The New Regulatory Focus On Unclaimed Property

Additional Challenges For The Investment Industry

Unclaimed property laws are nothing new. For decades all 50 states and the District of Columbia have had unclaimed property statutes that allow the state to take possession of (escheat) personal property that is unclaimed by the owner for a specified period of time, generally three to five years after the property becomes due and payable to the owner. The purpose of unclaimed property statutes historically has been the reunification of lost property with its true owner, and of course the states get to use the unclaimed property in their general funds until such time as the property is claimed, if ever. NAUPA reports that the states are holding more than $41 billion in unclaimed property.

In the past, financial institutions managed compliance with the varying unclaimed property statutes using undeliverable mail returned [returned by the post office (RPO)] as the standard trigger to identify potentially unclaimed property and start the clock for the various state escheatment time periods. At that point, firms attempt to locate a “better” address to reconnect with the “lost” customer. Some firms use outside vendors to assist with these searches. However, the unclaimed property compliance landscape is becoming more complex and increasingly burdensome for financial institutions. Most of this is due to the regulatory changes, including SEC Rule 17Ad-17, updated dormancy periods, expansion of abandonment triggers, third-party audits and advancements in technology and data analytics. All of this change will impact how states, auditors and other regulators view compliance and will force financial institutions to take a fresh and rigorous look at their unclaimed property compliance programs in order to mitigate risk and achieve compliance.

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