A consumer protection initiative which provides additional compensation to investors who lose funds through broker misappropriation or mismanagement has been introduced by the Irish Brokers Association.

Under the programme, IBA members must have a bonding of £100,000 (€127,000) per broker, with a limit of £50,000 per client.

The IBA is the industry body representing 600 Irish brokers. The initiative complements the official scheme operated by the Irish Compensation Company Limited.

This ensures that eligible investors are entitled to £15,571 or 90 per cent of their losses - whichever is less.

The ICCL was established by the 1998 Investment Compensation Act.

"We believe that by introducing bonding for our members we are providing additional security for our members' clients over and above the maximum compensation available under the Investors Compensation Act," said Mr Billy Redmond, the IBA president.

"The IBA is committed to maintaining the highest standards within our industry and is at the forefront in ensuring the interests of the consumer are protected," he said.

The bonding level will be reviewed every year but an increase from the current £100,000 is not expected for two to three years, Mr Redmond says.

The IBA's chief executive, Mr Paul Carty, urged consumers to protect their own interests.

Before engaging the services of a broker, he said, the consumer should ensure the broker had professional indemnity insurance and that any cheques were written to the investment fund, rather than to an individual broker.

He pointed to three main reasons why consumers might incur losses: bad advice, negligent advice or fraud.

He said the solutions to these potential pitfalls were broker education, the setting of industry standards and transparency.

People would make mistakes and insurance protection should be in place to protect consumers against that possibility, he added. Although the incidents of fraud were rare, there must be regulation in place to deal with it, Mr Carty said.

Several high-profile cases of fraud have damaged the reputation of the Irish investment industry in recent years. Former IBA president Mr Tony Taylor disappeared in 1996 allegedly with £1.7 million of his investors' funds. His whereabouts are unknown.

The first successful prosecution for fraudulent trading occurred in May 1996 when Dublin broker, Mr Mark A. Synnott, managing director of Mark Synnott (Life and Pensions) Brokers was jailed for four years and three months on three counts of fraud.

When his business collapsed in 1991, he was alleged to owe more than £2 million to 100 investors in amounts ranging from £40,000 and £150,000.

The most recent adviser brought to trial, Patrick Foote, of Irish Mortgage and Finance Bureau in Limerick, was convicted and given the maximum sentence of seven years in prison last month.

He was accused of defrauding 20 investors of £203,000, ranging in amounts from £270 to £97,000.

During Foote's sentencing, Mr Justice O'Leary said he regretted that even if the accused was sent away for 1,000 years, it was not going to restore money to those who had lost it.

The finance spokesman for the Consumers Association of Ireland, Mr Eddie Hobbs, welcomed the IBA's proposal but said it was not really relevant to most consumers. "The biggest problem is mis-selling. The few consumers that run across downright fraud is tiny," he said.

Mr Hobbs also maintained that the initiative was not costing the IBA very much as, under its own rules, IBA members were previously required to have bonding of £50,000.

"If the IBA is authentically concerned about the consumer, they should introduce compulsory commission disclosure in advance of legislation and join the Ombudsman scheme," he said.