Caveat Emptor, or Let the Buyer Beware, seems to be the best motto for customers trying to arrange investments or loans through brokers or intermediaries. Because protection through regulation of the market by official bodies and the financial institutions seems at best to be haphazard, as the problems at Irish Mortgage and Finance Bureau in Limerick show.

The brokerage closed last week owing an estimated £300,000 to clients - mostly money given as deposits for house mortgages, though some investment lump sums are thought to be involved. A Garda investigation into financial irregularities is underway. The brokerage, which was not registered with any regulator, acted as an intermediary for several financial institutions.

Mr Pat Foote, who ran the company, claimed this week that everyone owed money from his company would be paid.

The situation in Limerick shows up the problems in this area of the financial services market. Many intermediaries are not registered with any regulator. It appears that in most cases regulators depend on the intermediary to come forward and register with them. Another problem is that the information flow from the financial institutions to the regulators appears to be limited.

A further problem is that there are a number of different regulators for different types of business. This means intermediaries can fall between the nets of the various regulators where it is unclear exactly what business or businesses they are in. Meanwhile, consumers do not know where to turn when problems arise.

The regulators complain of limited resources. They appear to be relying on brokers to come forward and register themselves as they are now required to do under the law. They want financial institutions to actively ensure the quality of the intermediaries they appoint and to ensure that their intermediaries are registered with the appropriate regulator.

A complicating factor is that most intermediaries were acting for various financial institutions long before the Acts regulating the sector came into effect. The Acts requiring investment and credit intermediaries to register with regulators only came into effect over the past year.

In the case of credit intermediaries - brokers who arrange mortgages, loans and other credit - the financial institution for which an intermediary acts is required to inform the Director of Consumer Affairs that the intermediary acts for them. But while regulators get lists of intermediaries, there appears to be a delay in ensuring that those on the lists are approached and assessed if they have not already come forward. And financial institutions do not appear to be following up their own intermediaries to see that they have registered.

Intermediaries are regulated by different agencies depending on the services they offer. To complicate matters, some intermediaries could be regulated by more than one regulator if they are offering a variety of services.

Brokers offering life, pensions and general insurance products are regulated by either the Irish Brokers Association (IBA) or by the Insurance Industry Compliance Bureau (IICB). Brokers offering non-insurance savings, investment and deposit products are regulated by the Central Bank. Brokers arranging loans and mortgages are regulated by the Director of Consumer Affairs. But a broker offering both insurance and non-insurance products will have two regulators - one for each element of his business.

An IICB regulator explained its registration system for insurance brokers: a broker must first get a letter of provisional appointment to act as an intermediary for an insurance company. Then the broker must apply for registration with IICB, an industry body set up by the insurance companies. Brokers registered with the IICB must have a minimum bond of £25,000, or 25 per cent of turnover when turnover exceeds £25,000. This bond, for the protection of customers, is held in favour of the Minister for Enterprise and Employment who can call it in if a brokerage collapses.

In the case of the IBA - which has regulated brokers selling insurance products since 1990 - members are required to have professional indemnity cover, which covers clients against losses through unintentional mistakes, as well as a minimum compensation bond for £50,000.

The Director of Consumer Affairs, Mr William Fagan, became the regulator for credit intermediaries when the Consumer Credit Act 1995 came into effect in 1996. Mr Fagan said his office started by registering money lenders and moved on to credit intermediaries at the end of last year.

Mr Fagan outlined his two approaches to getting intermediaries on his register: "You can look at who you might think would be lending and get lists from associations and professional bodies. Then you can do a mailshot to determine who is doing the business. The second way is to go to the industry".

Mr Fagan advertised in the newspapers asking credit intermediaries to register "without much success", and then carried out "a major mailshot" and sought lists of intermediaries from financial institutions.

Three lending institutions told the office that the Limerick broker was acting for them and one of these, the ICS Building Society, subsequently informed Mr Fagan's office that the broker was no longer acting for that institution. "We expect them to tell us, but they are not required to do so," Mr Fagan said. Asked would the letter from the ICS Building Society in May, stating that the broker no longer acted for it, not have sounded warning bells, Mr Fagan said: "It was a one-liner that gave no reasons . . . it was a routine sort of letter . . .". But he argued that "a one liner from a financial institution is totally inadequate".

"Unless the financial institutions are prepared to be open with me . . . they need to share knowledge with me but they do not like to shop to officials . . . But in the Limerick case I intend to look further at what they knew and when they knew and what sort of business they did after they knew," he said.

Under section 116 of the Act, a credit intermediary requires a letter of recognition in writing from each credit institution for which he is acting as an intermediary. Mortgage intermediaries require a letter of appointment in writing.

To register with the Director of Consumer Affairs a credit intermediary must fill in a form, present his/her letter of recognition/authority and a tax clearance certificate and pay registration fees of £500 for a company and £250 for a sole trader. About 400 mortgage intermediaries have registered with the Director who has estimated that there are about 400 intermediaries not registered.

In Britain it took about 10 years to get all intermediaries licensed, according to Mr Fagan. But he is adamant that the regulators need more support from the financial institutions to make the system work.

"We would like to see the lending institutions do more quality control. Financial institutions do have a responsibility to assist us in the regulatory process," he said.

A number of financial institutions said they inform Mr Fagan "insofar as is legally possible" - referring to the risk of legal action by intermediaries for defamation.

Some were critical of Mr Fagan's office. One commented that "he was supposed to set up a system to regulate these guys and now he is blaming the financial institutions. It would be sensible for him to tell the financial institutions that they could not do business with intermediaries who didn't produce a certificate from him by a certain date".

Mr Fagan said his major task now is to build up his regulatory file - to get all credit intermediaries registered. "When they have licences we can apply standards and have some power by being able to threaten to withdraw the licence."

Referring to the visit of his inspector to the office of the Limerick brokerage two weeks before its closure, he said the function of the inspector was to find out if mortgage business was being conducted there and if the company required a licence. Brokers who are lending their own funds rather than acting as intermediaries do not require licences.

"As of now we have not received a single complaint about the Limerick operation concerning mortgages. The only one we got was a letter from an individual in the west of Ireland about an investment which was sent on to the Central Bank by the Department on June 6th," he said.

The Central Bank took over the function of regulating all intermediaries who sell non-insurance savings and investment products in April. A spokesman declined to comment on the June letter referred to by Mr Fagan. He said the Bank had heard about the Limerick brokerage "late in the day", adding that as a mortgage brokerage it was not required to be registered with the bank.

When the Bank took over regulation of these intermediaries, it wrote to all the financial institutions looking for details of their intermediaries and requiring the institutions to keep the Bank up to date on changes, he said.

In any case, Mr Fagan insisted he has no power to protect client funds lodged with credit brokers: "If we discovered any broker abusing client trust we would have no power to protect consumers. We have no power to freeze assets. We can only take a prosecution through the courts and by the time that was done the assets would be gone. We do not have the necessary power to safeguard the funds of consumers like they have in the US and Canada".