And yet Wall Street is highly regulated (it might not be very effective, but there is a huge amount of regulation nonetheless), so it seems like there must be forces at work beyond what you're considering here.
Once regulatory capture has happened, incumbents in the industry are incentivized to use regulations to create barriers to entry.
The result is a lot of regulation, lots of work around regulatory compliance, and very little that accomplishes the purported purpose of said regulation.
Every so often regulatory failures become so bad that government steps in, creates more rules, and we get more bureaucracy. But the status quo inexorably reasserts itself.