Double Dutch Finally Fixed? A Large-scale Investigation into the Readability of Mandatory Financial Product Information

摘要

With the introduction of short-form disclosure documents, financial regulation in the EU emphasizes the use of plain language to facilitate comprehensibility. We evaluate whether these documents and the accompanying plain language guidelines improve the readability of mandatory product information addressed to mutual fund investors. Applying advanced text mining algorithms, we benchmark the readability of product information by means of objective and readily replicable methods. While mutual fund information on average does not come in plain language, we find that readability improved significantly following the introduction of Key Investor Information Documents (KIIDs). Improvements are driven by simpler syntax and writing style. By contrast, the authors find that the use of jargon remains pervasive and report noncompliance with mandatory design requirements. We discuss our results and propose potential disclosure improvements.