THE CENTRAL Bank is seeking new powers to appoint administrators to investment firms following the collapse of Dublin company Custom House Capital which was found to have deliberately misused €66 million of clients funds to support faltering property investments.

Under current regulations, the Central Bank cannot appoint administrators to investment firms where it has fears that client funds are at risk. The absence of such powers limited the Central Bank’s options to address the problems at Custom House Capital after it discovered deeper financial irregularities at the firm during the summer.

The regulator had been reluctant to put the company into liquidation, fearing that this could exacerbate clients’ losses. It was concerned that the appointment of a liquidator may have led to the withdrawal of bank loans on the company’s property investments, the foreclosure on those properties and the crystallisation of client losses from the fire-sale of assets.

The Central Bank has written to the Department of Finance seeking the inclusion of powers to appoint administrators to investment firms in the Central Bank Supervision and Enforcement Bill 2011, which is going through legislative stages in the Dáil. The legislation will give the regulator a suite of new enforcement powers.

The Bill is currently at second-committee stage in the Dáil and the Central Bank is seeking the inclusion of the new powers in the next stage of the legislation process. Such powers to appoint administrators to take control of investment firms do not exist under the current regulations, the Markets in Financial Instruments Director ( MiFid) rules.

A spokeswoman for the Central Bank declined to comment on the representations made to the department on legislative changes.

The High Court appointed a liquidator to Custom House Capital last month after two court-appointed Central Bank inspectors found “systemic and deliberate misuse” of client funds through false accounting to hide the transfer of the money to cover shortfalls in European property investments, mostly in Germany.

Mr Justice Gerard Hogan said last month that by the time the firm was wound up, it was exhibiting classic characteristics of “a full-blown Ponzi scheme” with customer accounts being raided to cover cash deficits elsewhere to give the impression it was solvent.

In a wider review of how client funds are managed by investment companies, the Central Bank has written to the firms and their auditors to advise them that it may contact them directly over the coming weeks seeking their involvement.

The review is being carried out to prevent a recurrence of the irregularities discovered at Custom House Capital at other companies.

In a statement, the Central Bank said that it was “concerned that the current framework of client asset regulation could permit the systematic and large-scale abuse of client funds found in Custom House Capital to continue undetected by audit reports and its own and third-party reviews”.

Two of the Central Bank’s risk advisers are carrying out the review “to make recommendations to strengthen the current audit, supervisory and regulatory framework”. Their report will be completed at the start of next year, the Central Bank said.

The review will examine the asset types, investment activities and types of companies covered by Central Bank regulations.

A group of 150 investors in Custom House Capital have criticised the Central Bank for not acting promptly when it carried out an inspection of the firm in 2009. It was tipped off by a whistleblower that clients’ money was being invested in a bond to fund shortfalls on property transactions agreed by the company without their knowledge.

The regulator has powers to appoint administrators to insurance companies. The most prominent recent example of this was Quinn Insurance, over which the Central Bank applied for joint administrators to be installed to protect policyholders amid solvency concerns.

Since the appointment of the liquidator, accountant Kieran Wallace of KPMG, to Custom House Capital, a standstill agreement has been reached with 21 European banks stopping them from foreclosing on more than 350 property deals involving the company.