The Financial Services Act : a case study in regulatory capture
This thesis explores, in a case study, the interests served by the UK Financial Services Act of 1986. The Act put in place a revolutionary new regulatory framework for controlling the sale of investment products such as pensions and insurance. The stated objectives of the new regime were to protect the ordinary investor, 'Aunt Agatha', from mis-selling and bad advice. However, there is casual evidence to suggest that the regime has failed in this objective. Moreover, there exists, in public choice theory, an explanation for why regulation might fail in this way. The study investigates whether regulation did fail to achieve its official objectives, and if it did, what were the reasons for this failure? Does public choice provide an explanation for the failure of the FSA? The study explores the interests served by the FSA. Specifically, it contributes to knowledge on three fronts: (i) related to the application of a sophisticated public choice analytical framework to a case study of British government regulation; (ii) related to the comparing of the practical adequacy of the public interest and public choice theories of regulation; and (iii) related to the case study itself, which develops a greater understanding of the origins, development, effects, and interests served by the FSA. The thesis concludes that the regulators, in large part, failed to enforce the rules and moreover that the cause of this failure, as public choice theory suggests, was the influence of the industry. In short, the thesis finds that the regulators were captured by the industry.