= Solution
Work in ordinary set theory with the <axiom of choice>. A <regular category> has <finite limits>, image factorizations as <regular epimorphisms> followed by <monomorphisms>, and pullback-stable regular epimorphisms. A <regular functor> preserves finite limits and regular epimorphisms.
A <capital regular category> is one whose <well-supported objects> are <well-pointed objects in a category>. Here well-supported means $A\to1$ is a regular epimorphism; well-pointed means a subobject of $A$ containing every point $1\to A$ must be the whole object. This is the convention of https://www2.math.ethz.ch/EMIS/journals/TAC/volumes/16/31/16-31.pdf[Definition 1.3]. It permits objects of proper support with no points. Replacing this condition by global points detecting every isomorphism would change the assertion: a three-element chain is regular but cannot admit a conservative finite-limit-preserving functor to such a category.
Here is a regular-logic proof sketch of <capitalization of a small regular category>. Use a sort for every object of $\mathcal C$, a function symbol for every morphism, and <regular theory> axioms for composition, finite limiting diagrams and regular-epimorphism lifting. Its set models are precisely regular functors $\mathcal C\to\mathbf{Set}$. Empty sorts must be allowed.
The key separation lemma is the <regular-logic separation of a proper subobject>. For $m:S\hookrightarrow A$ proper, the sequent
$$
\top\ \vdash_{x:A}\ \exists y:S\ (m(y)=x)
$$
is not derivable: interpreting a derivation in $\mathcal C$ would make the monomorphism $m$ a regular epimorphism, hence an isomorphism. The <chase completeness for regular logic> supplies a set model in which it fails. Briefly, start with a named antecedent element, adjoin witnesses for the existential axioms, and quotient by required equalities. Every consequent about the original parameter arising at a finite stage has a finite proof; thus a nonderivable consequent remains false. The filtered union is the desired model. This witness construction, rather than an assumption that every sort is inhabited, is what keeps proper supports distinguishable.
Since $\mathcal C$ is small, choose a set-indexed family $(M_i)_{i\in I}$ of regular functors, one detecting each proper monomorphism, and form
$$
P:\mathcal C\longrightarrow\mathbf{Set}^{I},\qquad
P(A)=(M_iA)_{i\in I}.
$$
It is regular by coordinatewise finite limits and surjections. It reflects invertibility of monomorphisms. If $P(f)$ is invertible, apply this fact to the image inclusion of $f$ and to the diagonal of its <kernel pair>. They are invertible, so $f$ is both a regular epimorphism and a monomorphism, hence invertible. Thus $P$ is a <conservative functor>.
The target is a <power of sets as a capital regular category>. A well-supported family has every coordinate nonempty, and choice extends any coordinate element to a global tuple. A subobject containing every tuple must consequently contain every coordinate element. Therefore it is capital, giving the required isomorphism-reflecting regular functor. This is the separation aspect of the regular representation results originating in https://math.mcgill.ca/barr/papers/embed.pdf[Barr's embedding work]; full faithfulness is unnecessary here.
The stronger target of a single set category has a precise restriction: \b[$\mathcal C$ admits a conservative regular functor to the <Category of sets> exactly when it is an <almost totally supported regular category>.] This means every object is well-supported or a <strict initial object>. Here are necessity and sufficiency.
Suppose $V:\mathcal C\to\mathbf{Set}$ is regular and conservative. If $VA$ is nonempty, its support in sets is $1$. Since $V$ preserves images, it sends the support inclusion $\sigma(A)\hookrightarrow1$ to an isomorphism; conservativity makes $\sigma(A)=1$, so $A$ is well-supported.
If $VA$ is empty, every projection $A\times X\to A$ is sent to the unique bijection between empty sets, hence is invertible. This supplies a morphism $A\to X$ for every $X$. The equalizer of any two such morphisms is also sent to a bijection, hence is invertible, proving uniqueness. Thus $A$ is initial. Every arrow $Y\to A$ forces $VY$ to be empty and is then sent to a bijection; conservativity makes it invertible. So $A$ is strict initial.
Conversely suppose this support condition holds. Use $P$ above and take
$$
V(A)=\prod_{i\in I}M_i(A).
$$
Products preserve finite limits and, by choice, coordinatewise surjections, so $V$ is regular. A well-supported object has all coordinates nonempty. A proper strict initial object has a subterminal image in every coordinate, with at least one empty coordinate: otherwise its arrow to $1$ would be sent by $P$ to an isomorphism, contradicting conservativity.
If $Vf$ is a bijection between well-supported objects, the <conservativity of set products on totally supported families> makes each $M_i(f)$ bijective: a missing coordinate preimage or a pair of equal-image coordinate elements extends to a tuple witnessing failure of surjectivity or injectivity. Hence $P(f)$ is invertible and so is $f$. An arrow between strict initial objects is already invertible; an arrow from a strict initial object to a well-supported object cannot become a bijection between empty and nonempty sets. An arrow into a strict initial object is invertible by definition. These cases prove conservativity and the <conservative regular representation in sets> criterion.
Back to article page