Unclaimed assets agency seems exposed to crooks, protect it

We are clearly making some progress with the Unclaimed Financial Assets Authority (Ufaa), the little-known but enormously important entity that has been in existence for just under six years.

According to a recent story by Business Daily, private companies and public entities surrendered Sh2 billion more to the fund this year, bringing the total amount surrendered to Sh15 billion. Equity shares held by the authority stand at Sh567 million.

A recent baseline survey commissioned by the Ufaa put the number of institutions holding unclaimed financial assets in the economy as at October last year at 477,000. It estimated the value of assets held by these institutions — including banks, insurance firms, companies, utility companies and saccos — at a whopping Sh241 billion. Clearly, the potential for this fund is massive.

On the flip side, however, we don’t seem to be doing so well when it comes to paying the claimants. According to the BD story, only a paltry Sh400 million has been paid out. Which is a pity because the core mandate of the authority is reunification. Recent efforts to rope in chiefs in educating the public to come forth and reunite with their assets hasn’t done too well, apparently.

This is one fund that we cannot afford to mess around with. We must do everything to insulate it from being misappropriated by the political elite. If we don’t watch out, it won’t be long before we hear that the money is being spent badly.

Eating chiefs salivate when they see such huge funds. This is one fund we shouldn’t allow the political elite to turn as yet another source of largesse where powerful politicians can draw money at whim and fancy to finance grandly conceived projects that only serve to create opportunities for kickbacks and backhanders for men in power.

In retrospect, it seems that the crafters of the original legal framework were worried about possible abuse of the fund by the political elite. That is why they introduced the rule stipulating that money from this fund could only be invested in Treasury bills. Had they left everything to the discretion of board of directors appointed by politicians, I think we would by now be seeing a new multi-storey corporate headquarters built with claimants’ money. We would be hearing about how the fund was negotiating to buy a massive piece of land.

As the Ufaa enters the next five years of existence, we must think about tinkering its investment mandate and guidelines to close all loopholes. I say so because I recently heard from the grapevine that there were plans to loosen the investment rule and bring other asset classes into the picture.

The Ufaa must resist any changes in the legal framework, especially where it’s clear that what is being proposed might introduce loopholes that rent-seeking elites could exploit.

We need to introduce stricter performance criteria for the authority to progressively move to international practice, where fund managers must ensure that most of the money is in the hands of the ultimate beneficiaries. Managed well, this huge fund could grow into a major source of funds for long-term investments.

Even with the existing legal framework, we need to consider moving the fund to the tried and tested framework of managing funds under the Retirement Benefits Authority (RBA.

Private sector pension schemes regulated by the RBA are some of the best run in the country. The trick is, trustees don’t make all the decisions. The money is kept by custodians while investment decisions are in the hands of RBA-appointed fund managers. Independent and third-party professionals do the actual administration. Trustees do broad oversight.

This is one of the areas where regulation has worked in this country. Indeed, one of the reasons why the mandatory pension scheme, the National Social Security Fund (NSSF), is so badly run, is because its board is still dominated by state and political appointees. We mustn’t allow Ufaa to take this route.

Until recently, the Deposit Protection Fund was part of the Central Bank of Kenya. To avoid conflict of interest, the two had to be separated — hence the creation of the Kenya Deposit Insurance Corporation (KDIC).

The ideal situation, going by trends and practice internationally, would be one where we have a regulator that concentrates on licensing service providers under the Ufaa and a fund dedicated to managing the money.

Sooner or later, and as the number of claimants increases, the queues will be just too long for the Ufaa. We will need to evolve a network of service providers giving a range of advisory services to members of the public. And we should consider expanding Ufaa’s scope beyond financial assets to recovering unclaimed property.