The PRIIPs Regulation in View of Behavioural Research: An Example of Hyperbolized Mandated Disclosure

Omri Ben-Shahar and Carl E. Schneider criticise the convenient policy option to enact mandated disclosure provisions to adequately inform consumers. They argue that this insufficiently challenges an all too common practice to overcome market failures caused by information asymmetry, deters lawmakers from adopting better regulations, impairs people’s decisions, and inappropriately burdens the legally obligated market participants. Their main argument is that consumers tend to make the “economically rational” decision to n o t read the information provided under the mandated disclosure requirements. This contribution describes not only the traditional disclosure-paradigm, which assumes that transparent and effectively processed information will enable the investor to make well-founded investment decisions, but also the human flaws regarding the way we process information. Based on the failures of mandated disclosure discussed by Ben-Shahar and Schneider, the European PRIIPs regulation, which tries to enhance consumer protection based on smarter information requirements to give consumers a better chance to avoid decision they later regret, is analysed. Then additional pillars capable of bolstering the investment decision process are discussed, i.e. organisational standards, code of conduct, suitability requirements, product governance in combination with the more paternalistic element of product intervention. Finally, an outlook to future challenges posed by the potential impact of FinTech developments like robo-advice and tokenised assets will be elucidated.