Sections of an influential Economic and Social Research Institute (ESRI) report that criticised the proposed single regulatory authority (SRA) were dropped following representations from the Department of Finance.
The excised sections were extremely critical of the Single Regulatory Authority Implementation Advisory Group chaired by Mr Michael McDowell before he was appointed Attorney General in July 1999.
The comments, contained in a draft of the ESRI Medium Term Review published last October, said the McDowell report did not evaluate alternatives to the SRA, did not properly argue the case for a single regulator or look at the possible consequences.
The Medium Term Review is published every two years and is one of the institute's flagship publications.
The draft document also called for politicians to be more accountable for their actions with regard to the financial services industry.
The criticisms were dropped after the Department of Finance was allowed to review a draft of the document prior to publication.
According to documents released under the Freedom of Information Act the changes were made at the behest of an unidentified official.
"I asked the econ. side to communicate to the ESRI that I thought they should reflect further on the language used despite the fact that it had apparently passed the `peer review' process," wrote the official in a note. The official went on to say that the author of the section "apparently had some problems about this perceived interference with their `independence'." He added "but this is not something I find holds much water".
Mr John FitzGerald, research professor at the ESRI, defended its apparent willingness to allow the Department dictate the content of its reports even after they had passed the organisation's own internal review process.
"We are not poodles of the Department," added Mr FitzGerald who edited the report. He said that once the internal review is completed it is normal for the ESRI to send draft copies of major reports to other bodies including Government departments.
"We take their comments on board. If we agree with them we may make changes," he said. A spokesman for the department, who declined to identify the official who wrote the note, said that the department's comments to the ESRI were only suggestions and "not instructions". The draft report was highly critical of the McDowell report. It claimed the approach taken by the group was fundamentally flawed as it had already been decided in principle to have a single regulator.
"It [the report] does not articulate the objectives of the proposed reforms and the rationale for its recommendations is weak. The report does not properly evaluate alternatives, and it omits any discussion of how the proposed changes may be evaluated over time," said the draft. It continues by saying that the rational for the recommendation of a separate body are not properly argued.
In the final report the offending sections were condensed into one paragraph concluding "it is not clear from the McDowell report how the envisaged SRA will better achieve the fundamental objectives of financial supervision and regulation.
"The issues are many and complex, and further detailed study is required."
The Tanaiste Ms Harney and the Minister for Finance, Mr McCreevy have been at loggerheads for months over the nature of the proposed regulator.
The Department of Finance wants the body to come under the auspices of the Central Bank, while the Tanaiste's Department of Enterprise and Employment is in favour of a new, separate and independent body.
Although the edited comments are critical of the whole concept of a SRA, they would appear - if anything - to be more supportive of the Department of Finance position.
