Requirements to locate customers with whom contact has been lost

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The Banking Supervision Department has formulated draft legislative amendments to ensure that banks act effectively to locate customers with whom contact has been lost and to maintain the value of the funds held in such accounts.

The Bank of Israel's Banking Supervision Department is taking further action to improve bank–customer relations by proposing legislative amendments regarding inactive accounts. The legislative amendments, which are subject to approval by the Minister of Finance, include a series of actions that are aimed, inter alia, at ensuring that banks take further steps to locate the owners of inactive accounts and to maintain the value of the funds in those accounts.

The new amendment initiated by the Banking Supervision Department imposes a requirement on banks to take effective action to locate customers with whom contact has been lost, and to invest the funds in those accounts in investment programs that will enable the accrual of interest while maintaining their liquidity.

Supervisor of Banks David Zaken said, "This is an important and necessary amendment that will strengthen the public's trust in the banking system and will increase the banks' commitment to their customers."

The main changes that will benefit banking customers that the Banking Supervision Department seeks to implement are changing the definition of "inactive deposit" to "inactive account"; expanding the banks' requirements to locate the owners of inactive accounts; setting out new investment rules with the aim of enabling the accrual of interest and maintaining the liquidity of the funds; and requiring the banks to report to the Administrator General regarding accounts in which there has been no contact with the owners for five years.

Changing the definition of "inactive deposit" to "inactive account":
The current definition defines an "inactive deposit" as a deposit in Israeli or foreign currency, regarding which 10 months have passed since the last instruction was received from the deposit owner. This definition does not distinguish between an active current account and a monetary deposit managed within the framework of that current account, or between various types of deposit. As a result, there are some 580,000 inactive deposits in the five large banks, totaling approximately NIS 15 billion (as of 2012), including many deposits where contact with their owners has not been lost. There are some 215,000 deposits that have been inactive for more than five years or whose owners have passed away, totaling approximately NIS 3.9 billion.

The proposed amendment will create a situation where the bank considers the customer's account as a whole, rather than the individual deposit, leading to a situation where only accounts, contact with whose owners has actually been lost, will be defined as inactive accounts.

According to the proposed amendment, several types of inactive accounts will be defined, as follows:

·         Current account: an account where no activity has been taken in the account and in any other accounts and deposits maintained under the same account number, for nine months;
·         Renewable deposit: a deposit where no action has been taken for two years.
·         Securities deposit: a deposit where no action has been taken for two years.
·         Term deposit that is not paid into a current account (for instance a deposit through a closed system), at the date set out for its repayment.

Expanding the obligation to locate the customer:
According to the proposed amendment, the banks' obligation to locate the owners of "inactive accounts" will be expanded and, in the words of the provision, "the banking corporation must act with due diligence to locate the owner of an inactive account, with the aim of notifying him about the funds belonging to him."

In other words, the banks must act in several ways to locate the owners of such accounts for a period of three months from the date that the account becomes an inactive account. These ways include, inter alia, sending a notice to the customer, attempts to make contact with the customer by telephone or any other means of communication to which the customer has agreed, verification of the customer's address with his residential address in the Population Registry or with other addresses in other accounts belonging to the owner in the bank, and so forth. The banks are required to repeat these location actions, as relevant, at least once per year.

The investment rules for the funds in the "inactive accounts"
have also been changed:
In accordance with the existing rules, the investment for some types of deposits is in a bank deposit. In order that the funds deposited will not be available for the bank's use, and in order to enable the accrual of interest and maintain liquidity in case the account owner is located and wishes to withdraw them, the following investment rules are being proposed:

·         Funds in a current account: will be invested in a renewable monthly deposit for one year. At the end of this period, they will be invested in makam that mature in 3–6 months from the date of purchase.
·         Funds in a renewable deposit: will be invested at the end of the deposit term in                 makam that mature in 3–6 months from the date of purchase.
·         Funds in non-renewable term deposits: will be deposited in makam that mature in 3–6 months from the date of purchase.
·         Funds in a securities deposit: the securities will be held with no change.
·         Funds deposited in a foreign currency account or a foreign currency indexed account: will be deposited in a renewable monthly term deposit in the same currency or indexed to the same currency.

Another issue which will be dealt with in the legislative amendments is accounts of deceased customers. According to the proposed amendment, if the bank is notified that an account owner has died, it must try to locate the heirs of the account holder. If no contact is made with the legal heirs of the account holder, the bank is required to appeal to the Registrar of Inheritance and the management of the Rabbinic Courts to obtain the details of persons who have filed a request to receive a Writ of Inheritance or a Writ Upholding a Will.

In addition, under the Reporting to the Public Directives of the Supervisor of Banks, the banking corporations will be required to disclose the number of inactive accounts existing at each bank and the amounts contained therein in their annual financial reports.

The Banking Supervision Department believes that amending the definition of an inactive account, combined with the reinforcement of the location duties required of the banks, will lead to a situation where the number of accounts for which contact with their owners has been lost will more accurately reflect the number of cases where the customer is in fact not aware of the existence of money belonging to him, and where that number will be significantly reduced.