The Unclaimed Financial Assets Authority (UFAA) has lined up a raft of policy changes, including a reduction of penalties and the extension of the dormancy period, in a bid to unlock Sh30.5 billion in unclaimed dividends for investors in saccos and Nairobi Securities Exchange-listed firms.
Proposals by UFAA, seen by the Business Daily, seek to extend the time listed companies and saccos have to look for the rightful owners of dividends by two years before such assets can be declared abandoned and handed over to the agency.
The Unclaimed Financial Assets (Amendment) Bill proposes that shares and dividends be presumed abandoned after five years, up from the current three years.
Dividends are deemed abandoned when payouts fail to reach intended owners due to outdated contact details, uncashed physical cheques, or inactive bank accounts.
Listed firms and saccos will now have more time to locate the owners of the financial assets before turning them over to UFAA, which has an even harder task of identifying the investors whose details it gets from third parties.
“Section 11 seeks to increase the period of qualification of shares and dividends as unclaimed financial assets from the current three years to five years in order to take care of the nature of investment in shares that are invested for both long-term capital gain and for dividends,” reads the draft Bill.
As at June this year, listed companies had submitted Sh5.3 billion to the authority, leaving more than Sh8.5 billion in unclaimed dividends in their books. Saccos had remitted Sh160 million to the authority, leaving them holding Sh16.5 billion worth of unclaimed dividends.
So far, the authority has reunited less than 44,693 persons with their assets valued at Sh3.12 billion. This means it has reunited 2.5 percent of the unclaimed assets, which is considered low given the State agency’s target of 20 percent reunification.
Kenyans remain uninterested in pursuing funds legally belonging to them despite the tough economy, while in some instances inheritance fights have derailed attempts to unite the assets with the beneficiaries.
If approved, this will be the first amendments made to the UFAA Act since it became operational 12 years ago.
UFAA is also seeking to soften penalties levied on companies that have not remitted idle resources in their books in a bid to encourage them to voluntarily submit what they are holding.
The Bill proposes a penalty of 25 percent of the value of unremitted assets, a departure from the current law, which has three types of penalties.
Non-compliant companies are charged 25 percent of the unsurrendered unclaimed assets and are levied a penalty of between Sh7,000 and Sh50,000 for each day that the assets stayed before being submitted. An interest of one percent per month is also charged on the unclaimed assets based on the assumption that the resources were earning the companies a return.
Executives of the non-remitting company can also be penalised a sum of up to Sh1 million for the non-remittance and could be imprisoned for a period not exceeding a year.
The daily penalty ended up being obscure and hefty, resulting in non-compliance as institutions tried to avoid the load.
“The amendment seeks to introduce a simple penalty of 25 percent of the identified unclaimed financial assets. This will increase compliance as it is simple to ascertain and implement,” reads the Bill.
UFAA is, on its part, seeking to be exempted from paying interest to owners of the assets when reuniting them with their money, which will allow it to be self-reliant and cater for its operating expenses.
The agency found that listed companies held Sh13.8 billion in unclaimed dividends based on a survey conducted last year, while saccos were holding Sh16.7 billion.
Unclaimed dividends are held in cash, giving the holding companies free funds to invest in the interim before they are due to be remitted to UFAA.
Some companies have failed to remit such funds on time, attracting penalties.
UFAA had last year fined 20 firms Sh2.2 billion for failing to transfer unclaimed assets to the agency, according to disclosures by the Auditor-General.
Fifteen of the 20 companies had been fined at least half of the value of assets they failed to transfer to UFAA, underscoring how punitive the current law is.
“The audit established that failure to close compliance audits was due to the imposition of heavy penalties on holders for the assets identified during compliance audits, thereby discouraging holders from remitting assets to the Authority,” said the Auditor-General in a report last year.
Shares are submitted to the authority as units. The authority is currently holding 2.01 billion unclaimed shares. Most of the shares are listed on the Nairobi bourse, and given their trading prices, the units are valued at Sh85 billion.
As at June this year, the authority was holding total assets valued at Sh126 billion, of which Sh41.2 billion was in cash. This means shares constitute the largest value of assets submitted to the authority. Idle resources required to be submitted to UFAA include valuables held in safety boxes left inactive for more than two years and unpaid wages and salaries that remain unclaimed for more than a year.
There are unclaimed assets worth Sh394.9 billion yet to be remitted to UFAA, as per a survey conducted by Kenya Institute for Public Policy Research and Analysis (Kippra) last year.
Commercial banks are said to hold the largest share of unremitted unclaimed wealth at Sh133.8 billion. The manufacturing sector holds Sh24.2 billion in unpaid wages, as per the survey. The judicial system is estimated to have Sh6.3 billion in unclaimed cash bail and bonds, while universities have Sh8.3 billion associated with caution money deposited with the institutions by first-year students.
