Behold my fellow soldiers fighting it out on the frontlines of the financial services industry, what I provide to you now will make you an expert on European financial law, it is in fact Compliance Kryptonite.
I will admit that it won’t help you score with the opposite sex but it’ll make you sound all kinds of professional and knowledgeable amongst your finance peers.
The below analysis is based on a white paper I am working on with Bridget Greenwood regarding legislation affecting marketing in global financial services. White papers tend to be terribly serious and terribly long and only geeks like me can be bothered to read them so I thought I’d do a Cliff Notes easy version here for you regarding European legislation, which is more commonly know as MiFID (Markets in Financial Investments Directive).
An appropriate theme as the European Parliamentary Elections are just around the corner. Remember to vote kids.
So let’s get started.
This is why MiFID is so comforting to compliance officers because with its complex language and acute detail, it’s the perfect piece of legislative armour to hide behind.
But is it?
I haven’t yet met a compliance officer who has actually read MiFID. I’m sure they exist… like the Loch Ness monster.
So let’s look at what MiFID really says about the use of marketing material, recommendations and investment advice.
The EU Directive on Social Media.
According to COMMISSION DIRECTIVE 2006/73/EC Article 52, which refers to investment advice, the article states:
“A recommendation is not a personal recommendation if it is issued exclusively through distribution channels or to the public.”
As stated above this is quite clear and unambiguous, however, there is a caveat. To be confident of full compliance with the directive it is important to know the exact definition under the article of the terms “personal recommendation” and “distribution channels”
Regarding “personal recommendation” the DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL Article 4(4)
“‘Investment advice’ means the provision of personal recommendations to a client, either upon its request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments“
It is interesting to note here that to qualify as “investment advice” the recommendation has to be a personal recommendation.
We then come to the definition of a “distribution channel”, the definition of which can be found in COMMISSION DIRECTIVE 2003/125/EC Article 1(7).
“‘distribution channels’ shall mean a channel through which information is, or is likely to become, publicly available. ‘Likely to become publicly available information’ shall mean information to which a large number of persons have access.”
Not convinced yet? Well have a gander at COMMISSION DIRECTIVE 2006/73/EC (79)
"Advice about financial instruments given in a newspaper, journal, magazine or any other publication addressed to the general public (including by means of the internet), or in any television or radio broadcast, should not be considered as a personal recommendation for the purposes of the definition of ‘investment advice’ in Directive 2004/39/EC."
Despite the fact that social media took off after the writing of these directives, due to the nature of social media, which is open and visible to the public, it is clear that social media, more than any other public channel (newspapers, TV, websites) qualifies as a “distribution channel” under MiFID.
Based on the above, from a legal point of view and according to MiFID, there is no legal impediment to using social media as a marketing channel for a financial services company.
Now go and tell that to your compliance officer and watch the life blood sap out of their body.