2018 Mifid II Regulatory Changes: How Data Science Can Drive Success

One of the biggest topics in the investment banking world today is how investment research is shared with asset managers who rely on such research to make their investment decisions. Driven by regulatory change in the European Union (EU), the world of investment banking is seeing a huge shift in the way valuable research is being consumed.

2018 Mifid II Regulatory Changes: How Data Science Can Drive Success

 June 13, 2018


Regulatory change

One of the biggest topics in the investment banking world today is how investment research is shared with asset managers who rely on such research to make their investment decisions1. Driven by regulatory change in the European Union (EU), the world of investment banking is seeing a huge shift in the way valuable research is being consumed. As of January 2018, the Mifid II regulations have mandated that investment banks monetize and sell their “free” research, papers and studies. While these regulations may only apply to European asset managers, the changes are creating a global impact. The era of investment banks sharing their market intelligence with their clients as an extra perk is becoming history.

Business problems

Many banks are finding themselves in the the unique predicament of needing to productize research output with thin historical data. In the pursuit of a successful transition, the banks are now facing several questions such as:

  • How can they optimize the pricing of their research products?
  • How can they target the right customers, and what customers like which reports?
  • How can they recommend the right content to customers?
  • How can they measure the effectiveness of marketing efforts (e.g., campaigns, emails, etc.) and improve customer engagement?
  • How can they guide their think tank analysts to produce reports that “matter”?
  • How can they prioritize their research activities so that the ROI is maximized?

While the shift to research being sold as a commodity may not seem like much of a blow to the industry, some financial institutions have decided to go beyond simply charging for assets already in production and use data science to find efficient ways of making their research products profitable.

Our approach: The art of the possible

We have worked with financial institutions to tackle the aforementioned problems in a way that catered to their respective business priorities and data maturity. Generally, our journey begins with the development of a database for analytic use cases which includes tagging and tracking of web data such as site traffic, click through, etc. Then we aim to use the data insights to prescribe recommendations to improve the institution’s ongoing marketing campaigns or programs by providing deployable predictive models to identify whom to target, how much effort to expend, and what channels to use.

Simple chart depicting potential outcomes of utilizing data science. Tagging and tracking of information that can then be analyzed in order to produce recommender algorithms, analytical tools, or performance dashboards.

In our experience, we have seen that most papers are read by only a handful of readers. Similarly, certain features of said articles are often skipped while some sections are rarely reached. With the right data collection, predictive models, and reporting tools, we have seen that banks can drive more readership, increase customer satisfaction, and make the authoring process more efficient.

  • Recommender algorithms can suggest the right articles for readers based on their past readership, search and context (e.g., what article best follows the one they are reading now).
  • Analytical tools can aid the research team’s capacity planning, resource allocation, and task prioritization. The ability to evaluate which clients are reading which reports, the components of said reports, associated features, etc. can help the management team prioritize the research activities while making their “products” more appealing and profitable.
  • Lastly, we recommend developing and deploying a set of performance dashboards to track the marketing campaign effectiveness, pricing adequacy, and overall ROI. By establishing the baseline (i.e., the KPIs) the bank will gain the ability to evaluate their research product team’s overall performance, identify under-/over-invested areas, and assess their relative performance in the marketplace. As a result, the bank will be able to make a strategic decision of phasing out a particular sector’s market analysis and increasing the emphasis on sectors of wider interest.

DSAT

Often, internal business improvements and innovations in the financial services industry stem from a need to comply with regulations. Our perspective is that the pursuit of innovation should not be event-driven or cyclical. Rather, opportunities for growth should be constantly sought and enacted. Pursuing such opportunities to develop use cases and make investments can be difficult because of the challenges to adequately scope a project while ensuring continuous support. Fulcrum’s Data Science Acceleration Teams help business managers looking to make the first step into low-commitment, high-output technology advancement. To find out more, click here to uncover how this model works and how we helped other clients.

Source: [1] Peter Stafford, 2015 September, What is Mifid II and how will it affect EU’s financial industry?; The Financial Times

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