Information Society Challenges to Financial Regulation

Abstract

Changes in the market for information are challenging financial regulation by disrupting settled distinctions on which financial regulation depends. In some cases these settled distinctions are based on explicit or implicit understandings of technological conditions, in other cases the distinctions are based on factors independent of the state of technology. This article examines three regulatory distinctions which appear to be challenged by technological development: between traditional news sources and regulated investment publications; between professional and non-professional market participants; and between sophisticated and unsophisticated investors. The article argues that regulatory distinctions based on implicit understandings of technological conditions should be revised when the technology changes. Where rules are based on factors other than the state of technology they should be reviewed to ensure that technological change does not disrupt their application. In particular, regulators should not assume that investors experience information online in the same way that they do offline information. Changing patterns of information-gathering and decision-making by investors require revisiting core assumptions of securities law: that only rational investors deserve statutory protections; that impersonal trading advice is not "investment advice"; and that it is easy to distinguish between professional and non-professional and between sophisticated and unsophisticated investors.

Keywords: financial regulation, securities regulation, technological change