In financial regulation, regulated entities are required to prepare disclosures that detail the risks of their transactions. However, these regulatory requirements sometimes neglect to ensure that financial entities have strong incentives to understand the risks themselves, much less ensure the disclosed risks are comprehensible to others. This chapter applies the concept of comprehension asymmetries to financial regulation and uncovers ways that the existing laws and rules tolerate and sometimes exacerbate wilfull ignorance and incomprehensible disclosures. The chapter closes with suggestions for reform.

Consumer protection law is notoriously imbalanced with respect to the superior ability of sellers to process information as compared to their customers. Yet despite the resulting comprehension asymmetries, the design of consumer contract law and disclosure requirements regularly fail to encourage sellers to communicate meaningfully with the target audience. This chapter explores how consumer protection law tacitly encourages incomprehensibility and proposes reforms which would provide increased incentives for meaningful communication between buyers and sellers.