No, the regulatory system is actually doing its job. The regulatory system is predicated on the government not being all knowing and all seeing and private actors in the industry having a bit of sense and doing their own due diligence. To structure it otherwise would basically make it impossible for any health tech startup to get off the ground -- the time required, and the capital requirements would be insane.
To summarize regulatory action:
Theranos sent in a marketing application to FDA for one of the use of Edison with one test, FDA said OK, this looks good based on the data you sent us (FDA can only see what you send them). FDA then placed Theranos on an audit list (common practice for any new company), stopped by after a few months, and found out that Theranos' own internal procedures for making sure that the data they generate about their product's performance is honest were, shall we say, poor. They also found Theranos marketing other components that they had not sought clearance to market from FDA. So FDA issued a 483 (deficiency notice) and the fallout from that we have yet to see. (I personally think there will be another shoe to drop here.)
Now, on the lab side, which is regulated by the Center for Medicare and Medicaid Systems, not FDA, the process is different. Basically CMS allows you to get a preliminary certificate after a cursory inspection and gives you 2 years within which to build a real testing process and get your shit together before they do the real audit. Theranos's Bay Area lab got the preliminary certificate and massively failed the real audit, and then massively failed to fix anything, which is what's landing Holmes in potentially very hot water (being banned from the diagnostic industry for two years in the US). The reason this is structured this way is that 1) to have enough data for a meaningful audit takes time and 2) the government expects anyone contracting with a brand new lab for the first two years to understand that it's a brand new lab and act accordingly (i.e. be skeptical, do your own audit, don't take NewCo's evidence at face value).
Most people in the industry understand this. Hell, most people at Walgreens understood this and were properly skeptical [1]. But the top execs at the time overrode the valid concerns of their QC people in order to chase the unicorn.
[1] http://www.wsj.com/articles/craving-growth-walgreens-dismiss...