Post date: Thu, Feb 27, 2020
Category: General
By: Stephen Jairo,
Introduction
The Institute of Economic Affairs and the Unclaimed Property and Asset Register (K) Limited was instrumental in the giving birth to the Unclaimed Financial Assets (UFA) Act, 2011. This milestone is a culmination of various policy and advocacy engagements that go back to 2007. Unclaimed assets are tangible or intangible properties that have not been claimed by their lawful owners. Conversely a financial asset is considered unclaimed when no claims have been made to it, no transactions has been carried in its favour, and/or no order has been given for the asset within a given period of time.
Enactment of UFA in 2011 was followed by creation of two institutions. The Unclaimed Financial Assets Authority (UFAA) was established in the same year and subsequently the Unclaimed Financial Assets Regulations in 2016. This legislative and institutional framework is to provide a mechanism and resources to facilitate location of property owners and/or beneficiaries and also to facilitate claims – reunification of unclaimed financial assets to owners. Nevertheless, a statement from the National Treasury reveals that the UFAA has in its custody unclaimed financial assets amounting to Ksh 3.3 billion out of which Ksh. 32 million has been claimed . This accounts for a paltry 1% of total unclaimed financial assets almost a decade down the line. In effect this implies very poor performance by the Authority in re-uniting the financial assets it has received and safeguarded from holders with their rightful owners.
Notably the unclaimed assets include bank cash balances, cheques, insurance policies, utility deposits, court awards and credit or safe deposits boxes abandoned for between two to five years. The list also includes banker’s cheques not cashed for two years, contents in safe deposit boxes unclaimed for more than two years, matured life insurance policies unclaimed for more than two years and shares, whose dividends have not been collected for more than three years.
Why the poor performance by the Authority?
As it is, the UFAA plays the key roles of being the Regulator, Agent, and also the Fund Trustee of the unclaimed assets. Notably, the authority is not incentivised to ensure it carries out its core mandate of reunification since there are no legal frameworks that make this noble exercise a mandatory for the authority. There is also no legal or mandatory requirement that compels the authority to make notifications of unclaimed assets to their owners, or send them reminders. In developed countries, this is a requirement that must be adhered to.
Also, the authority has taken to investing the money in its custody on government bonds and treasury bills. While this is aimed at ensuring the authority stays afloat, is it in the best interest of the beneficiaries on whose behalf the authority exists?
What to do?
The mandate, goals, and objectives of the UFAA are very clear as per the UFA Act, 2011. However, for the authority to realize and achieve these there is need to make drastic changes to the way the authority is constituted and also, to the way it operates.
Firstly, the Act needs to be amended in order to split the authority into three distinct but inter-related organs, functioning towards the same objective although with independent mandates. On this point, the Regulator with a mandate to appoint and licence reunification agents, and the Trust Fund.
Secondly, among the issues that gave rise to the birth of the UFAA was the realization that huge amounts of unclaimed financial assets were lying idle without the knowledge of the beneficiaries. Thus, there is the need to institute a reunification strategy and system that will identify and protect the interests of potential unclaimed financial asset owners, regardless of their status in the society. The proposal to split the authority will give birth to an agency wing whose core mandate is to respond to this gap.
Thirdly and in line with best practices, there will be the Trust Fund, whose mandate will be to ensure the prudent use of funds collected before they are re-united with their rightful owners/beneficiaries. Being that the trust fund manager is independent, it will be able to make decisions devoid of vested interests that may hinder its operations.
Fourthly, it is also noteworthy that in the absence of a strong regulatory framework, the authority lags behind in carrying out its mandate and thus not achieving its objectives. Akin to other institutions, the regulatory body of the authority will be left strictly to craft and implement dynamic regulations to guide operations of the trust fund manager and the agent towards realization of their goals and objectives, and in tandem with economic realities.
For the goals and objectives as were envisioned by the proponents of the Unclaimed Financial Assets Act to be realised, there is need to ensure the above reforms are undertaken within reasonable timelines.
More Blogs
The earliest proposition of fiscal consolidation can be traced back to the Keynesian theory which argues that fiscal austerity measures reduce growth and increases unemployment through aggregate demand effects. According to this theory, government undertaking contractionary fiscal policies of either reducing government spending or increasing tax rates, will eventually suffer a reduction in aggregate demand […]
We recommended (“And then, Floods”) that the Central Bank of Kenya policy rate should be lowered by 300 basis points, from 13 to 10 percent, from August 6. Instead, a reduction of just 25 basis points, from 13 to 12¾, was made on that date. Someone is wrong. Who? In explaining the 25bp decision, it […]
There has been a misconception that when the Finance Bill 2024 was formally withdrawn, all government operations would stop because revenues would not be raised. To understand this misconception, we need to understand what a finance bill is, what revenue-raising measures are, and how that is related to the tax code. A Finance bill is […]
1. Introduction Fiscal decentralisation is a core part of Kenya’s Constitutional order. Fiscal decentralisation is allocating revenue and expenditure responsibilities to lower levels of government. Kenya’s identity as a sovereign republic, as stated in Article 4 of its Constitution, is deeply intertwined with the national value of devolution, emphasised in Article 10. This unique relationship […]
Introduction The Constitutional Theory of Public Goods argues that people decide which goods are public goods at a constitutional level. This decision is based on how much their enjoyment of the good depends on others also enjoying it (Marmolo 1999).i The theory suggests that the government should provide public goods where there is significant demand […]
