Who Regulates the Regulators?
Regulators are not laws of nature: they are people with incentives of their own. Why Diego Alcala diversifies jurisdictions, not just assets.
By Diego Alcalá · Sat Sep 12 2026 · investing
**By Diego Alcalá** A few months ago, while reviewing an investment portfolio in the United States, something stopped me. The SEC had updated the rules for certain financial instruments in that portfolio. Changes apparently designed to "protect" investors, but which in practice narrowed my options and raised transaction costs. And the thought that followed was this: in a world where financial regulators hold almost omnipresent power over our investment decisions, who actually watches the watchers? The answer is more complex, and more troubling, than most of us imagine. ## The rules of the game are not laws of nature Financial regulation exists, in theory, to create a framework that protects investors and keeps the system stable. These are the rules that determine what we may do with our money, how we may invest it, and under what conditions we may reach certain markets. In Mexico, institutions such as the CNBV, Banxico and the SHCP set the terms under which banks, brokerages and other intermediaries operate. In the United States, the SEC, the CFTC and the Fed exercise similar control, with global reach because of the dollar's dominance. In Canada, the same function is split between provincial securities commissions and federal supervisors, which is its own lesson: even the map of who regulates you is a decision someone made. These rules are not immutable laws of nature. They are human decisions, made by officials who answer to specific interests, often far removed from the interests of the people they claim to protect. ## Show me the incentives The patterns are unsettling. Regulation that is supposedly designed to protect us often ends up favoring the largest players while complicating life for the individual investor. The problem with trusting regulators blindly is that we assume their incentives are aligned with ours. They are not. As Charlie Munger would put it: "Show me the incentives and I'll show you the outcome." Regulators face political pressure, budgets to justify and careers to protect. Their success is frequently measured not by the prosperity of individual investors, but by the absence of visible crises on their watch. ## Protection, or an exclusive club? Consider the rules around investing in startups. Some countries have closed the door to retail investors entirely. Others allow the investment but set the bar so high that only institutions can realistically participate. Is that protection, or is it a way of keeping small investors away from potentially profitable opportunities? Many regulations work like an exclusive club: they raise barriers to entry that benefit those already inside while keeping everyone else out. It is a subtle and effective way of concentrating financial power. I am not suggesting every regulation is malicious or unnecessary. Some genuinely prevent fraud and preserve systemic stability. The point is not to accept them as absolute truths. ## Diversify jurisdictions, not just assets When I analyze an opportunity, I always ask myself: does this rule actually protect me, or does it limit me? Who benefits most from this restriction? That question led me to diversify not only geographically, but jurisdictionally. Holding assets under different regulatory frameworks is not merely protection against political risk; it is a way of keeping options open when local regulators make decisions that do not serve the investor. For a foreign investor this matters twice over. If you are Canadian, or European, or Japanese, and you invest into the United States, you are not choosing between rules and no rules: you are choosing which set of rules governs which part of your wealth, and you are doing it whether or not you think about it. The investor who decides that consciously keeps the option to move. The one who never asks discovers the answer at the worst possible moment. Diversification also means accepting that regulators, like any human institution, make mistakes, act under political pressure, or simply take decisions that do not match our long-term objectives. ## Financial education as a tool of freedom Protection does not come from blind trust in institutions. It comes from understanding enough to make informed decisions: not only the rules of the game, but who writes them, why, and how they can change. In my experience, the most successful investors are the ones who understand the regulatory framework without being paralyzed by it. They navigate the rules that exist while preparing to adapt to the ones that will inevitably change. Financial education becomes, then, a tool of freedom. The better we understand markets, jurisdictions and instruments, the less we depend on others deciding for us. Here more than anywhere, information is power. In the end, the responsibility for our wealth is ours, not the regulators'. They set the rules; we decide how to play within them, to widen our opportunities and contain our risks. And you: are you willing to question whether the regulations that limit your options actually protect you, or only protect the interests of those who already control the financial system? --- *Read the Spanish version on Comprando América: [¿Quién regula a los reguladores?](https://comprandoamerica.com/blog/quien-regula-a-los-reguladores)* *This content is informational and educational. It is not legal, tax or investment advice.*