(Opt-Out) Intermediation as an Alternative for Ensuring a True Protection for European Retail Investors?

44 Pages Posted: 27 Dec 2009

See all articles by Tom Van Dyck

Tom Van Dyck

Catholic University of Leuven (KUL)

Date Written: December 24, 2009

Abstract

The article first discusses the aim of direct investor protection as embodied in the Prospectus Directive as well as other EC financial instruments (UCITS IV, Takeover Directive, MiFID, Transparency Directive and Market Abuse Directive). A second chapter assesses what types of investors are protected by the mandatory disclosure of the Prospectus Directive : the retail investor, the professional investor or both? As it will be argued, the dichotomy between on the one hand a full mandatory disclosure (for retail investors) and on the other hand an almost complete negation of mandatory disclosure (for professional investors) leads us to conclude that in the framework of the Prospectus Directive mandatory disclosure, as a means of direct investor protection, is in essence limited to retail investors. On the basis of this conclusion the third chapter examines whether the retail investor is indeed protected by mandatory disclosure. Taking into account the conclusions of the preceding chapters, a fourth chapter discusses various alternative models of investor protection, such as behavioral improvements, financial education programs, product regulation (assessing also the need to establish in Europe a Financial Consumer Protection Agency) and inducements to diversify. In this article (opt-out) intermediation is presented as a supplementary system that would induce retail investors to diversify without being disruptive to the market, as it would be balance three principles, i.e. (a) safety, (b) autonomy and (c) responsibility. It is argued that, whilst EC harmonization is wishful, Member States have also the possibility to reshuffle the painters palette and complement disclosure with behavioral improvements, financial education, product regulation and this system of (opt-out) intermediation. To the extent that these mechanisms properly protect retail investors, disclosure rules can be re-oriented to their true aim – i.e. increasing market transparency and market efficiency – allowing a “rebirth of the prospectus”.

Keywords: MiFID, Prospectus Directive, UCITS, Mandatory Disclosure, Financial Consumer Protection Agency

Suggested Citation

Van Dyck, Tom, (Opt-Out) Intermediation as an Alternative for Ensuring a True Protection for European Retail Investors? (December 24, 2009). Available at SSRN: https://ssrn.com/abstract=1527767 or http://dx.doi.org/10.2139/ssrn.1527767

Tom Van Dyck (Contact Author)

Catholic University of Leuven (KUL) ( email )

Tiensestraat 41
Leuven, B-3000
Belgium
+3225335245 (Phone)

HOME PAGE: http://www.kuleuven.be/onderwijs/aanbod/syllabi/C06B5AE.htm

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