This is pretty close to not having any regulation at all.

The problem is that investors don't get "consistently burned" by companies with bad practices, they get inconsistently burned. And people are so bad at appropriately estimating and valuing really rare events that, if the burns are infrequent enough, investors will choose options that don't maximize their expected outcome. Leading, in some cases, to disaster.

Note that this wouldn't happen in an ideal market where 1) everybody's perfectly rational and 2) everybody pursues strategies of maximizing their long-term expected finances. But it happens in real life. That's one of the major problems with the financial system as it stands, and (ostensibly) a powerful argument that regulation of some sort is a good idea.