Every year, a significant amount of unclaimed stock dividends accumulates due to a loss of contact with some of the rightful owners. This amount is substantial. For example, unclaimed dividends at the Thailand Securities Depository (TSD) have grown to 746 million baht over 10 years.
Similarly, asset management companies face this issue with mutual funds they operate and liquidate. Currently, these companies deposit unclaimed funds with the Department of Legal Execution, which cannot ascertain the exact cumulative amount.
This phenomenon occurs for several reasons and generates unnecessary costs for the capital markets. It needs addressing so that this dormant money can be invested to yield returns.
Unclaimed dividends are akin to long-term inactive bank deposits or matured life insurance policies, though the details differ. For instance, some shareholders may not cash their dividend cheques, considering them too small, or the cheques sent by mail might be returned due to unclear addresses.
Leaving this money unclaimed results in an opportunity cost of which general investors have become aware. A quick calculation, based on 1.43% yields from one-year government bonds in 2023, indicates that the opportunity cost for the 746-million-baht unclaimed dividends at TSD is about 11 million baht per year.
Moreover, these unclaimed dividends burden entities like TSD, listed companies, and asset management companies, especially in terms of the actual cost of maintaining records of this dormant money. For TSD, this process costs at least 1.6 million baht annually. Listed companies incur about 200,000 baht per year, while asset management companies must pay a 2,000-baht deposit fee per account to the Department of Legal Execution.
Resolving this issue is feasible. However, due to the lack of clear regulations from the Securities and Exchange Commission (SEC), TSD, listed companies, and asset management companies have no authority over unclaimed money. The SEC should consider issuing regulations on managing unclaimed dividends and revise the notification of the Capital Market Supervisory Board related to mutual fund liquidation to provide clearer guidance.
Regulating this inactive money should focus on: clearly defining unclaimed dividends; designating an agency to handle this money beneficially; and establishing clear steps for investors or their next of kin to access these funds.
Internationally, countries such as Malaysia and Australia have implemented decisive measures to manage dormant funds that remain unclaimed for extended periods. In these countries, if the rightful owners of money or property are not identified within 5 to 10 years, these assets are classified as unclaimed. Their approach involves legislation like the Unclaimed Moneys Act, where the funds are transferred to the Ministry of Finance until claimed by the owners or their next of kin.
Malaysia and Australia’s models do not yet utilise dormant funds efficiently, as they typically transfer these funds to a central location where they remain collectively inactive. Another approach, both extreme and ambitious, is the United Kingdom’s Dormant Assets Scheme, which allocates a portion of these funds to social and environmental initiatives within the UK.
In Thailand, listed companies and asset management companies could safeguard the money for five years, potentially charging reasonable administration fees. If the funds remain unclaimed, they should then be transferred to the Capital Market Development Fund (CMDF), which will invest them.
Some might wonder why the CMDF is the preferred choice over the Ministry of Finance, as is the practice in some countries or as suggested by the Fiscal Policy Office in its previous draft law proposal for managing dormant money in bank deposit accounts.
Indeed, managing unclaimed money is a delicate matter and must be approached with care, as it is a sensitive issue. The public may feel uneasy about the idea of state agencies handling such funds, raising concerns about fairness.
The CMDF, with its expertise in capital market development, can invest the unclaimed money effectively, using the returns for market development, similar to how the Life Insurance Fund manages policies beyond their prescriptive period.
In collaboration with the Stock Exchange of Thailand (SET) and TSD, CMDF is better positioned to assist rightful investors in claiming their unclaimed money compared to other state agencies like the Ministry of Finance, which faces strict legal restrictions.
Additionally, transitioning to an online payment system like E-Dividend is advisable. This change would address the disadvantages of costly traditional payment methods, such as bank drafts or cheques, and the issues arising when investors lose contact.
Unclaimed dividends in the capital markets signify financial management inefficiency and opportunity cost. It’s time for the SEC to issue regulations to invest this money productively, utilising the returns for capital market development while ensuring rightful investors can claim their unclaimed funds at any time.
Writer : Tippatrai Saelawong is senior researcher and Thanapoom Chaisiri is a researcher at the Thailand Development Research Institute (TDRI).
This article is part of a series on ‘Thailand’s Capital Market Regulatory Guillotines’ by the TDRI and the Capital Market Development Fund
First Publish: On Bangkok Post 17 Jan 2024