Large-scale reform of investor protection regulation: the European Union experience

This article considers the Markets in Financial Instruments Directive 2004 which has introduced large-scale and dramatic reforms to investment services and trading markets across the European Union. Chief among these reforms is the new conduct of business regime which addresses all aspects of the investor/investment firm relationship. The promotion of informed investor choice and competent investor decision-making lies at the core of the new regime which is designed to construct an informed and competent cohort of retail investors for a choice-driven pan-EU investment services market. The new regime represents a landmark in EU investment services policy and the first time the retail markets have been the express target of EU policy-making. This article outlines the main features of the new conduct of business regime, which will dictate, in great detail, regulation in all 27 Member States of the EU, and considers how it articulates the underlying themes of investor choice and competent investor decision-making which drive the new regime. Although the implications of the new regime remain to be seen, considerable risks exist with respect to how the reforms manage the costs of regulation, the impact of costs on choice, and, in particular, the assumptions the reforms make concerning disclosure and effective decision-making