NO statutory fund exists to compensate clients who lose funds due to improper handling by financial intermediaries. Some voluntary schemes are in place however, and sources contend that the industry is well regulated.

There is a draft directive winding its way through Brussels which will provide for compensation of up to £16,000 for those who lose money. Industry experts predict that this will be in place in about one year.

However, even when the new rules are in place, it is unlikely there will ever be enough to compensate a client.

One industry figure says: "How do you compensate a person who has lost £1 million?"

Those working in the industry say investments are only risky if the investor is being offered huge returns.

"It is very hard to get wonderful returns; that is when the risk of fraud arises and clients get stung," said a source.

Two main Acts govern the sector: the Insurance Act of 1989, governing insurance; and the Investment Intermediaries Act of 1995, governing investment fund managers.

Companies such as the Taylor Group would carry out insurance and investment transactions.

The minimum bonding requirement for intermediaries dealing in non life insurance and in life insurance is £25,000 - or 25 per cent of the intermediaries' turnover.

Sources say not all brokers need a bond - it depends on whether they are personally handling client funds.

"Most companies get the client to send the cash straight to them," says one source.

Brokers are also required to have separate client bank accounts if they are handling cash so that the client and broker funds do not get confused.

"Many intermediaries no longer handle cash," said a source.

"The bond is a potential source of vetting companies," explains an industry source. "If you don't have a bond you can't do business."

The fact that an intermediary has to apply for a bond means they must give details of their business.

Under the Investment Intermediaries Act, introduced last year investment intermediaries must have a bond of £50,000 or 25 per cent of turnover. (There are plans to increase the bond for life and non life brokers to £50,000).

The Act covers all those who give investment advice on a professional basis.

Regulation of this sector has long been a contentious area, with non insurance intermediaries not subject to any statutory regulation until the 1995 Act.

Now, regulation is carried out by the Minister for Enterprise and Employment and the Central Bank. However, the Central Bank has resisted taking on the main responsibility for the regulation of intermediaries, and industry sources say there is a grey area between the Central Bank and the Department's roles.

Anyone who carries out business as an investment intermediary must be approved by the Department of Enterprise & Employment, the Central Bank or a Self Regulating Organisation (SRO), such as the Irish Brokers Association (IBA).

Neither Taylor Asset Managers nor the IBA, of which the company is a member, was available for comment yesterday.

The IBA, which is understood to have a voluntary compensations scheme in place and regulates its own members, will not even discuss how it regulates its members in the industry. The inquiry which is being carried out in Taylor Asset Managers, for example, is taking place under the Investment Intermediaries Act.

The regulators have extensive search and seizure powers. Inspectors can take copies or extracts of any books or documents or take such documents away for further examination if they have a warrant.

The penalties for breaching the Act can be severe. Up to 10 years imprisonment and fines of up to £1 million can be imposed.