It's not regulation. Google just has chosen to cripple it, the same way Twitter and Facebook mostly chose to censor certain viewpoints. All of these groups thing they are doing good.
That's part of the reason but it's likely also due to what user ogurechny explained. Most consumers have no idea about the true capabilities of their databases and it would scare them if they understood. Take facial recognition as an example. Also a non-crippled reverse image search would be the perfect stalking tool. Simply a lot of ways they could bring lawsuits and regulation on themselves so they tone it down just enough to not lose their search engine hegemony.