Are Prop Firms Regulated? A Jurisdiction Map

No jurisdiction we checked has created a licensing regime for prop-trading evaluations. Where the product is simulated — no real orders, no settlement — it falls outside the definition of an investment service by default rather than by approval. Exactly one regulator, the Czech National Bank, has published a developed position explaining why. Four European regulators have issued consumer warnings without changing any rule. In the United States there is no regime, and the one enforcement case against the model was dismissed for the regulator's conduct rather than decided on the merits, leaving the legal theory intact and available.

"Outside the perimeter" is not the same as "approved". It means the specific consumer protections attached to regulated financial services — compensation schemes, client-money segregation, an ombudsman, a right of appeal — do not apply. This article sets out what each regulator has actually said, with the primary documents, and what follows for someone paying a challenge fee.

This is a research summary, not legal advice.

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Europe: warnings, and one dividing line

Czech Republic — ČNB

The most consequential position in Europe, because the Czech Republic is where the largest firm in the industry is domiciled.

The Czech National Bank's published FAQ draws an explicit line. Simulated trading on a demo account with virtual funds is "the opportunity to try trading in a test environment, which allows you to work with real market data, but without entering and executing real trading instructions" — and therefore "not an activity subject to a ČNB permit."

The same position adds the qualification that matters: business models used by prop firms "can take various forms, some of which may be subject to the MiFID regulatory framework", naming three services — reception and transmission of orders, execution of orders on behalf of clients, and dealing on own account.

The test is the presence of real execution and settlement of the trader's instructions. Not the word "prop", not the presence of a fee, not the size of the firm. This single formulation is what the entire European position rests on.

Belgium — FSMA

The first EU regulator to warn publicly, on 7 March 2024, under the heading "The FSMA warns consumers against shadow investment game" (fsma.be). Its stated points: challenges are "not easy, not cheap" and consumers often pay for several attempts; the certificate issued is "a diploma that the firm itself issues"; "The consumer never makes any actual trades. He or she plays on a demo account with the prop trading firm"; and "prop trading companies do not hold any authorization and therefore are not allowed to provide investment services."

Read carefully, the last point is conditional rather than prohibitive: it does not say the model is unlawful, it says that without authorisation these firms may not provide investment services. If any part of a model were classified as an investment service, it would become unlawful without any change in the law.

Belgium is separately the one EU member state where the underlying product is banned outright for consumers: an FSMA regulation of 26 May 2016 prohibits distribution to consumers via electronic platforms of binary options, contracts under one hour, and any leveraged derivative including CFDs and rolling spot forex.

Italy — CONSOB, and Spain — CNMV

CONSOB issued a press release on 8 July 2024, "Beware of online trading 'video games'", describing challenges as simulating online trading in the manner of a "finance video game", typically sold through paid educational courses. The complaints it recorded were the difficulty level of the tests, "allegedly contrived to push 'players' to try again", and non-payment of profit share (CONSOB press release, PDF). CONSOB confirms in the same document that Spain's CNMV and Belgium's FSMA have issued comparable warnings.

ESMA

There is no ESMA statement about prop firms. The nearest relevant document is a public statement of 24 February 2026 on identifying derivatives within the scope of national product-intervention measures on CFDs. It concerns instruments marketed as perpetual futures, and its transferable principle is that the assessment should be made "for all derivatives offered irrespective of their commercial name", with the venue, the funding-rate mechanism and "safeguards adopted by firms" all irrelevant to the classification (ESMA).

Industry coverage that presents this statement as a step toward bringing prop firms into the MiFID perimeter is extrapolating; the statement does not mention them.

On priority, the position is on the record. Dr George Theocharides, chairman of CySEC and chair of ESMA's Risk Standing Committee, stated in July 2026: "To the best of my knowledge, ESMA is not currently engaged in any substantive discussions regarding retail prop trading… it does not appear to rank among the Authority's immediate priorities, given the relatively limited size of the sector" (Cyprus Mail). A year earlier the same person had described the sector as being on the radar.

The stated reason for the deprioritisation — limited size — is worth noting, because it is a reason that expires.

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United Kingdom: the exposure is the advertising

There is no FCA regime for prop firms, and we could not find any FCA statement specifically about them. A claim circulating online that "the FCA has stated that it does not regulate prop firms, funded accounts, or trading competitions" traces to a prop firm's own marketing page; we found no such statement on fca.org.uk or in PERG, and it should not be relied on.

The real UK exposure is the financial promotions regime. Section 21 of FSMA 2000 requires any financial promotion to be issued by an FCA-authorised firm or approved by one, and since 7 February 2024 an authorised firm needs a separate FCA permission to act as a section 21 approver. Breach of section 21 is a criminal offence, not an administrative one.

The enforcement activity is real and increasing. In 2024 the FCA had 19,766 financial promotions amended or withdrawn, up 97.5% on 2023, and issued 2,240 alerts about unauthorised firms (FCA financial promotions data 2024). In April 2026 it led a second international week of action against illegal finfluencers with 17 regulators, covering 1,267 illegal financial adverts that reached at least 2.3 million UK accounts (FCA).

The FCA already lists prop-branded firms on its Warning List — for example the entry for "Funded Trader" (www.funded-trader.net), published 8 December 2025, with the standard formulation "This firm may be providing or promoting financial services or products without our permission" (FCA Warning List).

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United States: no regime, and one unresolved theory

CFTC v. Traders Global (My Forex Funds)

Filed 29 August 2023 in the District of New Jersey, No. 3:23-cv-11808. The CFTC alleged fraud in connection with leveraged retail forex and retail commodity transactions, citing more than 135,000 customers since November 2021 and at least $310 million in fees collected (complaint).

The theory in the complaint is the part that still matters: that the firm, not a third-party liquidity provider, was the counterparty to substantially all customer trades. In the Statutory Restraining Order of 29 August 2023, the court made prima facie findings that the defendants acted as a counterparty to leveraged retail transactions qualifying under Regulation 5.1(m), and that there was good cause to believe they had acted as a Retail Foreign Exchange Dealer without registration under Regulation 5.3(a)(6)(i) (SRO, Doc. 13).

On 13 May 2025 Judge Edward S. Kiel dismissed the case with prejudice and imposed Rule 11 sanctions on the CFTC, following a Special Master's finding that the agency had misled the court — in particular by presenting a CAD 31.55 million payment, which was a corporate tax payment to the Canada Revenue Agency, as evidence of misappropriation. Costs awarded exceeded $3 million.

What this outcome established, and what it did not. It established that the CFTC could not re-file those claims and that the agency's conduct was sanctionable. It did not establish that the model is lawful: the question of whether evaluation fees and profit-share arrangements constitute regulated activity was never reached, and the theory remains available to any regulator or private plaintiff. There is also a commercial fact independent of the law — the case cost the firm two years of frozen assets and its market position before it won.

The commodity-pool theory in private suits

A second theory is now being tested privately: that the firm operates an unregistered commodity pool under 7 U.S.C. § 6m, on the reasoning that fees from many traders are aggregated into a common trading capital with proportional allocation of profit.

• McCrudden v. Topstepfunded LLC et al., M.D. Fla., No. 3:26-cv-00816, filed 9 April 2026 (plaintiff pro se). The defence position on the motion to dismiss is that there is no pool, because the plaintiff does not allege contributing capital, acquiring an interest in pooled assets, or sharing in the pool's profits and losses.
• Lawton v. Apex Trader Funding Inc. et al., W.D. Tex., No. 26-cv-02078, and McCrudden v. Apex Trader Funding Inc. et al., M.D. Fla., No. 26-cv-01073.

Three suits on one theory against two of the largest US futures prop firms is a pattern rather than an outlier. All are pending; none has produced a ruling on the merits, and nothing here should be read as a finding against any defendant.

Enforcement against infrastructure

On 29 June 2026 the CFTC issued and settled an order against Netrios LP Ltd. ($1.75 million) and Red Acre Ltd. ($750,000) for facilitating unlawful off-exchange leveraged retail commodity transactions with US customers who were not eligible contract participants. The SEC settled parallel charges the same day (CFTC press release 9263-26). The notable feature is who was penalised: the infrastructure provider and its service partner, not the consumer-facing brand.

Voluntary entry into the perimeter

Meanwhile, several US futures firms have registered without being required to. Topstep registered Topstep Advisory LLC with the NFA as a Swap Firm and obtained approval as a Commodity Trading Advisor in April–May 2026, and operates Topstep Brokerage LLC as a CFTC-registered Introducing Broker and NFA member (NFA ID 0567079) (Topstep). FTMO acquired OANDA — one of only four NFA-registered Retail Foreign Exchange Dealers — completing on 1 December 2025 after approvals from five regulators.

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Countries where the answer is a straightforward no

• India. The RBI Alert List explicitly covers entities "promoting unauthorised persons, including through advertisement or by claiming to provide training/advisory". As of 19 November 2025 it ran to 95 entries and names FTMO, FundedNext and Smart Prop Trader alongside eToro, Exness, IC Markets, XM and OctaFX (RBI Alert List). India is the only jurisdiction we found that names prop firms individually in a regulatory list.
• Brazil. The CVM's position is that no registered CFD or forex offering exists in Brazil and that any such offering is irregular; using a website to make such offers is treated as a public offer in Brazil.
• United States and Canada for retail CFDs generally: CFDs are not permitted to retail clients; retail forex requires RFED/FCM registration.

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Where the licences actually live

Where a prop firm displays a licence, it almost always belongs to a different company in the group than the one you contract with: an unregulated or lightly registered entity is the sole counterparty to the trader's contract, while a licensed brokerage entity supplies liquidity, price data and platform access without ever being a party to the evaluation contract.

The clearest written expression of the separation is in ThinkCapital's terms of service, which we quote because it is unusually explicit:

"The Provider is not authorised or regulated as a financial services firm or investment firm in any jurisdiction. Any commercial, contractual or branding affiliation between the Provider and any entity within the ThinkMarkets group does not extend ThinkMarkets' regulatory permissions, authorisations, client-money protections, investor compensation arrangements, or any other regulatory benefit to the Customer."

Source: thinkcapital.com/terms-of-services.

Purple Group publishes a comparable group-level statement: "no other service or company within the group should be assumed to be regulated."

Two structural facts follow from the same pattern. Blueberry Funded's evaluation contract is with Blueberry Markets (SVG) LLC in St Vincent and the Grenadines, while the group's ASIC licence sits with an Australian entity — and Australia is on the prop product's restricted-territories list. The5ers restricts Israel, its own headquarters jurisdiction; Funding Pips restricts the UAE, where it is based. Firms geo-block the country their licence lives in.

On offshore licences specifically: the Banque Centrale des Comores has published a communiqué describing Mwali International Services Authority (MISA), Anjouan Offshore Finance Authority and related bodies as "structures fictives", stating that licensing banks and financial institutions in the Comoros is within its exclusive competence, that any other such structure is illegal and liable to prosecution, and that it has referred the matter to the prosecutors of Moroni, Mutsamudu and Mohéli (BCC communiqué; republished by the Comorian Ministry of Finance on 10 December 2025). Four prop firms — Funding Pips, FNmarkets, Hola Prime and Finotive Markets — obtained Mauritius FSC licences in 2026 and migrated off Comoros registrations.

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What this means for the person paying the fee

1. No compensation scheme applies. Not the FSCS in the UK, not the Investor Compensation Fund in Cyprus. Those attach to authorised firms holding client money.
2. Challenge fees are not segregated. They are the firm's operating revenue from the moment they are paid. There is no client-money rule requiring separation, in any jurisdiction reviewed.
3. There is no ombudsman and no external appeal. A payout dispute is a contract dispute, typically under the law of a jurisdiction you cannot practically litigate in. See when a payout can be denied.
4. In the UK, the one identified statutory route is Section 75 of the Consumer Credit Act 1974 — joint liability of a credit card issuer for purchases between £100 and £30,000. It is a card-payment remedy, not a financial-services protection.
5. A licence displayed on the site probably does not cover the product you are buying. Check which legal entity the terms name as your counterparty, then check whether that entity holds the licence.
6. The regulatory position is a default, not a settled state. The reason given for European deprioritisation is the sector's size.

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Summary table

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Written by the upme.com research desk. Every regulator position above links to the regulator's own publication, court docket or official communiqué. Where a claim is commonly repeated but we could not confirm it against a primary source — including the widely circulated "FCA says it does not regulate prop firms" line — we say so rather than repeating it. This is a research summary as of 31 July 2026, not legal advice. Corrections to the address on our sourcing page.

Sources

Every factual claim above is drawn from one of the documents below. Where a document has been superseded since the date given, tell us and the piece is corrected with a dated line.

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