There is actually very little regulation which applies directly to investors other than tax law; regulation to protect investors is instead applied to those who advise investors, those who sell investment products, and those who are involved in the investment process itself. These three roles are often combined, but quite often they are differentiated, with three sets of rules covering three different professional bodies or financial sectors.

Of course it is a legitimate role of government to provide a regime in which ordinary citizens can place their savings in secure investments without being robbed at every turn, but most high-tax countries have gone wildly over the top by constructing extremely complex bodies of legislation which seek to control every step of the investment process. Historically, most savings (investment) activity took place exclusively in domestic market places, other than for very wealthy people, and the general opening-up of international financial markets that has taken place in the last thirty years created many challenges for national regulators. They have responded magnificently, adding further layers of legislative armour-plating to existing structures.

The European Savings Tax Directive (introduced in 2005), could be viewed as an example of this, as well as a revenue protection exercise.

The general effect of this protective legislation is to prevent investment providers from offering or actively selling products to investors unless they (the providers and the products) conform with regulatory guidelines and prescriptive rules. The result is to reduce choice for the investor, and to limit the returns that can be offered - because a highly remunerative investment will almost certainly fall foul of the rules. Thus, a hedge fund in Hong Kong operating in highly-geared equity derivatives cannot be offered to investors in most OECD countries.

Protective legislation varies in its ferocity, but usually imposes criminal sanctions on the operators of businesses which break the rules. The US is particularly aggressive in this respect, and unapproved investment providers go to great lengths to avoid any appearance of selling to US residents. In most OECD countries, the rules mean no newspaper or television advertising, no direct mail, no personal or telephone solicitation, and no agencies.

But, and it's a big but, there is usually nothing to prevent an investor from unilaterally contacting an investment provider anywhere in the world, and doing business. Most investment providers (banks, investment funds, insurers, brokerages) are happy enough to deal with whomsoever walks through the door, although US citizens may sometimes be turned away if the provider feels particularly exposed to US sanctions.

The Internet has blasted a big hole in the regulators' defences, by creating an information channel which bypasses national restrictions. An Internet advertiser may genuinely not intend to communicate with a US citizen, and may say 'These investments are not available to US citizens', but cannot prevent an American from looking at the ad, or from acting on it. How is a mutual fund in the British Virgin Islands to know that an American walking in off the street while on vacation saw their ad on the Internet? Should they refuse his business? The situation is the same for many other OECD countries, although not for all.

As will be seen in the next section, the tax rules applying to US citizens in particular are a second, and very effective, line of defence for the regulators. In general, though, the development of the Internet may eventually result in a situation where all investors have perfect knowledge about what is available, about returns, about risks, even, and about mechanisms for investing. National defences against non-conforming investments, in that situation, would crumble. This would be good for the investor, of course, but could cause regulators to turn increasingly to tax-based defences.