"To be honest there is no regulation that places any rules around the supervision of Flying Instructors"
That is correct, the UK ANO used to stipulate that the supervising FI should be present at the airfield, but neither the JAA nor EASA rules have included any such requirement however: FCL910 is quite clear about who may supervise:
(a) An FI shall have his/her privileges limited to conducting flight instruction under the supervision of
an FI for the same category of aircraft nominated by the ATO for this purpose,