Watchdog blasted in its own confidential report

THE Financial Regulator has been severely criticised in an unpublished report it commissioned itself on how it operates.

Almost a year after the near collapse of the Irish banking system, the report is a damning indictment of how the regulator works.

The study -- seen by the Irish Independent -- says the regulator offers poor value for money.

The unpublished report has found that it has a low level of specialist regulatory staff compared with its peers.

Carried out by consultancy firm Mazars, the report also found that the Financial Regulator carries out fewer consumer inspections and initiates fewer enforcements than other EU regulators.

Marked "strictly confidential and not for publication", it also found that there were too few resources dedicated to prudential supervision.

However, in contrast to the lack of numbers working in specialist regulatory areas and in prudential supervision, the study found the regulator had too many administrative staff.

The role and duties of the senior managers in the regulator's office, and the way they relate to the board of the Financial Regulator, is unclear, the report says.

"There is an over-emphasis on internal management rather than reporting of core prudential, policy, market or outward-facing activities," the report says. Executives of the regulator put too much emphasis on the finances of the organisation instead of concentrating on strategic or regulatory matters.

"International benchmarking would suggest that the Financial Regulator employs lower levels of specialist regulatory support skills than its leading international peers," Mazars concluded.

The organisation also emerges as one of the most expensive in the West at delivering financial regulation.

The cost of providing regulation per employee comes in at €144,000 -- the third highest out of 16 different regulators looked at in the report.

On average, the costs of delivering regulation are €117,000 per employee in the 16 international regulatory bodies examined.

However, the costs to regulated entities are lower in Ireland than in other countries because 50pc of the regulator's funding, or €30m a year, comes from the State.

Most other international regulators are funded through levies on industry players. Mazars' point about the €30m provided by the State for regulation implies that taxpayers are picking up a higher tab than they should be.

The report says that there should be a reduction of between 30pc and 35pc over three years in the resources allocated to administrative support. "Support costs at 43pc are higher in Ireland than the international average (35pc)," the report states.

But overall, it says the total number of staff should remain the same.

Salaries

Some 47pc of the resources of the regulator go on direct pay, with pension costs accounting for another 7pc of resources. This means that more than half of its funding is to pay salaries and pensions of its staff.

Mazars added: "Based on a small sample, Ireland has a lower number of consumer inspections and enforcement cases concluded per staff FTE (full-time equivalent) than its peers."

A spokeswoman for the regulator said that many of the report's recommendations have either been put in place or are about to be.

She emphasised that the Mazars report was commissioned by the regulator, and signed off on last February.

Asked why it had not been published, she said it was an internal report but had been forwarded to the Department of Finance.