The Government has delivered a fudge with the new financial regulator. It has decided to split the supervision of the financial sector between a remodelled Central Bank, which will retain responsibility for implementing monetary policy, and a new body - the Irish Financial Services Authority - which will oversee regulation and consumer protection. They will be supervised by an umbrella body. It is an arrangement which may work, but it is clearly a political compromise and there are dangers of confusion and lack of co-ordination in the complex arrangements.
The decision has been a long time coming. The need to look at the issue arose from the string of investigations into institutions such as Guinness & Mahon and National Irish Bank and was underlined by the DIRT controversy. As far back as 1998, the Government decided that what was required was a single financial regulator. A committee chaired by Mr Michael McDowell, who is now Attorney General, made extensive recommendations in this area and reported the following year.
The Government is saying it has accepted the McDowell report and is implementing it. In fact it has been influenced by the fierce debate sparked by that report about the role of the Central Bank and its experience in prudential supervision - which involves overseeing the financial solvency of the system and the institutions within it.
The Department of Finance took the Central Bank's side in this debate and the Tanaiste pushed for a single regulator, independent of the Central Bank. The result was unacceptable delay and compromise. Both the political controversy and the outcome, bear many similarities to the remodelling of the industrial agencies in the early 1990s, when the IDA was split in two and a new umbrella body, Forfas, was put in place.
The regulator will have to take cognisance of the views of the monetary authority in its prudential supervision. In an important victory for the bank, its governor will chair the board of the grandly titled Central Bank of Ireland and Financial Services Authority - the body charged with co-ordinating the two arms of the structure.
Whatever institutional framework is in place, what is important is that it is implementing a sensible policy, in an efficient way. There is much which is welcome in the latest policy. The new Irish Financial Services Regulatory Authority will be a one-stop shop for consumers and the industry covering the day to day issues of regulation. It will integrate the existing consumer protection functions of the Director of Consumer Affairs in relation to financial services. And attached to it - but with a degree of autonomy - will be an independent Financial Ombudsman, who will deal with complaints about all institutions.
However, there is a danger that the various new bodies will not gel into a comprehensive regulatory structure and, in particular, that lines of responsibility and accountability will not be clear. It will be the job of the Minister for Finance, and the senior executives and boards in the new structure, to make sure this does not happen.