Contentworks Agency has been talking a lot about MiFID II lately and we’re not stopping! That’s because for brokers and financial institutions, MiFIDII is HUGE. In this article we are talking about MiFIDII and content marketing – the broker checklist.
So, What Happened?
On 3rd January, Europe began implementing the sweeping financial regulations known as Markets in Financial Instruments Directive (MIFID) and Markets in Financial Instruments Regulation (MiFIR). Collectively, these reforms are known as MIFID II.
The reforms are so extensive that all market participants in Europe and abroad are affected. This includes brokers, traders, research firms, asset managers, audit firms, and investment banks among others.
Regulators in Europe started developing the current version of MIFID after the financial crisis to make financial markets in Europe more attractive and to protect investors. Among ways the new regulations achieve this is by introducing measures to improve transparency – e.g. by removing inducements, – pre and post trade reporting, firm governance, and unbundling research.
How Does MiFIDII Affect Brokers?
Forex brokers are affected in all these areas. For example, they now need to store all transactions for a period of no less than 5 years. This is to aid regulators when conducting investigations.
In addition, brokers who have clients who engage in algorithmic trading are required to report them so that they can register as asset management firms. They are also required to submit their algorithms. All this is done to prevent cases of flash crashes.
Yes, These Rules Apply to You
Whether you’re a forex broker based in the European Union or outside the region, the new MIFID II rules apply to you if you provide products based in the region. For example, if you provide European stocks or the Euro, then these regulations apply to you unless your country has a special arrangement with European authorities.
For example, American firms are potentially exempt from the rules following an arrangement between the Securities Exchange Commission (SEC) and their European counterparts.
Therefore, you need to ensure that your team and content providers comply with the regulations. A good way to do this is to hire a compliance officer, a requirement under MIFID II, who has a good understanding of the rules. Another way is to hire a content marketing team who understands MiFIDII. See what we did there.
So, MiFIDII and Content Marketing?
At ContentWorks, our team has spent months going through the MIFID II regulations. This has enabled us to have a better perspective on how to serve our clients in line with these strict regulations. As a broker, you should ensure that your content provider meets certain conditions. Here’s the checklist:
RESEARCH
Content marketing is an area where brokers need to be very careful. MIFID II rules have introduced what is known as research unbundling. By this, the rules prohibit brokers and other managers from offering research for free. In the past, these companies used to send free research to their customers. Under the new rules, customers need to pay for the research they get. They can do this in two ways. First, they can pay from their own account and secondly, they can pay using a ring-fenced client research-payment account.
All these policies have had significant implications. For example, some firms have relocated their services abroad. For example, Intercontinental Exchange (ICE) has moved hundreds of its energy futures from London to the US. See, after the crisis, the US implemented its own set of financial regulations which are commonly known as Dodd-Frank. The current administration has vowed to water them down, making the American financial world more competitive.
INDUCEMENT CLAUSE
A common problem among traders and regulators has been how to reduce corruption in the financial markets. This problem was especially amplified during the dot com bubble where Wall Street firms marketed bogus companies, pumped their prices, and dumped them. They benefited, but ordinary traders who bought into these companies lost out big time. In other words, the inducement clause is aimed at improving the level of transparency among market participants.
To prevent such situations, the new MIFIDII rules mandate all firms such as research providers, investment banks, credit institutions, and brokers to disclose all relationships with the companies they mention. The rules ask the participants to act honestly and fairly, disclose obligations, and avoid all conflicts of interests.
Therefore, as a broker, you should ensure that your content complies to these regulations by always stating any relationships you have with the companies you mention.
COMPLIANCE MECHANISMS
Compliance is an important part of the MIFID II rules as firms that don’t comply can face huge penalties and litigation costs. Yet, research by Thomson Reuters found that while most CEOs knew about MIFID, most of them didn’t know how the new rules would affect most areas of their businesses.
As a broker, your content needs to be compliant with all MIFIDII regulations. An easy way to go about it is to train your content managers on how to apply these rules. Alternatively, you need to consider hiring a credible content marketing agency that has a good understanding of the MIFIDII rules.
As mentioned, at ContentWorks, our team has spent months studying the thousands of pages in the MiFIDII guidelines. We have also used top consultants to advise us on how our content needs to evolve.
TRANSPARENCY
We mentioned inducements. However, this is not the only area where transparency applies to brokers. Brokers and other financial service providers are required to ensure transparency in all their content. This includes all the content in their websites and promotional materials. For example, if any of your pages show your partners, you are required to tell your customers the type of relationship you have with the companies. This applies to all marketing products such as emails, social media, and even physical brochures.
PARTNERS
Under MiFIDII, brokers are now responsible for the messaging put out by their partners or affiliates. This marks the end of the golden age of willful ignorance regarding non-compliant messaging. One way to fix this is to grab back control of your partner’s marketing activities. That means you provide them with compliant, approved materials to present or post on their social media channels.
MiFIDII and Content Marketing Takeaway
The new MIFID II rules are extensive and involve virtually all aspects of your business. A single mistake can lead to significant penalties and even denial of operating licenses. For content marketing, you need to ensure that your research, marketing, and content teams are well-versed on the nitty gritty of the regulations. In addition, you should ensure that your service providers have the knowledge and experience to handle these issues.
Getting stressed about MiFIDII? Speak to the Contentworks team now. We are cool as a cucumber and will help you to navigate the MiFIDII minefield.
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