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.
Straight out of the Bajoran medical collection.