The Government has moved closer to setting up a system of compensation for clients of firms that collapse in fraudulent circumstances. The draft heads of the Investor Compensation Bill were approved by the Government yesterday and legislation is expected to be put in place before next summer.

The Bill implements an EU investor compensation directive but the Government has decided to expand the range of activities to be covered under the new legislation. When enacted, investors will be entitled to make a compensation claim against the fund up to a maximum of £15,384 (20,000 ecus) or 90 per cent of the sum lost per investor, whichever is the lesser.

This amount is fixed under EU law, while the cost of compensation will be borne by the financial services industry.

The Departments of finance and of Enterprise, Trade and Employment will now begin consulting with industry and consumer interest groups on the proposed legislation.