Photograph: Christian Hartmann/Reuters
HSBC put £1.5bn of its customers’ cash out of reach in frozen accounts, according to an internal report that raises questions over whether the bank heeded its warnings about potential financial harm to its customers.
An internal HSBC UK report seen by the Guardian shows compliance staff tried to warn Britain’s largest bank more than three years ago that it should make a concerted effort to reunite customers with their cash, and was running a “significant reputational risk” by failing to address the issue.
A whistleblower took the internal report to regulators amid concerns that HSBC was not willing to overhaul its policies. The whistleblower is understood to have told the Financial Conduct Authority (FCA) that HSBC seemed far more willing to chase down its debtors than seek out lost account holders. However, the FCA closed the case without taking any public action despite it being part of a year-long investigation in 2019.
An internal HSBC UK report, seen by the Guardian, claims the bank froze 1.9 million retail customer accounts holding £1.5bn in deposits after labelling them “dormant”.
Why are bank accounts marked as dormant?
A “dormant” or “inactive” bank or building society account is one that hasn’t been used for an extended period. Officially in the UK it is an account where no transactions have been carried out for 15 years and the owner can’t be traced.
However, banks will often act a lot sooner than that. For example, HSBC says that if a customer is not using an account, it may restrict payments in or out “to protect against fraud”. It will do this after 12 months for current accounts and after two years for savings accounts.
Barclays does the same after 18 months for current accounts and five years for savings. The NatWest group applies the change after five years, and Lloyds Banking Group after three years.
Should I be told if my account has been declared dormant?
In most cases, yes. However, there are no formal rules for how, or how often, banks should attempt to reunite customers with their cash. A short section in the FCA’s banking conduct handbook merely states that banks must “enable” customers to trace and access lost or dormant funds “so far as is possible”, even if they cannot provide sufficient information about their account.
The banking sector is instead guided by its own set of pledges. These state that a bank will write to the most recent address held for the customer before it freezes the account unless mail has already been returned from that address. “It may also make other attempts to trace you,” the pledges state.
Banks are under no obligation to actively search and get in touch with customers with "lost" accounts – which usually means it is up to individuals to initiate a search, if they are even aware they have lost track of an account.
FCA rules governing other parts of the financial services sector – such as life insurance and pensions – set far more robust rules about contacting customers on lost accounts. If insurers initially lose contact with customers, they are obliged to try to trace them again after 18 months and again every three years.
What do I need to do if my account is made dormant?
If you believe your account has been dormant for less than 15 years contact your bank directly. Accounts can typically only be reactivated after customer identification and verification checks..
What if my account has been dormant for more than 15 years and I’ve lost the details?
After 15 years, most banks transfer dormant account deposits into the government-backed Dormant Assets Scheme. This is run by Reclaim Fund Ltd, which aims to hold sufficient funds to cover money paid out to people reclaiming their cash, while distributing the surplus to the National Lottery Community Fund so that it can go towards good causes.
Customers of dormant bank accounts still have the right to get their money back in full after it has been transferred to the fund.
They may wish to start the process of tracking their old accounts by using a free tracing service called My Lost Account.
The report, produced by members of HSBC’s UK Conduct Risk team two years earlier, said the bank had effectively frozen 1.9m accounts by labelling them “dormant”. It further alleged that HSBC made little effort to track down the rightful owners of the accounts and reunite them with their cash – including those who, the report illustrated, were easily traceable via the electoral roll or a quick online search.
The report also found that HSBC’s dormant account policies were potentially harming customers, including elderly and vulnerable savers, who may have lost track of their money. Around 100,000 dormant accounts, the report said, held deposits worth more than £1,000.
HSBC denied it had mistreated customers, or that it took insufficient action. It told the Guardian it had made “substantial and continuous improvements” to its dormant account policy since 2016.
However, the bank has not implemented some of the key recommendations listed in the report. These included setting up a compensation scheme for customers who may have been inappropriately charged fees or temporarily blocked from accessing their funds, and hiring a credit reference agency and external specialists to conduct a “bulk trace” of customers it had lost touch with.
“Once an account goes dormant, over 50% of customers never regain access to their funds,” the report said.
The “Dormant bank accounts” report also found:
HSBC was too quick to make accounts dormant once reactivated. Accounts were allegedly falling back into dormancy within four weeks without regular use – despite HSBC’s formal policies stating that this period should be 90 days.
More than half of dormant funds belonged to customers who had active accounts with HSBC, meaning the bank could more easily contact customers to reunite them with their cash. The report said it would cost the bank less than £1 per name to run a “bulk search” of customers whom it had lost touch with.
Around a third of dormant accounts belonged to savers aged over 65. Of those, 32,000 were held by people over 80, accounting for around £200m in dormant deposits. “There is clearly a risk that more elderly customers will have lost track of their account, forgotten the details and be suffering detriment from lack of access to their savings,” the report said.
More than £17.5m of customer cash was held in dormant accounts which had been assigned powers of attorney (POA). The report said: “Given the association of mental impairment with the assignment of POAs on to accounts there is clearly the potential for the account holder to be detrimented by lack of [access] to their funds and for both the account holder AND the POA to no longer be aware of the existence of the account.”
Around £436m, or 30%, of the deposits were in accounts that never had a single withdrawal. These accounts included “long-term determined savers paying in monthly during their working lives”.
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Banks largely self-regulate their dormant accounts policies, and are not forced to report the value of dormant accounts on their books, making it difficult to track how they are managing customer funds.
When an account is dormant, no money can go in or out, and the account can only be unfrozen after identity checks – often requiring customers to go into a branch and provide their account number, balance or old bank statements. After 15 years, the money is usually transferred into a government-backed charitable fund.
HSBC sets accounts to dormant after 12 months for current accounts, and 24 months for savings, which is one of the shortest periods among the big four UK banks. Dormancy is typically only triggered by Barclays after 18 months for current accounts and five years for savings, while NatWest Group applies the change after more than five years, and Lloyds Banking Group after three years.
There are no rules about how, or how often, banks should contact dormant account owners, and the banking industry’s own voluntary set of “pledges” merely states that banks should send a single letter before the account is frozen.
While the dormancy process is meant to protect against fraud, the HSBC report found the accounts were less likely to be hit by fraud, based on data covering the 12 months before accounts were frozen. “We should consider not using this as a justification for our policy in communications with customers,” the report said.
A series of 12 anonymous and randomly selected cases contained in the report illustrate how easy it could have been for the bank to find customers who may have lost track of their accounts.
In one case, HSBC failed to track down a south London woman who had £3,973 of her savings frozen and then transferred to the government-backed Reclaim Fund. It sent letters to a non-existent home address that was probably mis-recorded due to a language issue. But the report suggested “customer B”, who had a Vietnamese surname, was living about a mile and a half from the postcode originally recorded by HSBC.
“It took a couple of minutes to find the customer … she was the first hit of that Google search. The customer’s uncommon name makes it easy,” the report said.
Another customer had £9,969 transferred into the Reclaim Fund after his account was deemed inactive for a total of 15 years. The report’s authors said the father of six was found via a search of Google and the electoral register, and that he lived in the same home listed on HSBC’s database. “It should not be difficult to reunite this customer with their funds,” the report said.
In its response to the Guardian, HSBC said the recommendations in an initial report into dormant funds – which was produced in 2016 – were the “opinion of a single individual and were not submitted to any governance committee for consideration”. However, the Guardian understands that the conduct team tried to escalate the issue by expanding the report in 2017, assigning at least two staff to the project, which was later reviewed by two superiors.
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HSBC also said some of the circumstances described in the case studies, which were in the 2017 version of the report seen by the Guardian, were “based on unverified data”, and it questioned their accuracy.
The bank insisted it tries to contact customers – via annual statements in the post or electronically – even after their accounts are made dormant. It said customers may also receive text messages and can see their dormant accounts through online banking, where the majority of customers can reactivate accounts without providing extra information.
The report raised concerns that HSBC was depriving some customers of funds in frozen accounts while simultaneously earning fees and interest through other accounts and credit cards that were kept active. Over 10 years, HSBC had charged those customers around £153m, which the report said could have been covered by cash in customers’ own dormant accounts.
The report urged HSBC to make sure customers were aware of their dormant accounts before approving loans, in order to cut down or cover their borrowing needs. It also recommended HSBC consider using dormant account deposits to cover defaults on the customers’ own loans.
HSBC said: “We strongly refute any assertion that we have mistreated customers or have taken insufficient action to reunite customers with funds.”
It said the figures outlined in the 2017 report were “either inaccurate or materially out of date and does not reflect HSBC’s current processes”. It did not disclose how much money it currently holds in dormant accounts, but said publicly available information from the Reclaim Fund shows that in 2019 it transferred £7.46m to the scheme.
It is not clear why the the bank’s head of UK regulatory compliance or other executives did not pursue the allegations further. “HSBC is absolutely committed to helping customers avoid losing track of both their accounts and the funds in those accounts,” the bank said.
The FCA said: “Dormant accounts is an area we have looked into and are keeping under review. If ever we discover an issue, we will work to ensure no customer loses out financially and require the firm in question to improve their processes. That is what happened in this instance. After becoming aware of the issue, we discussed our concern with the bank, which changed how it handled dormant accounts and is reviewing old accounts to ensure customers received their money.”
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