Building Blocks of Investor Protection : All-Embracing Regulation Tightens Its Grip

The financial sector has faced a true regulatory avalanche since the financial crisis. The field of investor protection legislation has not escaped. This article takes a step back and structures the multitude of new rules with respect to investor protection – both at national and EU level – into three “building blocks of investor protection”: (i) product information requirements; (ii) services quality requirements (conduct of business rules); and (iii) product regulation. By doing so clear trends emerge. First, this contribution shows that although over the last decades severe criticism has impaired confidence in the traditional “information paradigm” as an investor protection solution, the paradigm is far from buried. It remains an important pillar of investor protection, although it has been fine-tuned and adapted to certain law and economics and behavioural finance insights. Second, the information paradigm has been supplanted with newer types of investor protection. Conduct of business rules, emphasizing the role of services providers in the investment process, become ever more detailed and encompassing. Third, a new trend – and indeed paradigm shift – emerges. Until recently product regulation was virtually inexistent; today three different types of product regulation can be distinguished: (i) product quality requirements; (ii) regulation of the product design process; and (iii) outright product bans. Each of those measures prohibit or impede access to certain financial products by (categories of) investors. Whereas less than a decade ago such measures were unheard of in the financial sector, the crisis has matured thinking in this direction. Today outright product banning has been institutionalized at EU level and can be considered the backstop of EU investor protection legislation.The author concludes the contribution with an evaluation of the current state of play and an indication of remaining challenges in the field of investor protection legislation