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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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State Legislatures Reconvene, Immediately Take up Unclaimed Property Issues

Posted By Administration, Monday, January 30, 2017

Reconvening earlier this month, state legislatures are wasting no time considering new unclaimed property legislation, including language from the Revised Uniform Unclaimed Property Act. Following are summaries of several of the most noteworthy bills UPPO is tracking.

 

Arkansas

H.B. 1142 extends the presumed date of abandonment for securities from five to seven years from any of the following:

  • The date of most the recent dividend, stock split or other distribution unclaimed by the apparent owner;
  • The date of second mailing of a statement of account or other notification or communication that was returned as undeliverable, or after the holder discontinued mailings, notifications or communications to the apparent owner;
  • The date that the security holder or payee is presumed lost or unresponsive as it existed on Jan. 23, 2013.

The bill also includes new provisions requiring the security holder to liquidate the security before remitting it to the administrator. The bill was referred to a Senate Committee on Jan. 23.  

 

Delaware

Highly anticipated legislation since last summer’s Temple-Inland summary judgment and settlement, S.B. 13 adopts provisions from the 2016 Revised Uniform Unclaimed Property Act. It also adopts certain recommendations from the Delaware Unclaimed Property Task Force and makes significant changes to the state's unclaimed property reporting process and compliance initiatives.

 

These changes include reducing the look-back period for all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look-back period, which mirrors laws in a majority of other states.

 

S.B. 13 also offers any company currently under audit the opportunity to convert their audit into a voluntary disclosure agreement. Since July 22, 2015, Delaware law has allowed companies to enter into a VDA before going through an audit. This change provides the VDA option for companies whose audits began before July 22, 2015, and are still in process. It also gives all companies that received a notice of examination who are currently under audit on the bill’s effective date the opportunity to engage in an expedited audit review process.

 

The bill addresses the state’s estimation practices for audits and VDAs, requiring the secretaries of finance and state to develop by July 1, 2017, regulations for estimation base periods, excluded items, aging criteria for outstanding and voided checks, and the definition of “complete and researchable records.”

 

Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. The bill quickly made its way through the legislature, and was sent to the governor on Thursday, Jan. 26 for signing.

 

Nebraska

The unicameral legislature in Nebraska is considering a pair of unclaimed property bills. L.B. 137 adopts the Unclaimed Life Insurance Benefits Act. It requires an insurer to compare its policies and retained asset accounts against a death master file to identify possible matches of its insured at least a semi-annually. The bill outlines requirements in the case of a match or potential match, as well as procedures for group life insurance. A hearing is scheduled for Jan. 30.  

 

L.B. 141 adopts the Revised Uniform Unclaimed Property Act. Among relevant provisions, the bill establishes various dormancy periods and due diligence requirements. It exempts gift cards without expiration dates and fees and establishes a three-year dormancy period for returned merchandise credits and gift cards with fees. The bill also outlines the state treasurer’s responsibilities regarding unclaimed property and provides for holder reimbursement where appropriate. It provides in certain circumstances for the right of another state to take custody of unclaimed property. The bill is still awaiting to be scheduled for a committee hearing.

 

New York

S.B. 1689 prohibits gift card expiration dates and dormancy service fees unless it meets four conditions:

1.       The remaining value of the gift card is $5 or less each time the fee is assessed;

2.       The fee does not exceed $1 per month;

3.       There has been no activity on the gift card for 24 consecutive months; and

4.       The holder has the ability to reload or add value to the gift card.

 

The bill also requires retailers to redeem gift certificates of $10 or less for cash at the consumer's request. The bill was referred to the consumer protection committee.

 

Oregon

S.B. 113 requires the provider of goods and services identified on a gift card to transfer to the Department of State Lands the remaining balance of any gift card after five years of inactivity from the date of the last purchase using that gift card. The bill is currently in committee.

 

South Dakota

S.B. 34 revises provisions related to securities held as unclaimed property. The bill requires the state treasurer to sell all stocks, bonds and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim. The bill was referred to a House Committee on Jan. 20.

 

Utah

H.B. 42 makes comprehensive revisions to the state’s insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of “knowledge of death.” The bill saw its third hearing in the House on Jan. 25.

 

UPPO continues to monitor all of the pertinent bills affecting members. For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website.

 

Tags:  audits  death master file  insurance  RUUPA  securities  unclaimed property 

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Hot topics in securities audits

Posted By Administration, Tuesday, March 1, 2016

Every industry with potential unclaimed property liabilities has its own unique nuances. In the securities world, the number of entities involved in transactions, and the volume of data required to track accounts and to comply with applicable regulations present some interesting challenges, particularly during audit examinations.

 

As part of the recent Escheatment Requirements in the Securities Industry webinar, presenters Matt Hedstrom, partner from Alston & Bird, LLP, and Michael Unger, unclaimed property manager from Crowe Horwath LLP discussed several hot topics surrounding today’s unclaimed property audits in the securities industry.

 

Proper Target

Several financial institutions may be subject to unclaimed property exams. They include introducing brokers, clearing brokers, transfer agents, issuers, mutual fund complexes, and custodians. The holder is the entity required to comply and remit unclaimed property, and is typically responsible for any liabilities for not doing so. In theory, identifying the proper audit target should be simple based on who the holder is under state law. However, in complex financial transactions, multiple companies may fit the definition of “holder.”

 

In instances when a financial company offers broker accounts, it may be straightforward—the company possessing the assets is the holder. But in the context of an introducing broker and a clearing broker, which is the proper entity? It’s unclear.

 

“Unfortunately, the states haven’t definitively said which entity they believe to be the holder of those accounts when you have two or more entities or two or more brokers involved,” Hedstrom says.

 

Another consideration for identifying the proper exam target is which entity has the best access to information. Often, the company holding the account is not the same company that has the relationship with the owner. The entity reporting the property may take instructions from an unrelated company. Is the broker that maintains the client relationship and dictates when property should be escheated responsible, or is the escheating broker responsible?

 

“That’s where we have challenges,” Hedstrom says. “This is very different from traditional unclaimed property exams that focus on accounts payable, payroll and accounts receivable, all of which are often held by one entity. What we are seeing is that multiple parties are being audited and some that are ‘holding’ the exact same property. How do states intend to deal with that? They may not even know at this point.”

 

Closing

One of the challenges with closing a third-party audit is whether the exam and its impact are truly complete. In the context of a general ledger audit, the end is generally clear. The company will pay an agreed upon amount of money, send first-priority liabilities to the states and be done with it.

 

With escheatment of securities, there’s the trailing risk related to owners, who may sue after property has been escheated and liquidated by the states. Thus, even when the audit process has ended, liability issues may still arise.

 

Tactics

Third-party firms conducting unclaimed property audits often use data-intensive and voluminous review tactics. It may be not be intentional or for lack of need. However, compiling data related to owner activity for potentially millions of accounts can be difficult. As a result of the large amount of information going back and forth between the holder and the auditor, audits can easily span several years.

 

If requested data isn’t already used as part of routine compliance tracking, the information may not be in a company’s system. Even if it is, it may not be readily available. Companies undergoing examination are constantly pulling additional information to clear certain accounts, remediate certain accounts or defend their data.

 

Because some contract auditors use a specific methodology that works for them, holders may be able to prepare for their requests by becoming familiar with their auditor’s usual methods.

 

“By doing so, you avoid getting behind the 8-ball because of the volumes of data you have to analyze,” Unger says. “You can establish a systematic way for analyzing data when it comes in rather than doing it reactively. Then you can quickly review some of those accounts rather than being up against the clock. So the biggest strategy I see is preparing in advance for what’s coming and getting in front of it.”

 

Pushing Back

Challenging the scope of an audit is difficult. Unclaimed property laws allow the states to review any records that are relevant to determine whether particular items of property are unclaimed or subject to escheatment. Even if information requests seem broad, if the data pertains to whether an account owner is active, it probably falls within the scope of the statute authorizing the review. One way to refine the scope of an audit is by refocusing requests.

 

“If you look at a request and know there’s a way to scope it down to get at what the auditors really want to see, and they’re asking for information that’s overly broad, that’s a best practice,” Hedstrom says. “It helps focus the audit, moves it forward and limits the information that you would otherwise have to produce. In the grand scheme of things, limiting information, both from a data privacy perspective and an audit management perspective, is ideal.”

 

Some examples of data that audit firms may agree isn’t necessary include active stock plan service accounts or stock option accounts, employee accounts, zero-balance accounts, and closed accounts.

 

The Future

Unclaimed property issues continue to evolve at a rapid pace. Regulatory changes, litigation and the Uniform Law Commission’s ongoing work to revise the Uniform Unclaimed Property Act will likely drive even more changes in the coming months and years. Whether they will affect the securities industry’s audit challenges, and to what extent, remains to be seen.

 

To keep up with the latest noteworthy litigation, regulatory and legislative activity, UPPO members can access the govWATCH tracking service, and continue to monitor the UPPO blog for additional developments.

Tags:  audits  securities  unclaimed property 

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Cloudy, inconsistent unclaimed property laws challenge the securities industry

Posted By Administration, Friday, September 18, 2015

Like unclaimed property professionals in many fields, UPPO members working in the securities industry increasingly struggle with challenges resulting from conflicting, confusing and outdated laws. This compliance conundrum is one of the reasons members of the securities industry continue to diligently advocate for a more concise, clear and consistent Uniform Unclaimed Property Act (UUPA).

 

“It’s very difficult to comply because state rules are often ambiguous,” says UPPO President Dana Terry. “Even the state administrators often don’t know how to interpret the laws and regulations, so it’s almost like trying to hit a moving target. We want to comply and try to comply, but the states don’t always make it easy.”

 

Among the areas that members hope to see addressed in the rewritten UUPA is clarification that two pieces of returned first-class mail (second RPO)—the U.S. Securities and Exchange Commission definition of a lost investor—would begin the dormancy clock. Recently, some states have changed laws to depend on customer contact rather than the federal second RPO standard. Unfortunately, doing so imposes an action on investors that conflicts with common investing strategies.

 

“Most people who invest have been taught to buy it and hold it,” says Terry. “They intentionally leave it dormant and save it for a long-term goal, like a college fund or retirement. The states are saying you need to have contact with your investment company or your property may be considered abandoned.”   

 

As a result of this shift, securities holders have been forced to perform massive system updates to maintain and track customer contacts. Even with the proper processes in place, the challenge is compounded by the variety of state definitions over what is considered a contact. Depending on the state, telephone and online transactions may not be suitable. Only written communication may be considered valid.

 

Unclaimed property professionals in the securities industry are also advocating for more uniformity regarding retirement accounts, pushing for the dormancy date to begin when the owner reaches the age 70½, the required distribution date for Individual Retirement Accounts (IRAs). States want the dormancy period to start much earlier. Unfortunately, that would result in taxable penalties for many investors.

 

Another area of dispute is the Death Master File (DMF). Some states believe companies should run its accounts against the Social Security Administration’s death records. However, doing so is expensive, the records aren’t always accurate and, in many cases, a DMF hit alone wouldn’t trigger an obligation to act on an account. IRAs, for example, have complex tax codes with different distribution rules depending on whether the named beneficiary is a spouse or someone else.

 

“The fact that there’s not even a definition of ‘securities’ in the UUPA is also a problem,” says Terry. “It shows up about 35 times, but there’s no actual definition.”

 

Ultimately, unclaimed property professionals in the securities industry are seeking clarification to help them operate honestly, ethically and within the bounds of the law.

 

“The bottom line is we never want to risk our reputation,” says Terry. “We want to comply, but laws need to be reasonable and understandable.”

  

More information

Check out UPPO’s ULC submissions to learn how UPPO is representing the securities industry in the ULC reform process

 

Tags:  compliance  securities  unclaimed property 

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