The introduction of the MiFID II and its effect from the beginning of this year imposes some restrictions on Forex brokers of 2018 especially Top Forex brokers that depends on IB’s for marketing to EU and UK Forex traders. The significant impact of this regulation is on the way and manner that European and UK registered brokers can do their marketing activities. The new law makes it harder for brokers to work with IB’s.
MiFID II alters the way Forex brokers obtain their clients
There are three main constituents of the MiFID II regulation that imposes some restrictions on brokers partnering with IB’s:
- All IB’s that market to traders in the UK and EU must be registered with either the MIFID or FCA.
- For the IBs to be eligible to receive IB payments, the IB is obliged to offer a continuing service to all traders in the UK an EU that they introduce to a broker.
- The trader must know the amount of money that the IB makes.
To obtain a license from FCA and MIFIDis not easy for brokers and requires a considerable deal of task. In addition to that, the broker needs to pay roughly 20,000 dollars as legal fees. Besides, the broker must be subjected to annual audits and regulatory requirements which the broker must meet to stay in business. On top of this, the IB also need to fulfill the registration requirement and be able to get formal recognition from either the MIFID or FCA to verify that the authenticity of their continual valuable service delivery.
All the new restrictions are a huge challenge especially for IB’s that operate from Europe. Furthermore, some IB’s are specialized in lead generation and marketing. The particular areas of service do not necessitate continuous services delivery. These categories of IB’S will find it difficult to prove their continued delivery of valuable services.
The effect the new regulation would have on brokers
The recent rule that took effect January 2018 would seriously affect brokers who depend on the IB’s for generation of leads and discovering new customers from EU and UK clients. Nevertheless, the regulation comes with a few benefits as well not only disadvantages for brokers. The long and short of it all is that the new rules impose restrictions that would compel Forex brokers to make some forms of adjustments.
It would be difficult for brokers who depend on IB for new leads and brokers who rely on the referrals and words of moth, but for brokers like IG or Plus500 which have large marketing budgets and marketing departments, the impact may not be as much.
For partly-successful brokers, a good some extensive affiliate marketers’ base would boost their business. Before this regulation, the excellent way for a Forex broker to work with these affiliates is through the IB agreement. With the imposition of the rule, brokers would find it much more complicated process.
Adjusting to comply with the regulation
Adapting to ensure compliance would be beneficial for the broker just as you would obtain in any new rule of any industry. If the broker makes a specific adjustment to comply with the law, the company will gain competitive advantages against other companies that are unable to make the required changes.
Brokers who depend so much on affiliate marketing for their lead generation can develop their business further by making some critical adjustment that would make the new rule beneficial to their continued existence and profitability.
The few adjustments that such brokers can make include the following. However, remember to consult your lawyer for more professional advice.
- Do not overuse the IB agreement. Check to see if all your affiliates are right IB’s or if some of them are merely lead brokers or they are only engaged in consultations. Also, check if they are dealing with stylish ECP traders.
- Develop a suitable lead generation and conversion technique. There are a lot of ways that businesses could generate leads without having to deal with phone marketing.
- Partner with a proper registered master IB and send a few specific affiliate marketers to. Although all these would work to generate funds and customers to you, you only deal directly with the master IB while he works with these affiliates.