Do regulators protect investors? How effective are regulators? Not very

Money Digest, May, 2002

In the wake the of Enron debacle in the United States, there is renewed interest in corporate accounting, wrongdoing and manipulation of securities. Regulators are expected to protect investors and the integrity of the markets.

How effective are regulators in protecting investors? Not very, says Vein Krishna, Executive Director of the CGA Tax Research Institute at the University of Ottawa. In a recent Globe and Mail article, Krishna says that public watchdogs who have the legal responsibility to protect capital markets dither and place the blame on others. Regulators respond at time of crises, but seldom act proactively to avoid crises from arising.

Although, from time to time, especially after any crisis, there is an attempt to reform the system, lobbying by those with financial stakes in the outcome significantly influence the process. Eventually it is the ordinary investor, not the top executives of the company who are affected.