A bill providing financial protection for small investors against defaulting investment and insurance companies would be law by July, the Minister of State for Finance, Mr Martin Cullen, has said. In the wake of the collapse of the Tony Taylor group of companies, the Bill would be consumer oriented, protecting the small investor and "small players in the market", Mr Cullen said. "The consumer will be very much represented where it counts," he said.
Under the Bill's provisions, introduced under an EU directive, investor victims are entitled to 20,000 ECUs about £15,500 or 90 per cent of the losses, whichever is the lesser.
In insurance cases, including life and non-life, the scheme will cover the premium paid, or the loss suffered by an investor where a claim arises, whichever is the greater within the Bill's limits.
"Compensation will be available only to private investors and small companies, and not to professional investors," Mr Cullen said. With the Central Bank as the supervisory authority, an Investor Compensation Company will set the level and maintain the compensation amounts derived from all investment companies except accountancy bodies which can opt to run their own schemes. The Bill covers investment firms, stock exchange memberfirms, credit institutions and insurance intermediaries. When a solicitor acts as an investment or insurance intermediary and is not a compensation fund contributor, the Law Society's fund will apply. "In particular, we are including insurance agents and brokers in investor compensation because a considerable amount of investment business is done through single-premium life insurance products, and because a considerable number of intermediaries do both investment and insurance business," Mr Cullen said.
The Tony Taylor collapse has led to 16 individuals losing £1.8 million, an average of £112,500 each. In January, the Consumer Association of Ireland expressed concerns that the compensation level was too low and should be raised to £50,000, and that the Central Bank was unaccountable to consumers.
But Mr Cullen said yesterday that 80 per cent of people deemed to be small investors would have investments less than the limits set.
"What it does not deal with is big institutions which deal with other big institutions," he said.
The scheme could not be retrospective, he added, but the compensation company would have strong consumer representation, amounting to half the board, with the other half represented by financial services. The Central Bank will appoint the chairman and deputy chairman.
"It is not going to be another financial services vehicle," he said.
He did not expect "one set formula" for companies to contribute to the fund because of the industry's diversity. "But nevertheless, it will be obviously weighted in terms of business . . .There is no doubt that the consumer will end up carrying some of the cost. It is like an insurance cost for the small individual," he said.
