Investor Protection Regulation: Economically Rational?

Abstract

In this essay I discuss the debate about the rationale for investor protection in the retail financial sector by means of conduct of business regulation. The two theses I examine have been heavily informed, on the one hand, by the simultaneous debate surrounding the general issue of consumer protection and, on the other, by the contemporary discussions concerning the economic rationale for regulating non-banking financial institutions specializing in the retail industry. I start by shedding some light on the theoretical background underpinning the thesis for and the thesis against investor protection regulation. Then, I focus on the various arguments juxtaposed and discuss their reasoning. I argue that the the economic case for conduct of business regulation remains as much obsure as controversial.

Keywords: regulation, investor protection, economic rationale, conduct of business

JEL Classification: A12, G1, G2, G3, K22, K23