Transparency at any cost? Consumer protection in peer-to-peer finance

Abstract

Digital financial services are arguably complex and puzzling for consumers, but how to make them more transparent for users is an open problem. In peer-to-peer (or collaborative) finance, where consumers directly conclude financial transactions with each other, the opacity of the intermediaries’ practices calls forth transparency regulation as the primary policy response. Accordingly, information obligations play a crucial role in the recently adopted EU 2020/1503 Regulation. More broadly, newer doctrines, positive law, and regulatory undertakings in this or neighbour domains rely on a fine-tuned set of disclosure techniques to overcome the traditional criticism of transparency regulation. Through the normative lens of financial regulation, the article questions the recourse to mandated disclosure – an approach rhetorically dumped but practically iterated – to regulate peer-to-peer finance. After reviewing four emerging paradigms of transparency, identified as economic, procedural, substantial, and design transparency, the work concludes that peer-to-peer transactions pose threats to users that go well beyond the reach of even a well-designed information regulation. Regulators should, instead, opt for more effective regulatory techniques such as conduct rules, product regulation, and guarantee schemes to absorb potential losses.