Cullen rejects change to compensation Bill

The Government has rejected proposed changes to the Investor Compensation Bill from the investment industry working party. The group wanted Section 60 of the Bill - which deals with the treatment of intermediaries - dropped. However, the Minister of State for Finance, Mr Martin Cullen, rejected an amendment supported by the group and said the Bill had to try to strike a balance between the interests of the investment industry and consumers.

Under the terms of the original section, investment institutions - which are required to give a letter of appointment to intermediaries with whom they do business - must publish notice of discontinuance of appointments in a national newspaper.

Mr Cullen appearing in front of the Dail Select Committee on Finance and the Public Service accepted the need to change the section and moved an amendment. However, he refused to delete the section completely.

Under the amendment, the intermediary - rather than the investing institution - must publish in a national newspaper the withdrawal of the letter of appointment within 14 days. If this does not happen the responsibility reverts back to the product provider to publish the information.

According to Ms Ann Fitzgerald, chairwoman of the working party said the new amendment means that investors will "simply have to hope for the best and will not be fully protected". "Consumer problems are exacerbated by the fact that a fraudulent intermediary has 14 days in which to put in a notice before the product producer is forced to act. That is 14 days in which to defraud," she said.

The working party had suggested that, if it was to be kept, the section should force companies to inform the Central Bank within three days of discontinuance and that the bank be forced to accept responsibility for accurate updating of its register of intermediaries.

It argued that people might not notice the advertisements and, if they did, might not understand their import. The advertisements would not necessarily give the reasons for the discontinuance of the relationship between the company and the intermediary.

Mr Cullen said while he accepted people's concerns, if someone wanted to defraud an investor they could do it within 24 hours, so the question of the 14 days made little difference.

When asked by the Fine Gael spokesman, Mr Michael Noonan, why the Central Bank should not be responsible for placing the notice, Mr Cullen said this would not be a good idea.

Mr Cullen, for the first time, told the committee the likely size of the fund to be established to compensate defrauded investors. He said it would contain about £4 million - and £1,000 per investment firm was the likely levy needed to fund it.

The provision of the Bill means investors who are defrauded are entitled to 20,000 ecus - about £15,500 - or 90 per cent of the losses, whichever is the lesser.

An amendment from Mr Noonan, in favour of increasing this to £30,000, was defeated.

He said the £4 million figure was not "sufficient", particularly if customers from more than one investment firm were looking for compensation at the same time in the event of a major problem.

Mr Cullen said it would not be "prudent" to exceed the figure at this stage and he added that he had to be concerned about the "prohibitive cost burden for the scheme".

The Labour Party's spokesman on finance, Mr Derek McDowell, asked whether the Bill would compensate people who had their money "frittered away recklessly or negligently" by an investment firm. Mr Cullen said the Bill is specifically designed to compensate people for fraud.