Granny23
If a GP or Consultant diagnoses Dementia (or some other diseases/conditions e,g, Parkinson's), they have a duty to report this to the DVLA. The driver can then ask to be re-tested at a special test centre or voluntarily hand back their licence.
Alzheimer's chat room Talking Point has many posts on this topic, including ones from close family detailing various tactics they used to prevent their PWD driving
Actually a GP or consultant do not have to report a diagnosis to the DVLA unless they believe that driving might be affected. When my mum was diagnosed the consultant told us that we needed to monitor mums driving and contact the DVLA if we felt that mum was driving badly. As it happens, mum decided herself to give up driving when she got her diagnosis so the DVLA were not informed.
Kitty, it’s possible that because of police involvement, your sister in laws insurance might be invalid.
Re the keys, it’s probably not fair to leave them with a neighbour, your sister in law might get cross and aggressive trying to get them back. Disconnecting the battery or making some other adjustment to stop the engine working is a more sensible move. It might be necessary to remove the car from the drive as seeing it there will be a constant reminder and cause great anxiety.