The FCA has been told any testing of changes to disclosure documents should be done in a realistic setting.
In a 50-page report, Oxera has told the FCA that testing of disclosure is crucial, as poorly designed disclosure may actually lead to consumer detriment.
Firstly, Oxera warns a poor product disclosure may result in consumers not assessing key information relevant to a purchase, and, consequently, purchasing inappropriate products.
The Oxera report states: “The design and content of disclosure is critical to consumer understanding and engagement with the purchasing decision, and is often sensitive to seemingly minor changes.
“Hence, if an updated disclosure is not tested thoroughly, there is a risk of it not only failing to help consumers find relevant information, but also obfuscating points that are crucial to consumers’ understanding of the product in question.”
Product disclosure is less intrusive than more direct regulatory approaches such as price controls or regulation of product standards, Oxera concludes in the report it produced at the request of the FCA.
Furthermore, Oxera stated disclosure allows market mechanisms to function, preserving both consumer choice and firm competition.
In other words, Oxera noted product disclosure can nudge consumers, and subsequently firms, to scenarios with better consumer outcomes, instead of forcing outcomes.
However, Oxera stated product disclosure may not be an adequate tool for some cases of consumer abuse.
Indeed, Oxera found there may be cases where disclosure is not cost effective—for example, if implementation costs for changing product disclosure are high and increased engagement is minimal.
Additionally, Oxera found some situations simply cannot be resolved through disclosure - for example, cases of abuse of dominance by a monopolist.
emma.hughes@ft.com
