THE Taylor affair has again raised fundamental questions about the regulation of financial - intermediaries who take client - funds and invest them on their behalf.
While the Department of Enterprise and Employment acted quickly when alerted, the affair only came to light following inquiries by two investors and their adviser, and subsequent communication between international fund managers, Fidelity, and the Department.
Financial intermediaries like insurance brokers and fund managers are not subject to any regular inspection or pro active regulation from the authorities.
In effect, the new investment intermediaries act leaves the Irish Brokers' Association (IBA) as an approved self regulatory body for the insurance sector. A financial intermediary must be approved by the Department, the Central Bank or a self regulatory body such as the IBA.
However, once approved, intermediaries are not subject to the kind of regular inspection by the authorities which, for example, would be the case with stockbroking firms.
The IBA has been unwilling to discuss its own regulatory practices, as the Department investigation of the Taylor Group proceeds. However, like the Department, it was in this case responding to an investor complaint. The IBA also faces other difficulties at the moment and says it will appeal a £0.5 million judgment against it by insurance broker, Mr Albert Dawson.
The state in which the Department officer found the Taylor Group raises obvious questions about the regulations. He was Unable to obtain normal documents such as a register of directors or shareholders, or any annual accounts or management accounts.
The Taylor Asset Managers company "appeared to be insolvent" and the funds of certain clients never went through the company's books.
The Taylor affair will encourage investors to move funds from private fund management firms and smaller advisers into the big financial institutions. And public faith in private intermediaries will be slow to rebuild.
The official regulators in the Central Bank and the Department - and the brokers themselves - must now realise that self regulation by the IBA under a benign policing regime from the authorities will not be enough to reassure investors.
Just a year after the Investment Intermediaries Act came into force, the Government must ask whether the Act needs to be much more vigorously implemented, or whether a new approach is needed.
