THE FINANCIAL Regulator “utterly failed” to protect the Irish consumer during the banking crisis, according to a consultative panel tasked with monitoring the authority’s performance.

In its 2009 annual report, the Financial Services Consultative Consumer Panel criticised the regulator for failing in its prudential supervision role and letting down consumers.

The panel of 11 members, drawn from banking, academic and media fields, will soon be disbanded in a shake-up which will see the Financial Regulator merge with the Central Bank to create the Central Bank of Ireland Commission.

The panel recommended that the new body should introduce an authorisation system whereby new financial products would have to be individually approved. Raymond O’Rourke, chairman of the panel and specialist consumer lawyer, said in the past products such as subprime mortgages slipped through regulatory loopholes and were later discovered to be “pretty awful products”.

He said the proposed product authorisation regime would turn the current system “on its head”.

The panel has also called for a regulatory amendment that would allow the new Central Bank of Ireland Commission to reveal details of its regulatory inspections, i.e. the identity of financial institutions that have been investigated.

On the subject of past failings, the report said most consumers have lost substantial sums of money as a result of the “inadequate functioning” of regulatory structures.

“Unfortunately those consumers with mortgages, pensions and shares...will pay an ongoing price in the coming years for the failure of the Irish regulatory system,” the report said.

In its assessment of the regulator’s performance in 2008/2009, the panel found that too much trust had been placed on the willingness of regulated banks to “do the right thing”.

Furthermore, the regulator’s board was criticised for failing to take responsibility for its stewardship of the organisation.

Specifically, the regulator fell down in the area of enforcement, Mr O’Rourke said.

“There was a huge fear to take a case against one of the big operators like a bank or insurance company.

“Even if they lost one or two cases...they still would have been seen to have tried to do something.”

The lack of any such action suggests that the regulator believed that self-regulation was “enough”.

“It was never really clear as to what you really had to do to break the Consumer Protection Code.”

Furthermore, in March 2006 the panel met with Financial Regulator officials working on the prudential supervision side. The officials identified personal debt and lending to the commercial property sector as the two biggest risks at the time. “Yet they didn’t seem to do anything about it,” he said.

He said since the panel was established in 2004, it issued many recommendations on how the regulator’s performance could be improved. However, the panel never really felt its suggestions were taken up.

The Financial Regulator would not comment on yesterday’s findings, but said it would publish its own 2009 annual report in the coming weeks.