Regulatory Approaches to Consumer Protection in the Financial Sector and Beyond: Toward a Smart Disclosure Regime?

28 Pages Posted: 28 May 2020

See all articles by Nydia Remolina

Nydia Remolina

Singapore Management University - Centre for AI & Data Governance

Aurelio Gurrea-Martínez

Singapore Management University - School of Law

David R. Hardoon

Singapore Management University - Sim Kee Boon Institute for Financial Economics

Yvonne Ai-Chi Loh

Nanyang Technological University (NTU) - Wee Kim Wee School of Communication and Information

Date Written: May 25, 2020

Abstract

Traditionally, consumer and data protection policies evolved from issues of consent and information disclosure. The purpose of these regulatory approaches is the protection of consumers by reducing some contracting failures, such as asymmetries of information and a lower bargaining power, especially in transactions involving complex issues such as financial products and sensitive personal data. In the past, regulators have responded to privacy and consumer protection by adopting what this paper refers to as an “imperfectly informed regime”, in which consumers do not receive full information about the risks associated with their decisions, even if they are still protected through a variety of ex post mechanisms such as the judicial system or a consumer protection authority. Recently, jurisdictions, such as the European Union, have adopted a “perfectly informed regime” for data protection based on the idea of full disclosure. While this approach has advantages, it does not effectively assure consumers understand the consequences and risks associated with their decisions. Unless the system still provides reliable mechanisms ex post to protect consumers, there will still be a high risk of opportunism of merchants vis-à-vis consumers. As a response to the weaknesses existing in the traditional regulatory approaches to protect consumers, behavioural economists have proposed a new system based on the idea of ‘smart disclosure’. According to this system, consumers should get an understanding of their decisions by requiring counterparties to provide a clear information about the content and associated risks. Despite the popularity of this regulatory approach, this paper argues that it is not perfect either. Namely, it will be pointed out that, even though the smart disclosure system can be desirable for countries without reliable institutions to protect consumers ex post, the adoption of this regulatory approach faces several challenges. Therefore, countries with efficient mechanisms ex post to protect consumers may find the traditional regulatory models more desirable. The paper concludes by arguing that despite the favour towards systems of smart disclosure or perfectly informed regimes, the most desirable one will depend on the particular features of a country.

Keywords: data protection, smart disclosure, consumer protection, consent, financial consumer protection

Suggested Citation

Remolina, Nydia and Gurrea-Martínez, Aurelio and Hardoon, David R. and Loh, Yvonne Ai-Chi, Regulatory Approaches to Consumer Protection in the Financial Sector and Beyond: Toward a Smart Disclosure Regime? (May 25, 2020). SMU Centre for AI & Data Governance Research Paper No. 2020/05, Available at SSRN: https://ssrn.com/abstract=3609887 or http://dx.doi.org/10.2139/ssrn.3609887

Nydia Remolina (Contact Author)

Singapore Management University - Centre for AI & Data Governance ( email )

55 Armenian Street
Singapore
Singapore

Aurelio Gurrea-Martínez

Singapore Management University - School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore
(+65) 6808-5160 (Phone)

HOME PAGE: http://https://law.smu.edu.sg/faculty

David R. Hardoon

Singapore Management University - Sim Kee Boon Institute for Financial Economics ( email )

90 Stamford Road, 6th Level
School of Economics
Singapore, 178903
Singapore

Yvonne Ai-Chi Loh

Nanyang Technological University (NTU) - Wee Kim Wee School of Communication and Information ( email )

Singapore

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
56
Abstract Views
222
rank
398,308
PlumX Metrics