CONSUMER PROTECTION IN RETAIL INVESTMENT SERVICES: PROTECTION AGAINST WHAT?
| DOI | https://doi.org/10.1108/eb024826 |
| Published date | 01 January 1995 |
| Pages | 43-54 |
| Date | 01 January 1995 |
| Author | DAVID T. LLEWELLYN |
| Subject Matter | Accounting & finance |
CONSUMER PROTECTION IN RETAIL INVESTMENT
SERVICES: PROTECTION AGAINST WHAT?
Received: 2nd November, 1994
DAVID T. LLEWELLYN
DAVID T. LLEWELLYN
IS PROFESSOR OF MONEY AND BANKING AT
LOUGHBOROUGH UNIVERSITY; A MEMBER OF
THE INTERNATIONAL ADVISORY BOARD OF
THE ITALIAN BANKERS ASSOCIATION IN ROME,
AND A PUBLIC INTEREST DIRECTOR OF THE
PERSONAL INVESTMENT
AUTHORITY
(PIA). HE
HAS RESEARCHED AND WRITTEN EXTENSIVELY
IN THE FIELD OF FINANCIAL REGULATION AND
HAS BEEN A CONSULTANT TO REGULATORY
AUTHORITIES IN VARIOUS COUNTRIES. THE
PAPER IS WRITTEN IN A PERSONAL CAPACITY
AND DOES NOT PURPORT TO REPRESENT THE
VIEWS OF THE
PIA.
ABSTRACT
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
monitor-
ing
by
a
specialist regulator
and
to offer
an
assurance
of
minimum
standards,
regula-
tion should be designed to
correct
for
market
imperfections
and failures that
potentially
compromise consumer
welfare.
It
is also argued
that,
when efficiently
con-
structed,
regulation and supervision re-
inforce 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.
Regulation of the financial system
has become a major issue in all
countries. However, there is prob-
ably no country where the ethos of
regulation, the structure of regula-
tion and the form and structure of
regulatory institutions has under-
gone more substantial change in
recent years than in the UK. The
purpose of this paper is to offer a
perspective on the regulation of
retail investment services. In particu-
lar, it is argued that:
— the ultimate rationale of regula-
tion is not paternalistic but to cor-
rect for market imperfections and
failures
— regulation should be designed so
as to correct for such imperfec-
tions to the extent that they are
likely to compromise consumer
welfare
43
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