THE FINANCIAL Regulator has asked the Government for more resources for its prudential supervision function, which it has recommended should be split in two under the new central banking commission announced by Taoiseach Brian Cowen at the weekend.

Speaking at the Fianna Fáil Ardfheis on Saturday night, Mr Cowen said the Central Bank and the supervision and regulatory functions of the Financial Regulator would be merged in the new commission.

The consumer directorate of the Financial Regulator will merge with the Office of the Financial Services Ombudsman to form a new financial services consumer agency. In a report forwarded by the regulator to the Taoiseach last week, it asked for more specialist expertise to be provided in the areas of enforcement, information systems and risk management, while it also said the organisation’s enforcement powers needed to be clarified. It also wants a new prudential directorate to supervise stock market activity and securities, which it believes should be separate from the supervision of banking and insurance.

The Taoiseach indicated on Saturday that the new commission would have “new powers for ensuring the financial health, stability and supervision of the banking and financial sector” under what he said would be a “radical reform of the system and methods of financial supervision and regulation”.

A new head of banking regulation will be recruited from overseas, while there will be caps on the salaries of the heads of banks which receive Government aid.

“This initiative will mark an end to a sorry chapter in Irish banking history,” Mr Cowen said.

In a joint statement from the Central Bank and the Financial Regulator yesterday, the two sister organisations – which form the Central Bank and Financial Services Authority of Ireland – said it was necessary for financial regulation to be strengthened at home and internationally. They added that the level of consumer protection that exists must be maintained in any new structure.

Prudential supervision of all financial services bodies currently falls under prudential director Con Horan, while consumer director Mary O’Dea is now acting chief executive of the regulator.

The regulator’s report on its operational procedures was carried out in 2008, prior to the implementation of the Government banking guarantee. Since then, there have been a growing number of calls for a move away from the current system of “principles-based” financial regulation to a stricter set of rules, which is likely to require an increase in staff at the new banking body.

The Taoiseach said the new commission would be along the lines of the model used in Canada, where banks have avoided Government bailouts and have suffered only a fraction of the debt-related writedowns recorded globally.

The new commission is spending almost €8 million fitting out new premises in Spencer Dock in Dublin, which it is due to use as “overspill” offices in addition to the main premises on Dame Street.