Chapter 10: Financial market – in search of optimal consumer (customer) protection

Properly designed and applied regulations are a prerequisite for the effect‐ ive functioning of the financial market. Their final shape, however, de‐ pends on the existing market and political conditions, which means that market participants are influenced by almost every public and private eco‐ nomic decision (Kennedy, 1962: 8). The currently prevailing trends in this area are called paradigms, i.e. patterns accepted by the scientific commu‐ nity which are a solution to a certain problem (Kuhn, 1970: 10). Thus, in relation to regulation, paradigms are the framework of ideas and standards that define not only policy objectives and the types of instruments that can be used to attain them but also the very nature of the issues they are sup‐ posed to address (Ramsay, 2016: 161). Until recently, the so-called Wash‐ ington Consensus has served as such a pattern in the financial market (Lopes, 2012: 69). The previous financial system paradigm assumed the market to be ratio‐ nal, efficient, and competitive (with an optimal allocation of resources and the lack of information asymmetry, market imbalance, and externalities). Consequently, the focus was on the security of individual institutions and the rationality of the financial market, assuming that this ensures the secu‐ rity of the entire system. This widely accepted assumption was, however, challenged by the experience of the financial crisis of 2007-2009. It clear‐ ly demonstrated that the then functioning system of micro-prudential su‐ pervision was insufficient and needed to be strengthened and complement‐ ed with regulations concerning the macro-prudential aspect. One of many negative opinions on that system was expressed by Joseph E. Stiglitz, who Chapter 10: