Work on an Investor Compensation Bill to implement the provisions of the EU Investor Compensation Directive is being finalised by the Department of Finance. The bill, aimed at providing for the compensation of the clients of investment firms and stockbrokers who are unable to repay cash given by clients for investment, is expected to be put before the Dail in January or early February.
The Minister for Finance, Mr McCreevy, told a conference in Dublin yesterday that the bill would provide a statutory framework for the compensation of investors where an investment firm or a stock exchange member firm was unable to return money or an investment instrument to a client.
The bill would be "a further step in the development of the retail financial services and it would enhance the reputation and facilitate the growth of the industry in both commercial and employment terms", Mr McCreevy told a conference on the regulation of investment intermediaries organised by BCP Stockbrokers.
Mr McCreevy's announcement was welcomed by the chairperson of the working party on the regulation of financial intermediaries, Ms Ann Fitzgerald. The industry had been seeking provisions for investor compensation for a number of years, she said. The Department has until September, 1998, to put a bill in place to implement the EU directive which sets a minimum compensation of 20,000 Ecu (about £15,000) per investor. The working party has sought the sharing of compensation responsibilities between institutions and intermediaries involved in all areas of the financial services industry. It has called for a scheme under which institutions would compensate clients for receipted monies while intermediaries would establish a fund to compensate clients for unreceipted monies.
The working party has recommended that, where a client hands funds for investment to an authorised agent and is given a receipt stating that the funds are to be invested in a specific institution, then, if the funds are lost, the institution involved should give the client 90 per cent of the funds invested up to the minumum 20,000 Ecu (about £15,000) required under the EU directive. Where the client does not get a receipt, the working party has recommended that the intermediary sector should pay compensation, at the same level as institutions would be required to pay. Where agents are not authorised there should be no compensation for clients.
Ms Fitzgerald said the working party's recommendations would put an onus on the institutions to take care in appointing intermediaries. They would put an onus on intermediaries to ensure that members of the sector were operating in accordance with the regulations and an onus on clients to check that intermediaries were authorised.
The rapid development of the financial services sector in Ireland has been matched by major developments in the regulation of the industry, Mr McCreevy said. Regulation is essential to facilitate confidence in the market and to ensure a safe and fair market, he said.
But he warned that the development of markets must not be hampered by unduly onerous compliance requirements. "Regulation must also be careful to ensure that competition between different sectors is not hindered", he added.
Mr Neil Collins from the Central Bank told the conference that the bank had recruited additional staff into its intermediary division since it took over the supervision of all investment intermediaries last April. The bank has found "various levels of awareness" of recent regulatory requirements among investment intermediaries, Mr Collins said.
BCP managing director Mr Martin Kane said that rigorous regulation would have significant benefits for the intermediary sector. The public's perception and confidence in intermediaries would be enhanced.
