Instagram does have a "Why you're seeing this ad" button. Clicking it for an ad on my feed, I see:

- "chasetravel wants to reach people like you" (clicking through reveals that this is because I am 18 years of age or older and based in the US) - "Your activity" which includes interacting with "ads about travel, fine arts and music" and "posts, stories, reels and pages about food & drinks, fine arts and cameras"

So, basically, the button reveals nothing. But with regulation maybe it would. I don't see how this would make things worse (for users - of course Meta would fight it).

EDIT: As another commenter has noted, I have also turned off every possible bit of tracking. Maybe if I hadn't I'd see more here. But I'm sure Meta is doing all sorts of fingerprinting along with tracking pixels across websites that's informing the auction, but they're not telling me about that.