompted the CBN to take decisive action.
Specifically, a 2019 report from the Nigeria Interbank Settlement System (NIBSS) revealed that about 10 million bank accounts have been left abandoned by Nigerians in 2018.
According to the company, the number of bank accounts abandoned by bank customers and hence categorised as ‘inactive bank accounts’ rose by 28% to 46.7 million in 2018 from 36.7 million in 2017.
NIBSS noted that inactive bank accounts grew faster than active bank accounts in the past five years, 2014 to 2018. During this period, inactive bank accounts grew by 73% while active bank accounts grew by 35%. While inactive bank accounts increased by 19.61 million to 46.7 million in 2018 from 27.09 million in 2014, active bank accounts rose by 24.75 million to 71.2 million in 2018 from 46.45 million in 2014.
Economic experts who spoke at the time attributed this growth to economic hardship caused by sluggish economic growth, rising job losses and reduction in purchasing power occasioned by double digit inflation.
However, this initiative taken by the CBN as outlined in the bank’s recent document titled “FAQs – Guidelines on Dormant Account and Unclaimed Balances – dated July 25, 2024, revealed that this was done to ensure that these funds are properly managed and reclaimed by rightful owners owing to the increased cases of fraud.
For example, the Special Fraud Unit (SFU) of the Nigeria Police in 2023 arrested three men who allegedly defrauded a new generation bank to the tune of N35.3 million. The men allegedly reactivated 27 dormant bank accounts, through which they siphoned the amount.
According to the unit, the men were arrested on February 28, after an investigation which started sometime in 2010. “One of the bank’s staff was initially arrested and dismissed last year over an alleged fraud of N750,000 but was later released on bail. According to him, another fraud was uncovered in the bank and as investigation progressed, it was discovered that the ex-staff was allegedly an accomplice in the crime.
“The action prompted the bank to probe further into their activities and it was discovered that about 27 dormant accounts were fraudulently reactivated by the suspects. Upon interrogation of the two arrested workers, they confessed that the former head of the processing department was allegedly involved in the fraud”, the unit said.
This is why the idea of warehousing these funds from the dormant accounts – first mooted in 2015, is the right thinking piece of innovation from the apex bank under the leadership of Olayemi Cardoso.
The FAQs – Guidelines on Dormant Account and Unclaimed Balances – dated July 25, 2024, which was seen on the apex bank’s website, noted that the CBN shall establish a dedicated office for this purpose and the office will be supervised by a Management Committee.
According to the apex bank, it will manage these funds in trust, refunding the principal and any accrued interest to beneficiaries within ten working days of receiving a reclaim request from the financial institution.
The FAQ document read: “The interest payable shall be at a rate to be determined by the CBN from time to time. For non-interest banks, the profit and loss on the unclaimed balances shall be determined by the CBN from time to time.
The CBN will refund the principal and any interest on the invested funds to the beneficiaries within ten (10) working days of receiving a reclaim request from the financial institution.”
It also noted that financial institutions are required to notify customers immediately and on a quarterly basis when their accounts become inactive or dormant.
Commenting further on the susceptibility of dormant accounts to the activities of fraudsters, Cardoso while fielding questions from newsmen during the recent Monetary Policy Committee (MPC) meeting, said, “This is a problem that I think most deposit money banks face because these accounts are susceptible to fraudsters who copy your identity and try to gain access to the system to grab hold of your money. Hence, anything we can do to protect Nigerians from these kind of predators will be welcome.”
“At a time like this, we recognize the fact that everybody needs every single penny that belongs to them, to accrue to them, not having a situation where you are putting money in a particular place and essentially end up losing it as of course it will create liquidity within the system as well.
“The statements have shown that the apex bank is showing that tough actions need to be taken to ring fence dormant assets and unclaimed dividends from criminal activity.
“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”, he said.
Experts’ views
Investment consultant and business analyst, Jose Aseda, noted that the apex bank must have been tracking banks who use monies or unclaimed dividends sitting in these dormant accounts to trade to make profits. He added these monies were not accountable and had to be taken by the government since no one is claiming it.
“This is legal especially with regards to the Banks and Other Financial Institutions Act, 2020 (BOFIA 2020) which empowers the CBN to assume this function. So, the banks are not supposed to have access to the funds. However, what we know is that the banks may be using these funds to run their businesses without a cost to them because they are not making any returns to the owners of the account. Hence, what the CBN is trying to do is ensure that the banks start being more effective in the discharge of their duties to the economy. Nigerian banks have not been lending enough to the businesses and so the majority of their monies are not from normal banking operations”, Aseda explained.
For his part, a stockbroker who spoke to Daily Sun under anonymity said, “A transparent process for managing these idle funds is a win for banks and the economy at large especially when you have hackers or fraudsters sniffing everywhere to steal monies. But I will say that while it reduces the size of the banks’ balance sheets, the CBN takes some of the burden off the banks. The fact that customers would even get rewarded with principal and interest is gratifying. Hence, I think this policy makes sense”.
In his view, Toni Kan, a public relations expert, who has worked in the United Kingdom Social investment sector with the first Black Social Investment Vehicle, also noted that 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”, he said.
Conclusion
While there are concerns about the potential misuse of these funds by banks, the CBN’s transparency measures and regulatory oversight aim to prevent such issues. Ultimately, the policy is seen as a positive move to protect customers and enhance the integrity of the Nigerian financial system, especially given the vulnerability of dormant accounts to fraud.
Credit: The Sun