A recommendation to introduce regulation of the insurance industry by an independent financial services authority with statutory powers is being made by the Oireachtas Joint Committee on Finance and the Public Service.

The committee chairman, Mr Michael Ahern TD, said yesterday that the recommendation was contained in the final report on the "Regulation and Supervision of Financial Institutions", due to be published this week.

The report's draft was finalised after the outgoing Insurance Ombudsman, Ms Paulyn Marrinan Quinn, appeared before the committee yesterday, saying that "statutory provisions would be very necessary" for the industry, which set up the self-regulatory role as a private initiative.

Ms Marrinan Quinn is to step down from her role at the end of August because, she has stated, censorship and lack of funding made her position untenable, an allegation denied by the Insurance Industry Federation (IIF). Mr Ahern said the proposed new body would regulate building societies, friendly societies, insurance companies, investment management and retail investment management companies, and the securities and underwriting business.

It is also envisaged that it would cover the banking and stock exchange sectors.

"From our point of views an ombudsperson in the insurance area should have statutory authority," he said.

In her opening statement, Ms Quinn said that trust underpinned the ombudsman's power and its office had to operate in line with principles of "clarity, openness and autonomy".

"Consistent with the policy of openness, it has been my practice from the outset to include a cross-section of the cases in my annual reports which render an account of the work in addition to focusing on the significant issues arising from the disputes," she said.

After the meeting, she said that she would also recommend that the Insurance Ombudsman's Council, which operates the scheme, should not have final approval of the annual report.

She told the committee, which was joined by members of the Oireachtas Joint Committee on Enterprise and Small Business, that, under the terms of reference, the council approves and publishes the annual report. "I would question the viability of that part of the terms of reference," she said.

In 1995, she said, there had been "a breach of principles" when a group of the board of the Insurance Ombudsman met to consider a draft of the annual report.

There was always a risk of "Chinese walls", she added, and if industry representatives were to be on the council at all, they should be non-executive members and not members of the board. During the meeting she also said that she felt it was inappropriate for board members of the IIF to be members of the council. She said that she was mindful that her role was not one of a regulator.

"The ombudsman's role in respect to adjudication of disputes was likened to a sleeping policeman. The very presence had a quasi-regulatory effect," she said. But over five-and-a-half years, the office had dealt with about 14,000 complaints on a budget of less than £1.5 million. There had been more than 600 adjudications and more than 700 disputes were resolved by mediation. If the office did not exist, most of the complaints would not have gone to court because the complainants would have been unable to afford that option.

After the meeting, Mr Ahern said that, although the final report was being published, the committee would later take into account the current investigations into and tribunals of inquiry covering the financial sector.

"I think the important issue in all of this is that the public must have confidence in the financial institutions, no matter whether they be banking or insurance or credit unions," he said.