Finance minister Brian Lenihan is preparing to introduce new legislation empowering the Financial Regulator to remove bank directors who fail to meet the so-called "fit and proper" standards, plugging a gap in the existing law which only allows the banking watchdog to make such a judgment when a director is hired.

The new rules are expected to be revealed before the end of the year when Lenihan publishes new heads of bill on the legislative underpinning of the proposed new structure for the Central Bank of Ireland Commission (CBIC), which will combine the old Financial Regulator and Central Bank into one unitary authority with oversight of the entire financial system.

It is understood Lenihan will use the restructuring as an opportunity to close loopholes and gaps in financial regulation that have been revealed during the banking crisis.

New Central Bank governor Patrick Honohan highlighted the shortcomings of the "fit and proper" rules last week in a dinner address to Financial Services Ireland, suggesting that under the current regime the regulator might be powerless to act against a director who violates the standards.

It is understood that last summer the board of Anglo Irish Bank informed the regulator that some senior Anglo personnel who were carrying impaired loans drawn from the bank might have been in violation of the financial soundness provision in the code and therefore possibly in violation of the "fit and proper" standard.

Last week it emerged that Anglo chief executive Mike Aynsley was preparing a clean-out of senior management, while the regulator is preparing to block the promotion of any staff involved in the investigations into the bank's activities.

Meanwhile it has emerged that the Financial Regulator is close to announcing the remaining senior appointments to the financial supervision side of the CBIC.

Newly appointed head of financial supervision Matthew Elderfield, who takes up his post in the new year, was in Dublin last week interviewing candidates for the two remaining open posts supervising financial institutions and markets.

Current prudential director Con Horan, who served under former Financial Regulator Pat Neary, was named head of regulatory risk and enforcement before his Elderfield was appointed.

Current acting Financial Regulator Mary O'Dea will become head of financial operations on the central banking side of the organisation under Honohan's lieutenant Tony Grimes.