Both the Financial Regulator and the Irish Stock Exchange (ISE) have distanced themselves from responsibility for the funds' failure. But a leading expert warns that Ireland is a "weak link" in global credit markets that may be enabling Enron-style financial shenanigans.

Although Irish authorities approved the vehicles to list on the Irish stock exchange, allowing European pension funds and other investment vehicles to invest in them, neither the regulator nor the stock exchange had monitored the companies, subsidiaries of troubled US hedge fund firm Ritchie Capital Management, since approving their prospectuses in January 2006.

The companies, Ritchie Risk-Linked Strategies Trading I and II, now face a possible 521m loss arising from a racketeering lawsuit launched in October 2006 by then New York attorney general (now governor) Eliot Spitzer against Coventry First, a Philadelphia-based secondary trader of life insurance which had sold the policies to Ritchie for complex repackaging and resale as asset-backed securities (see panel) in off-exchange trading.

However, no investors were caught up in the Ritchie collapse, but that is only because the investment subsidiaries ran into problems before they could securititise the assets and sell them.

Ritchie I and II were set-up solely to carry out these life settlement securitisations . . . highly specialised transactions designed to enhance liquidity and transfer financial risk. They were among a record number of similarly-structured securities approved for listing last year on the ISE, which considers itself the European market leader.

However, the Financial Regulator has fewer resources for scrutinising prospectuses than its British counterpart, the UK Listing Authority (UKLA), which oversees listings on the London Stock Exchange . . . one of Dublin's closest competitors.

The UKLA's team of 14 debt security specialists approved around 800 prospectuses last year . . . roughly 57 prospectuses to each staff member. By comparison, the Irish regulator and the ISE have a combined 30 staff working on prospectuses, but processed 2,595 last year, or 86.5 to each employee.

The Irish regulator also has a quicker target turnaround time for prospectuses . . . three days . . . than the UKLA, which aims to process prospectuses in four working days and, like the ISE, reserves the right to extend this timing for more complex transactions.

The trend for 2007 points to another record showing, as banks and hedge funds flock to Dublin for what head of debt securities listing Gerard Scully said was the ISE's reputation for "an efficient, well-oiled process and certainty of execution". Indeed, the exchange markets its "aggressive" turnaround time which can move an investment vehicle from application to launch in less than a business week.

"The Irish Stock Exchange has a pivotal role in selling Ireland Inc, | Scully said.

With such a smooth, welloiled process, a detailed examination of the ins-andouts of a vehicle's investment strategy and asset sources is impossible, a point both the Financial Regulator and the ISE conceded in statements to the Sunday Tribune. They maintain that further scrutiny isn't part of their brief, as Irish and European law does not require it. After approval, investors are pretty much on their own.

Some commentators are concerned that securitisation firms locate in Ireland not only for its well-publicised tax advantages, but precisely because it is seen as having a light regulatory touch . . . what industry insiders call "responsive".But the difficulties besetting the Ritchie vehicles point to the long chains of responsibility in asset-backed securities.

"One reason companies are here is because of unregulated financial flows . . . in other jurisdictions there might be more restrictions, " said Jim Stewart, senior lecturer in Finance at Trinity's School of Business. "Ireland is a weak link in the global financial system . . . as are all tax havens.

Companies can hide things in special purpose vehicles, just like Enron did. And state agencies see it as their job to help and facilitate these companies."

In recent years, the government has indeed sought to promote Ireland as a location for debt and asset repackaging. In 2003, it introduced a special tax exemption which shielded investors in such transactions from tax on the interest they earned from them.

As a result, the number of Irish-based securitisation vehicles has jumped from 115 in 2003 to 875 today.

A spokesman for the department of finance said that the government had decided to promote Ireland as a location for these transactions as they had "yielded very significant benefits to the Irish economy as reflected in the continued growth in employment, services exports and its contribution to overall GNP growth and tax revenue attributable to the international financial services sector".

He denied that the sector was poorly regulated, stating that "the government is satisfied that Ireland strikes the right balance between oversight within the securitisation sector and allowing it to continue to thrive and contribute to the growth of the economy".