Trust and Financial Regulation

77 Pages Posted: 5 Oct 2009 Last revised: 16 Dec 2009

See all articles by Ronald J. Colombo

Ronald J. Colombo

Hofstra University - Maurice A. Deane School of Law

Date Written: October 1, 2009


Trust is a critically important ingredient in the recipes for a successful economy and a well-functioning financial services industry. Due to scandals, ranging in nature from massive incompetence, to massive irresponsibility, to massive fraud, investor trust is in shorter supply as 2009 comes to a close. This is troubling, and commentators, policy makers, and industry leaders have all recognized the need for trust's restoration.

As in times of similar crises, many have turned to law and regulation for the answers to our problems. The imposition of additional regulatory oversight, safeguards, and remedies, some advocate, can help resuscitate investor trust. These advocates have it half right.

For trust is complicated, existing in a variety of forms. Some forms, predicated primarily upon reasoned calculation, respond well to law and regulation. But other forms, predicated primarily upon relationship and emotion, respond poorly to law and regulation. In fact, these latter forms of trust can be seriously harmed by legal intervention. Wise policymakers would carefully assess the nature of whatever particular trust relationship he or she wishes to strengthen before taking action to ostensibly strengthen the trust in that relationship.

This Article applies trust scholarship to examine the current U.S. financial regulatory regime, and proposed reforms thereto. It concludes that, for the most part, the existing financial regulatory regime comports well with our understanding of trust. Unfortunately, current reform proposals comport less well with this understanding.

Keywords: financial regulation, securities regulation, trust

JEL Classification: A14, D00, K22

Suggested Citation

Colombo, Ronald J., Trust and Financial Regulation (October 1, 2009). Villanova Law Review, Forthcoming, Hofstra Univ. Legal Studies Research Paper No. 09-22, Available at SSRN:

Ronald J. Colombo (Contact Author)

Hofstra University - Maurice A. Deane School of Law ( email )

121 Hofstra University
Hempstead, NY 11549
United States


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