This issue of the European Business Organization Law Review is devoted to fundamental problems in the field of retail financial services as have become particularly clear since the recent disruption of the financial markets. Ultimately, these issues lead to line-drawing problems and policy choices about investor and consumer protection which are tackled from a legal and an economic perspective respectively. The articles in this issue have originated from papers and proceedings of the joint IMFS (Institute for Monetary and Financial Stability) and LEMF (Doctorate/PhD Program ‘Law and Economics of Money and Finance’) conference on ‘Retail Financial Services after the Crisis: Legal and Economic Perspectives on Investor and Consumer Protection’, which took place at the House of Finance, Goethe University of Frankfurt on 20 and 21 January 2012.

Alan Greenspan, the former Governor of the Federal Reserve, remarked in the context of the financial crisis that ‘even sophisticated investors got things badly wrong’. This comment throws a spotlight on quite how out of step and unrealistic general assumptions can be as regards markets and market regulation. From a consumer perspective, we may wonder what chance the average consumer has of getting things right, if sophisticated investors can get things so badly wrong?

Much of the legislation governing financial products and financial services is based on the classical view that economic agents, including consumers, are essentially selfish by nature, seeking to maximise their personal financial benefit, by acting in a rational manner and through making independent choices.

Of course, nobody pretends that this view is an accurate reflection of the economy, and even less so an accurate portrayal of human beings. Yet this forms the standard profile for modelling and thus the basis for assumptions which underpin much of the regulation governing the economy.

This article considers the impact of the financial crisis reform agenda on EU investor protection regulation. It argues that retail market regulation is becoming associated with a consumer protection agenda and that a more interventionist approach to the retail markets is following. The influences which are shaping this ‘consumerisation’ of EU investor protection regulation, and the benefits and risks of the new approach, which are particularly apparent in the product intervention sphere, are considered.

The financial crisis has impacted enormously on two features that are critical for investors' decisions: their beliefs and their preferences. It has brought to light diffuse opportunistic behaviour and some serious frauds. Because of this, trust in banks, bankers and brokers and the stock market has collapsed to unprecedented levels. The fear following the crisis, and the symptoms of panic that went with it, have led investors to become much more risk averse than they used to be in the past. We argue that failing trust and risk tolerance have a major effect on the working of financial markets and the economy. We show evidence that suggests that the drop in trust and the increase in risk aversion are likely to be enduring and very slow to recover. This is one reason, perhaps among others, why the consequences of the financial crisis will probably be lasting.

Austrian courts are faced with a tremendous wave of investor lawsuits, more than 1,200 are still pending. This challenging situation has given the Austrian Supreme Court the opportunity to clear up a lot of legal questions concerning inadequate investment advice and prospectus liability and to accept and develop new legal instruments to enforce claims of investors and compensate their damages.

The main focus lies therefore not on questions of ‘classical’ capital market law but rather on fundamental issues of civil law such as contract law and transactions. Instead of dealing with the clauses of the MiFID and the Prospectus Directive, which are of course implemented in Austrian law, the investor and the courts refer to compensation claims under civil law by transferring old-fashioned civil law issues such as avoidance on the grounds of error and warranty claims to modern and dynamic capital market law with ongoing success.

Motivated by recent policy changes across many countries, this paper discusses the rationale for various policies that target financial advice in the market for retail financial services. To set the stage, we review recent findings on how retail financial consumers make use of professional financial advice. Based on our own research, as well as other recent contributions in the economics literature, we then discuss the pros and cons of, in particular, policies that target the disclosure as well as the size and structure of commissions.

Why has the cycle of product mis-selling, widespread consumer detriment, complaints and (eventually) the imposition of penalties and the securing of redress from the finance industry proved to be so hard to break? This paper examines the payment protection insurance (PPI) mis-selling scandal in the UK with a view to identifying whether the Financial Services Authority's experience in that matter is bringing the UK any closer to finding regulatory solutions that are likely to produce a meaningful advance in curbing mis-selling problems. The FSA has said that its actions taken in the PPI market illustrate the type of intervention that its successor, the Financial Conduct Authority, can be expected to make.

This article analyses a recent decision by the German Federal Court of Justice in the field of investor protection. At first sight it seems as if the Court held on to a model of investor empowerment by means of informational duties. However, a closer look at the reasoning of the Court reveals a tendency towards heavier intervention in the field of financial advice, oriented towards the regulation of product design. In light of this new dimension of investor protection, the article critically analyses the Federal Court of Justice's use of the disclosure-based investor protection regime.