Latest Economist summarizes elegantly the problem of the regulator:
The tempting answer is to try to wriggle free from the dilemma with a compromise that would permit innovation but exert just enough control to squeeze out financial failure. It is a nice idea; but it is a fantasy… They are paid less than those they oversee. They know less, they may be less able, they think like the financial herd, and they are shackled by politics. In an open economy, business can escape a regulatory squeeze in one country by skipping offshore. Once a bubble is inflating many factors conspire to discourage a regulator from pricking it.
The article talks about financial markets. I’d say the same applies to almost any markets where the regulator has a major role. Take for example intellectual property or consumer protection.