Daystrom Institute

This is one of those times, like the Klingons joining the Federation in TNG: "Samaritan Snare", where the only explanation that makes sense is the Doylist one - that the writers didn't know about the ban because it wouldn't be established in lore until DS9.

The only Watsonian explanation I can come up with is that the Federation for whatever reason made an exception in this case. Or perhaps Darwin went beyond its remit by “creating” the children and despite that Picard and Pulaski chose to focus on the immediate problem of the aging disease and to deal with the illegalities later.

But the Doylist one is much simpler.

I think the episode implies ethical issues, but stops well short of spelling them out. The fact that Kingsley concealed the childrens' true natures for as long as she did suggests that their research was not on the up-and-up.

My best guess is that the station's research, on paper, fell within Federation regulations, but their actual work did not. But that's stretching pretty far, given that no one explicitly raises the issue.

My headcanon is that the ban on genetic engineering is mostly an Earth law, rather than a Federation law. Which makes sense if the reason for the law is Earth's experience with augments, as Phlox points out that other species have used it without the same dire consequences. This jives with the fact that only humans living on Earth are ever depicted as being bound by the law. It's not a perfect theory, but it does explain why Bashir's father was imprisoned but the Darwin station researchers were not.

My best guess is that you have to learn how to be a criminal in order to catch criminals.

A cop who investigates burglaries has to know what a lockpick looks like, and the bunco squad has to know about confidence games.

The directive was probably something like "figure out the genetic markers we'd have to look for to identify aberrant humans." imho

"Because otherwise there wouldn't be a mooovie."