The Regulation of PRIIPs: Great Ambitions, Insurmountable Challenges?

Abstract

The Regulation on key information documents for packaged retail and insurance-based investment products ("PRIIPs Regulation") purports to deal with two important concerns in the field of investor protection: (i) investors do not read, understand or digest extensive and/or technical information; and(ii) they hardly compare the products and services of different financial institutions.The first concern relates to the long established problems of information overload and rational ignorance. The PRIIPs Regulation tackles this problem by introducing a short information document, which uses easy to understand language and visual indicators supporting the content of the document.The second concern relates to the fact that information documents are often hard to compare in view of their different formats. Standardization of the information document is one obvious answer to this problem. It is however only useful, in as far as the scope of the Regulation is sufficiently wide and covers all comparable products. The PRIIPs Regulation is innovative in this respect, being the first piece of "horizontal" or "cross-sectoral" legislation in the history of EU financial regulation, covering banking, investment and insurance products, instead of limiting its scope of application to one of these sectors.Although the PRIIPs Regulation deals with very concrete investor protection concerns and should therefore be supported as an important improvement, it also raises important concerns, challenges and criticisms. This contribution situates the PRIIPs Regulation in its law and economics and behavioral finance context and offers a critical analysis of its benefits, drawbacks and – seemingly insurmountable – challenges.