CONSUMER PROTECTION IN RETAIL INVESTMENT SERVICES: PROTECTION AGAINST WHAT?

Given the potential costs of regulation, the objectives and rationale of regulation need to be made clear. The paper argues that the ultimate rationale of regulation is not paternalistic but, in order to correct for market imperfections and failures, to offer consumers the benefits of economies of scale that can be derived from collective monitoring by a specialist regulator and to offer an assurance of minimum standards, regulation should be designed to correct for market imperfections and failures that potentially compromise consumer welfare. It is also argued that, when efficiently constructed, regulation and supervision reinforce competition and the efficiency of market mechanisms rather than impede them and that the ‘accountancy cost’ of regulation is an entirely misleading measure of the costs of regulation.