Vol. 414 No. 6
8 Mr. Hogan asked the Minister for Finance if he will outline the specific measures which the Government are contemplating to regulate investment advisers and intermediaries in the interest of consumer protection; and if he will make a statement on the matter.
88 Mr. J. Bruton asked the Minister for Finance if he will arrange for his Department and the Departments of Justice and Industry and Commerce to co-operate closely with a view to introducing legislation to require all those who act as investment brokers, or who accept people's money for investment in third party companies, to subscribe towards a fund to compensate investors in the event that the brokerage becomes insolvent.
I propose to take Questions Nos. 8 and 88 together.
In my reply to Deputy Hogan when he raised this issue on a grievance motion on 19 November, I accepted that there is a lack of adequate regulation in respect of certain investment activities. I pointed out that the 1989 Insurance Act regulates the activities of brokers when dealing in insurance products and provides protection for consumers in relation to insurance products, it does not, however, extend to other investment services which these brokers may provide.
The draft EC Investment Services Directive will set out minimum requirements which will have to be met in this area. As it is possible that the draft Directive could be delayed at Community level, I am at present considering whether to introduce regulatory measures in advance of its adoption. The draft of the Investment Services Directive would require us to appoint a national regulatory authority for investment intermediaries and to draw up prudential rules to be observed by investment firms. Legislation would be required to implement the necessary regulatory measures to ensure adequate protection for the consumer.
The provision of compensation falls to be considered in the context of these regulatory measures. In certain areas of the investment sector there is provision for limited investor compensation. Persons placing money for investment on the exchange with stockbrokers, who are members of the stock exchange, are currently protected against the insolvency of a stockbroker up to certain limits. The Insurance Act, 1989, also provides some protection for persons dealing with insurance brokers but only in relation to insurance products; it does not extend to other investment services which they provide.
I am anxious that gaps in the present regulatory system be closed as quickly as possible. Discussions have taken place with the different interests involved. I wish to avoid a structure of supervision which would lead to investment intermediaries being subject to several supervisory authorities with possibly conflicting procedures. It is also necessary to avoid very costly burdens on reputable companies.
I envisage a system of prudential rules covering such areas as authorisation to act as an investment intermediary, handling of clients' funds, provision of information to clients and regulations concerning the keeping of accounts. I recognise that some form of compensation for investors who suffer loss through the insolvency of an investment firm has to be part of that system. In the meantime, the public should think carefully before investing with persons promising spectacular returns.
(Limerick East): First, would the Minister agree that some of the investment advice on collection of savings recently has been absolutely outrageous? Vulnerable people were “ripped off” of their life savings by practices which were tantamount to fraud. Second, is the Minister now saying that the Department of Finance and he himself are taking responsibility for improving and regularising the position rather than any other Department? Third, would he inform the House when he thinks the amended regulations will be laid before the House?
I would have to agree with the sentiments implicit in the Deputy's first question, in that some outrageous things have happened. I do not believe that position can be allowed to continue. I must be honest and say that within days of assuming this office, when Deputy Hogan outlined the matter to me, I was not familiar with it. However, I read about it on that occasion and have since studied the matter. There is no protection for the public outside the insurance or stockbroking area; the few cases that arose highlighted that matter. I am not talking about people who take investment decisions to endeavour to make large profits. I am talking about people who genuinely set out to invest their moneys wisely. Since then I have contacted the Department of Industry and Commerce and asked them to make up their minds in order to ascertain whether they will operate within the insurance regulatory system. If not — and this may answer the Deputy's second question — the Department of Finance will have to undertake it. To answer the Deputy's third question, a regulatory system is required as soon as possible because the present position is totally unsatisfactory.
The Minister's file probably will show him that I raised this matter before, following the collapse of one fund to which Deputy Noonan referred and which was recently the subject of an extensive article in one of our Sunday newspapers. Would he agree that, following the deregulation of the provision of financial services presided over by his Department, there is clear, immediate responsibility on them to have the regulations governing insurance brokers, who now trade in the broad range of financial product services, bonded? This apparent shuffling between his Department and the Department of Industry and Commerce is really an evasion of the responsibility incumbent on his Department following deregulation. In the absence of immediate action would the Minister not do what his predecessor failed to do, that is take space in the national newspapers and financial journals to clearly advise and warn people not to place their savings with unbonded brokers, be they insurance brokers or others?
I have made some moves in that regard already. I acknowledge the suggestion in the latter part of the Deputy's question and will have recourse to public statements myself.
The Minister's predecessor gave that undertaking but the advertisements did not appear.
May I say — and Deputy Noonan made this point — that it is a much wider area than that to which Deputy Quinn referred? On examination it transpires that there is no mandatory insurance scheme, bonding arrangements or other fund to compensate investors who may lose money. More importantly, there are no qualifications required of people involved in this area and no regulatory agency. I accept what the Deputy says and I will investigate the matter quickly because a regulatory agency is required. There is no point in talking about compensation or any other provision until such an agency is established. I will take action on the last point the Deputy raised.
