The legal framework for financial advertising: curbing behavioural exploitation

Research output: Contribution to journalArticle

Abstract

Policy makers and behavioural finance scholars express growing concern that marketing practices by financial institutions exploit retail investors’ behavioural biases. Investor protection regulation should thus address these marketing practices and include mechanisms curbing behavioural exploitation. That raises the question whether the marketing communications regime of the new Markets in Financial Instruments Directive can live up to this demand. This article develops a regulatory model that integrates behavioural finance insights into the new marketing communications regime. It then determines how regulatory authorities can apply this model when they interpret and apply specific regulatory requirements. It demonstrates how a regulatory authority or a court can translate empirical behavioural finance research findings into legal arguments when assessing whether marketing practices can significantly distort a model investor’s decision-making process. The article further establishes that the detailed requirements imposed on investment firms by the new Markets in Financial Instruments Directive are necessary in order to protect investors from behavioural exploitation. Finally, the article submits policy proposals that aim to protect investors more effectively from behavioural exploitation.
Original languageEnglish
Pages (from-to)853–882
Number of pages30
JournalEuropean Business Organization Law Review
Volume19
Issue number4
Early online date22 May 2018
DOIs
Publication statusPublished - 1 Dec 2018

Fingerprint

investor
exploitation
marketing
regulatory authority
finance
communications
regime
market
decision-making process
Legal framework
Exploitation
firm
regulation
demand
Investors
Behavioral finance
Marketing practices
trend
Marketing communications
Authority

Bibliographical note

© The Author(s) 2018. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Keywords

  • advertising
  • marketing
  • behavioural finance
  • behavioural exploitation
  • MiFID II
  • investor protection

Cite this

Brenncke, Martin. / The legal framework for financial advertising : curbing behavioural exploitation. In: European Business Organization Law Review. 2018 ; Vol. 19, No. 4. pp. 853–882.
@article{3945fdab632c436098667d1863a7c8fc,
title = "The legal framework for financial advertising: curbing behavioural exploitation",
abstract = "Policy makers and behavioural finance scholars express growing concern that marketing practices by financial institutions exploit retail investors’ behavioural biases. Investor protection regulation should thus address these marketing practices and include mechanisms curbing behavioural exploitation. That raises the question whether the marketing communications regime of the new Markets in Financial Instruments Directive can live up to this demand. This article develops a regulatory model that integrates behavioural finance insights into the new marketing communications regime. It then determines how regulatory authorities can apply this model when they interpret and apply specific regulatory requirements. It demonstrates how a regulatory authority or a court can translate empirical behavioural finance research findings into legal arguments when assessing whether marketing practices can significantly distort a model investor’s decision-making process. The article further establishes that the detailed requirements imposed on investment firms by the new Markets in Financial Instruments Directive are necessary in order to protect investors from behavioural exploitation. Finally, the article submits policy proposals that aim to protect investors more effectively from behavioural exploitation.",
keywords = "advertising, marketing, behavioural finance, behavioural exploitation, MiFID II, investor protection",
author = "Martin Brenncke",
note = "{\circledC} The Author(s) 2018. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.",
year = "2018",
month = "12",
day = "1",
doi = "10.1007/s40804-018-0111-9",
language = "English",
volume = "19",
pages = "853–882",
number = "4",

}

The legal framework for financial advertising : curbing behavioural exploitation. / Brenncke, Martin.

In: European Business Organization Law Review, Vol. 19, No. 4, 01.12.2018, p. 853–882.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The legal framework for financial advertising

T2 - curbing behavioural exploitation

AU - Brenncke, Martin

N1 - © The Author(s) 2018. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

PY - 2018/12/1

Y1 - 2018/12/1

N2 - Policy makers and behavioural finance scholars express growing concern that marketing practices by financial institutions exploit retail investors’ behavioural biases. Investor protection regulation should thus address these marketing practices and include mechanisms curbing behavioural exploitation. That raises the question whether the marketing communications regime of the new Markets in Financial Instruments Directive can live up to this demand. This article develops a regulatory model that integrates behavioural finance insights into the new marketing communications regime. It then determines how regulatory authorities can apply this model when they interpret and apply specific regulatory requirements. It demonstrates how a regulatory authority or a court can translate empirical behavioural finance research findings into legal arguments when assessing whether marketing practices can significantly distort a model investor’s decision-making process. The article further establishes that the detailed requirements imposed on investment firms by the new Markets in Financial Instruments Directive are necessary in order to protect investors from behavioural exploitation. Finally, the article submits policy proposals that aim to protect investors more effectively from behavioural exploitation.

AB - Policy makers and behavioural finance scholars express growing concern that marketing practices by financial institutions exploit retail investors’ behavioural biases. Investor protection regulation should thus address these marketing practices and include mechanisms curbing behavioural exploitation. That raises the question whether the marketing communications regime of the new Markets in Financial Instruments Directive can live up to this demand. This article develops a regulatory model that integrates behavioural finance insights into the new marketing communications regime. It then determines how regulatory authorities can apply this model when they interpret and apply specific regulatory requirements. It demonstrates how a regulatory authority or a court can translate empirical behavioural finance research findings into legal arguments when assessing whether marketing practices can significantly distort a model investor’s decision-making process. The article further establishes that the detailed requirements imposed on investment firms by the new Markets in Financial Instruments Directive are necessary in order to protect investors from behavioural exploitation. Finally, the article submits policy proposals that aim to protect investors more effectively from behavioural exploitation.

KW - advertising

KW - marketing

KW - behavioural finance

KW - behavioural exploitation

KW - MiFID II

KW - investor protection

UR - https://link.springer.com/article/10.1007/s40804-018-0111-9

U2 - 10.1007/s40804-018-0111-9

DO - 10.1007/s40804-018-0111-9

M3 - Article

VL - 19

SP - 853

EP - 882

IS - 4

ER -