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Workshop: Legal Responsibilities of Brokers and Affiliates Following Recent Regulatory Changes

Tal Itzhak Ron Advocate and Notary Chairman and CEO, Tal Ron, Drihem & Co. Law Firm London Affiliate Conference, February 11th, 2017

Tal Ron, Drihem & Co. Law Firm

What is happening in the global binary options regulation space

How can binary brokers enter the forex space and benefit from other options legally?

Are affiliates legally liable to brokers' issues with traders?

Content and "character" affiliates and deceptive marketing

The Mfune saga Court rulings you should know about Affiliate and IBs responsibilities comparison Vanuatu, Estonia, CySEC - regulation and banking tips

for affiliates and brokers

Webinar: Legal responsibilities of brokers and affiliates following recent regulatory changes

Tal Ron, Drihem & Co. Law Firm

Tal Ron, Drihem & Co. is a leading international law firm

providing legal services to top tier gaming operators, platforms and

regulators. Members of International Masters of Gaming Law

(IMGL) and Society of Trust and Estate Practitioners (STEP).

The firm, headed by Advocate and Notary Tal Itzhak Ron, is an

international one-stop shop providing unique legal, incorporation

and banking services for Affiliate Marketing, High Tech, Forex,

Binary Options, Gaming, Media, E-Commerce,

Software/Platforms development and Financial Technology

Companies.

Only gaming law firm in our jurisdiction recommended by Legal

500, BDI Coface, IFLR and Dun and Bradstreet.

Our Firm

Online Gaming Operators, Binary options and Forex Operators needs to be regulated in order to operate.

In the EU, Brokers are adopting MiFID II solutions, deadline is 03/01/18

Binary options is the “black sheep” for many regulators

Drastic changes in CySec leverage and bonus regulations

Israel Binary options situation escalating, major brokers shutting down operations

Increasing Whistleblower incentives in the USA

What is happening in the global binary options regulation space

Today, the MiFID license is a preferable choice of a “premium” license for financial entertainment. Obtaining mainly through Cyprus, Estonia,

Bulgaria, Malta, Greece (UK?)

Requires approx. 300,000 EUR available, for license obtaining process + capital requirements

Requires a presentable resume, desirably a degree, a clean past, etc.

Enables work with EU residents

Good reputation, a branded license

Enables “passporting” to other EU countries through the MiFID framework

EU Vs. Offshore Regulations EU (MiFID) Licenses

An economic solution for brokers who want a license

Can be used as a market maker for third parties under certain conditions

Your traders will see a proper license certificate on your website

Required KYC: passport, recent UB, recent police record, Business plan

Takes around 4 weeks

Vanuatu Securities Dealer License

Economic EU solution

Enables opening an account with several reputable Estonian banks

Good solution for PSP situation nowadays

Takes around 4 weeks

Requires 1 day trip to Tallinn

Estonian Currency Exchange Permits

The best license for brokers working with EU countries, and others

Requires 2 serious candidates with proven experience in providing investment services, and preferably academic education

Regulator prefers Forex focus

Enables passporting to other MiFID countries

New premium fast track scheme

Required to present 300,000 EUR, 125,000 EUR will be used as capital of the company

If you want a sound night’s sleep, this is best.

CySec Brokerage License

The new generations of “make money”- “character affiliates", as we like to call them, made the plot thicken even more. Deceptive marketing is legally considered, in many countries, a malpractice which is banned by law and by different consumer protection regulations.

What bothers legislators and regulatory authorities the most, is the damage deceptive marketing causes consumers. In a suit filed a few years back by the American FTC (Federal Trade Commission) and the state of Connecticut, an affiliate marketing company named LeadClick was held liable for its use of websites who displayed deceptive marketing content related to weight loss products. This liability was determined even though LeadClick wasn't directly responsible for the creation of the content! The test the court used, was asking whether substantial damage was caused to consumers.

Deceptive marketing is legally dangerous both for those producing it and for those indirectly benefitting from it.

Brokers who use the services of such affiliate marketers should take legal precautions, in order to legally cover themselves in case things go the wrong way. For example, the brokers Mfune mentions as the ones who are "popular and trusted", may be exposed if he gets into trouble. He presents them while imposing as an unbiased young recently rich man, when he is in fact their supplier, legally contractually bound to them- and they are his clients. When they receive leads generated from these recommendations of his, they are in fact cooperating with the deception and benefitting from it. Our firm has come up with special tailor-made solutions, such as customized disclaimers which can be integrated in the legal pages of the websites.

Mfune story and deceptive marketing

Most affiliates operations need not have a regulation, yet many regulators and courts are starting to increase blame and liability of affiliate.

In the USA and most of Europe, regulation is increasingly being enforced on most industry players except affiliates. Romania – a case study.

The main debate concerns the levels of licensing, due to different jurisdictions. Some Offshore Jurisdictions : merely the case of a “paid for” piece

of paper called a “license to operate”, with little or no oversight by the state and no investor protection.

EU Regime: Direct influence and authority on platforms.

Current Trend- towards Full Regulatory Regimes.

Are affiliates liable to brokers’ issues with traders?

Why do Affiliates need to be Regulated?

They don’t handle wagers

They don’t process payments

They don’t hold player deposits

All they do is Marketing.

The answer is simple:

Beyond the handling of wagers, segregation of player funds, processing of deposits and withdrawals, Affiliates have the ability to kill positive consumer perception of the industry, without having much liability in doing so. Therefore, many assume that Affiliates need to be licensed and regulated like other gaming providers.

In the eyes of gaming regulators: Entities that shares actual or theoretical gaming revenues, or is compensated based on player activity might require regulation.

Regulating Affiliates- the Rationale

If a dishonest Merchant is sued by the customer coming from an affiliate website, could this affiliate be liable as well? YES.

Affiliates who are not responsible for the creation of a product or a service can still be liable and need to protect themselves with Disclaimers!

Content affiliates and “character” affiliates have made this issue even riskier.

Recent Junkets scandals.

Affiliates in Court

DO’S

- Provide an Affiliate Disclaimer on the affiliate website.

- Disclosure must include Limitation of liability.

- Make sure the product /service will be promoted by ethical & legal methods.

- Use secure data protocols.

- Notify consumers about your Privacy Policies.

- Test your Links and campaigns regularly.

Affiliates- Do’s and Don’ts

DON’TS

- Copyrights & Trademarks-

Don’t grab something online

and use it in your promotion.

- Don’t SPAM

- Do not use deceptive

advertising, or fake reviews

on your website.

A lot of companies have affiliate programs, it seems logical that a Company can only be blamed if it encourages its affiliates to publish fake reviews, act unethically, or steal its clients.

But according to the FTC: "Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive. Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.“

However, if Affiliates are doing deceptive practices on their own, without direct encouragement from the Company, how is the Company itself liable?

The Company has the right to sue the Affiliate.

Should an operator be liable for what its affiliates do? And vice versa…

Even if you only own/run a call center, YOU ARE STILL EXPOSED!

Nowadays, publicity targets not only call center practices, mainly aggressive sales approaches, stage names, etc., but also everything these practices generate and secondary players (affiliates and platforms).

Liability

For any information feel free to contact us:

Advocate & Notary Tal Itzhak Ron

Direct Mobile: +972-52-2437484, Tal@rd-law.co.il

Tal Ron, Drihem & Co., Law Firm

Museum Tower 7th Floor

4 Berkowitz Street

Tel Aviv 61330, Israel

+972-3-6935300 / +357-77-788046

Keep in touch!