Minister for Finance Brian Lenihan said he would publish a bill this week to reform the Central Bank and Financial Services Authority of Ireland.
He was speaking following the release of a report from the Comptroller and Auditor General (CAG) identified shortcomings in the regulation of financial institutions.
CAG John Buckley's special report on the response to the financial market crisis said there were issues in regulation within Ireland, the EU and further afield, and he recommended a number of measures to make regulation more accountable from both the regulator and the financial institutions.
It said that although the Financial Regulator had begun intensifying supervision, speeding up information flows and addressing internal communications, "considerable work" was needed to ensure that future shocks could be addressed.
He said consideration should be given to requiring the Financial Regulator to give an annual statement to the Dáil on supervisory matters.
"At the level of financial institutions, while recognising that it would have some cost implications, an annual positive assurance by their auditors in regard to the functioning of the internal corporate governance regime in each institution including the risk management function could strengthen public assurance," the report said.
Mr Lenihan said the new bill would deal with some of the issues raised by the report.
"This is the first of a three-stage legislative programme to create a new fully-integrated structure for financial regulation, enhance the powers and functions of the Central Bank and consolidate existing legislation," he said.
"The financial regulatory reforms will address the problems identified by the Comptroller and Auditor General and respond as appropriate to his recommendations. This is an important element in a comprehensive programme to put in place a domestic regulatory framework for financial services that meets Government objectives for the maintenance of the stability of the financial system, provides for the effective and efficient supervision of financial institutions and markets and safeguards the interests of consumers and investors.”
The CAG report also recommends a greater emphasis on testing of transactions and balances as part of the Regulator’s remit, and a "top-down analysis" of the sustainability of institutions' business models and strategies.
"At the level of systems, procedures and practices adopted by the Regulator, it would be appropriate to consider incorporating a greater emphasis on testing of transactions and balances into its inspection work since risk-based systems can only function optimally when informed by on-the-ground evidence based on actual transactions," the report said.
"This would need to be balanced with a top down analysis of the sustainability of the business models and associated strategies of individual institutions.”
The CAG also suggested a tripartite review by the Central Bank, the Regulator and the Department of Finance.
Fine Gael's finance spokesman Richard Bruton welcomed the CAG's report. He supported the recommendation for an annual statement to the Dáil, saying it would benchmark Ireland against other countries.
He also called for auditors to provide greater assurances in relation to the internal corporative governance regime of banks, and said there should be an immediate review of the efficacy of measures taken to date.
"The Comptroller and Auditor General can claim some credit for raising concerns about the adequacies of supervision back in 2007. Ireland must never again be exposed to the risk-taking which brought such destruction on the lives of many ordinary people," he said.
"The Fianna Fáil/Green Government seems determined to save the blushes of prominent people, including themselves, in any investigation which takes place. That is simply not good enough."
