The industry working party on the Investor Compensation Bill (ICB) has proposed that Section 60 - which deals with the treatment of intermediaries - be dropped, as it cannot protect the consumer.
Under the terms of the 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.
But Ms Ann Fitzgerald, chair of the working party, says consumers will not be able to distinguish between fraudulent intermediaries and genuine intermediaries who have their appointments withdrawn for commercial reasons, such as failure to generate enough business or a disagreement over commissions.
She also says that publication in this way will not protect investors against fraudulent intermediaries, as the chances are that they will not see the advertisement.
The ICB, which provides protection for small investors against defaulting investment and insurance companies, is due to complete its committee stage and go before the Dail this week.
A proposed amendment to Section 60 - which proposes that the intermediary publishes withdrawal of the letter of appointment within 14 days - is even worse than the original, Ms Fitzgerald says.
"Consumer problems are exacerbated by the fact that a fraudulent intermediary has 14 days in which to put in a notice before the producer is forced to act. That is 14 days in which to defraud," she says.
In addition, for example, a fraudulent Donegal-based intermediary could publish a notice in The Examiner newspaper or gloss over the advertisement by wishing his clients a Happy Christmas, announcing his remaining appointments and mentioning the ones that have been removed in passing.
However, a spokeswoman for the Department of Finance said it would proceed to put forward the amendment which it felt covered concerns raised about the Bill.
"The Department feels the amendment will afford the intermediary an opportunity to put forward his case," she said.
But the industry working party has said if Section 60 cannot be dropped altogether, it would like to see the Bill encourage consumers to consult the Central Bank's register of intermediaries.
It proposes that the Bill be amended to provide that all investment institutions notify the Central Bank of new and withdrawn letters of appointment within three days and that it be an offence if they don't ensure the register is kept up to date.
The Bank should also be required to publish, on a weekly basis new appointments or withdrawn letters of appointment, Ms Fitzgerald says.
"This still does not deliver consumer protection against the fraudulent intermediary. It does, however, heighten awareness of the Bank's register and hopefully, encourage investors to consult it."
