Retail proprietary-trading firms — the “funded trader” challenge industry — are being pulled towards Markets in Financial Instruments Directive (MiFID II) authorisation by a chain of European warnings from Italy’s CONSOB, Belgium’s FSMA and the Czech National Bank, at the same time as the US Commodity Futures Trading Commission’s (CFTC) flagship prop-firm case has collapsed with sanctions against the regulator itself.

The result is a regulatory map unlike anything else in retail trading: Europe is converging on the view that simulated “funded trader” challenges can constitute investment services, while the United States — after CFTC v. Traders Global Group Inc. was dismissed with prejudice in May 2025 and the agency was ordered to pay more than $3 million in defence costs — has no working enforcement template at all. This analysis walks through what the European interventions actually say, how five jurisdictions now compare, what the Traders Global collapse means as precedent, and the operational decisions facing prop firms, their technology vendors and the brokers that serve them in the second half of 2026.

Key Facts:

• Italy’s CONSOB warned in July 2024 that retail prop “challenges” simulate trading “in a type of finance video game”, flagging rigged difficulty levels and unpaid profit splits — CONSOB via Finance Magnates
• Belgium’s FSMA issued a public warning on March 7, 2024 citing costly courses, self-issued certificates and a “worrying rise” in social-media advertising — FSMA
• The Czech National Bank has indicated that some funded-trader services may amount to investment services requiring MiFID II authorisation — CNB via Finance Magnates
• ESMA’s public statement ESMA35-243228190-8024 of February 24, 2026 confirmed that perpetual futures and similar leveraged products fall within existing national CFD product-intervention measures — ESMA
• CFTC v. Traders Global Group Inc. (My Forex Funds), D.N.J., was dismissed with prejudice in May 2025, with the CFTC ordered to pay over $3 million in attorneys’ fees after Rule 11 sanctions — US District Court for the District of New Jersey
• An estimated 80 to 100 retail prop firms shut down during 2024, a consolidation accelerated by MetaQuotes restricting platform access — Prop Informer

Methodology and sources

This analysis draws on primary regulator documents published between March 2024 and June 2026: the FSMA’s March 7, 2024 consumer warning, CONSOB’s July 2024 notice on prop-trading platforms, ESMA’s February 24, 2026 public statement on CFD product-intervention measures (ESMA35-243228190-8024), and the Special Master’s report and dismissal order in CFTC v. Traders Global Group Inc. in the US District Court for the District of New Jersey (May 2025). Secondary sources are law-firm analyses of the Traders Global dismissal (Quinn Emanuel, Willkie) and named-executive interviews published by Finance Magnates. Jurisdictional scope is the EU (Belgium, Italy, Czech Republic, plus ESMA at Union level) and the United States. Firm-count estimates for the 2024 consolidation are industry-press figures, not regulator data, and are treated as indicative only.

What the European interventions actually say

No European authority has yet published a bespoke prop-trading rulebook. What exists instead is a sequence of warnings that, read together, sketch the perimeter regulators intend to enforce.

The FSMA’s March 7, 2024 warning described the standard retail prop model: consumers pay for evaluation “challenges” on simulated accounts, often after “costly courses”, with certificates issued by the firm itself and no client money ever reaching a live market (Finance Magnates). CONSOB went further in July 2024, comparing the products to “a type of finance video game” and citing complaints about difficulty levels engineered to make traders fail and re-purchase, and about profit splits that were never paid. Spain’s CNMV has issued similar consumer-facing cautions.

The structural question is whether these services are investment services at all. Here the Czech National Bank’s position is the hinge: because many of the largest prop brands are incorporated or operationally based in the Czech Republic, its indication that funded-trader arrangements may constitute investment services under MiFID II carries practical weight beyond its borders. If a challenge fee buys exposure whose payout depends on instruments within the scope of Annex I of MiFID II, authorisation, conduct-of-business and prudential rules follow.

Retail prop trading, in regulatory terms, is the sale of access to simulated or firm-funded trading accounts in exchange for an upfront fee, with a contractual promise to share notional profits if performance targets are met. Because the consumer typically never places an order on a live venue, most firms have operated outside the Markets in Financial Instruments Directive (MiFID II) perimeter that captures Contract for Difference (CFD) brokers — no authorisation, no leverage caps, no negative balance protection, no best-execution duty. The European warnings of 2024–2026 challenge that assumption from two directions: consumer-protection authorities argue the marketing resembles regulated financial promotion, while the Czech National Bank and the European Securities and Markets Authority (ESMA) have signalled that the underlying payout mechanics may bring some models inside the investment-services perimeter, triggering the full MiFID II framework including the product-intervention measures that already cap retail CFD leverage at 30:1.

How five jurisdictions compare

Jurisdiction / Regulator	Action and date	Scope	Key position	Consequence for firms
Belgium (FSMA)	Public warning, March 7, 2024	Retail funded-trader challenges marketed in Belgium	Costly courses, self-issued certificates, simulated accounts; surge in social-media advertising	Consumer-warning regime; reputational and marketing exposure
Italy (CONSOB)	Notice, July 2024	Prop platforms soliciting Italian residents	Challenges “simulate an online trading activity in a type of finance video game”; rigged difficulty and unpaid splits flagged	Active supervisory attention; firms report direct engagement
Czech Republic (CNB)	Supervisory position, 2024	Funded-trader services operated from or into the Czech Republic	Some models may be investment services under MiFID II	Authorisation risk for the industry’s largest home base
EU (ESMA)	Public statement ESMA35-243228190-8024, February 24, 2026	Perpetual futures and leveraged derivatives offered to retail	Products “likely to fall within the scope of the existing national product intervention measures on CFDs”	Leverage limits, negative balance protection, benefit bans apply
United States (CFTC)	CFTC v. Traders Global Group Inc., filed 2023, dismissed May 2025	Fraud theory against the largest US-facing prop brand	Case dismissed with prejudice; Rule 11 sanctions and $3 million-plus fee award against the agency	No working federal enforcement template; state and NFA routes untested

Sources: FSMA, CONSOB and ESMA publications; D.N.J. dismissal order via Quinn Emanuel and Willkie analyses. Last updated: June 11, 2026.

The comparison exposes a regulatory-arbitrage corridor. A firm warned off Belgian and Italian retail can still onboard those customers from a Czech or offshore entity, because warnings are not passportable prohibitions; only a MiFID II classification — applied consistently — closes that gap. It also explains industry behaviour: the serious operators are positioning for authorisation rather than against it, betting that licensing will function as a moat once the perimeter moves.

“With Fintokei, we arrive in Italy at the perfect time, as Consob’s attention on the prop firm sector is currently very high.”

— Marco Martire, Country Manager for Italy, Fintokei
(Finance Magnates)

Enforcement context: the Traders Global collapse

The only major enforcement action against a retail prop firm anywhere — CFTC v. Traders Global Group Inc., the operator of My Forex Funds, filed in the US District Court for the District of New Jersey in 2023 — ended in May 2025 not with a penalty but with the regulator sanctioned. The CFTC had obtained an ex parte asset freeze and receivership partly on the assertion that a CAD$31.5 million transfer by principal Murtuza Kazmi evidenced asset dissipation. The transfer was in fact a corporate tax payment to the Canada Revenue Agency, and the court found the agency knew as much at least a week before filing.

Judge Edward S. Kiel adopted the Special Master’s May 13, 2025 recommendation, dismissed the complaint with prejudice under Rule 11, and ordered the CFTC to pay more than $3 million in the defendants’ attorneys’ fees and costs. The agency placed four lawyers and an investigator on administrative leave. (Special Master’s Report, D.N.J.; Quinn Emanuel)

The precedent cuts two ways. For US prop firms, it removes the immediate threat of CFTC fraud theories built on the challenge-fee model — the agency never got a merits ruling on whether simulated-account challenges are “retail forex” or commodity-interest transactions at all. For regulators globally, it is a cautionary record: the first mover against the sector destroyed its own case on process, leaving the substantive question — what exactly is a funded-trader contract? — undecided in every courtroom that has seen it. (Willkie Compliance Concourse)

What this means for prop firms, brokers and compliance teams

The European direction of travel is towards classification, and a MiFID II classification is binary in its consequences. For prop-firm operators, the operational decision is whether to seek authorisation proactively (as an investment firm providing reception/transmission or dealing services) or to restructure products so payouts cannot be characterised as derived from in-scope instruments. Authorisation brings ESMA’s CFD product-intervention baseline with it: 30:1 maximum retail leverage on major FX pairs, negative balance protection, standardised risk warnings and the prohibition of monetary and non-monetary benefits — the same regime examined in our analysis of how 2026 retail FX rules move beyond the 30:1 leverage cap.

For brokers and liquidity providers that white-label infrastructure to prop brands, counterparty due diligence now needs a regulatory-perimeter assessment: a partner reclassified as an unauthorised investment firm contaminates the broker’s own conduct file. For platform vendors, MetaQuotes’ 2024 access restrictions — which industry trackers associate with the disappearance of 80 to 100 firms in a single year — demonstrated that infrastructure gatekeepers can move faster than any regulator. And for compliance teams inside the surviving firms, the documentation burden lands now: target-market assessments, appropriateness testing and conflict-of-interest mapping are exactly the obligations ESMA reattached to novel leveraged products in its February 24, 2026 statement, as we covered in the context of the CFTC’s crypto-perpetuals opening.

“Regulators have been conducting studies, gathering data, and engaging in consultations with industry participants to better understand the nature and implications of prop trading.”

— Remonda Kirketerp-Møller, Founder and CEO, Muinmos
(Finance Magnates)

The forward view: classification, not prohibition

Three tracks are worth watching into 2027. First, ESMA-level convergence: supervisors have been gathering data on funded-trader models since 2024, and the most likely instrument is a Q&A or supervisory briefing applying existing MiFID II tests to challenge mechanics rather than a new regulation — the same technique used in the February 2026 perpetuals statement. Second, the Czech supervisory file: because the Czech Republic hosts the industry’s largest operators, the CNB’s first authorisation decision or public enforcement against a funded-trader brand will function as de facto EU precedent. Third, the US vacuum: with the CFTC’s theory discredited on process, the open questions move to the National Futures Association’s (NFA) membership rules and state consumer-protection statutes — and, in parallel, to the adjacent fight over federal preemption of state gambling law examined in Kalshi v. Flaherty, which shows how readily novel retail products end up contested between regulators rather than governed by one. A fourth, slower-burn factor is the EU Artificial Intelligence Act: compliance advisers note that automated evaluation and risk-scoring systems used by prop firms may attract high-risk obligations when the Act’s next tranche applies from August 2, 2026 — a classification question firms should resolve before, not after, MiFID II authorisation, much as order-flow economics shifted before PFOF’s June 30 cliff.

FAQ

What is a retail prop-trading or funded-trader firm?

A firm that sells evaluation “challenges”: the customer pays an upfront fee to trade a simulated or firm-funded account and, if performance targets are met, receives a share of notional profits. The customer’s orders typically never reach a live market, which is why most firms have historically operated outside broker licensing regimes such as MiFID II in the EU.

Are prop firms currently regulated in the EU?

Mostly no. There is no bespoke EU prop-trading framework, and most firms hold no authorisation. But the Czech National Bank has indicated some models may constitute investment services under MiFID II, and FSMA, CONSOB and CNMV have issued consumer warnings — the standard sequence that precedes perimeter enforcement.

What did CONSOB actually say about prop firms?

In July 2024 the Italian regulator said prop platforms “simulate an online trading activity in a type of finance video game aimed at passing skill tests and making a profit”, and cited complaints about difficulty levels designed to force re-purchases and about profit splits that were never paid out.

What happened in the My Forex Funds case?

The CFTC sued Traders Global Group Inc. in 2023 on a fraud theory, freezing assets partly on a claim that a CAD$31.5 million transfer showed asset dissipation. The transfer was a Canadian tax payment, the court found the agency knew this before filing, and in May 2025 the case was dismissed with prejudice with over $3 million in fees awarded against the CFTC.

Does ESMA’s February 2026 statement apply to prop firms?

Directly it targets perpetual futures and similar leveraged products, confirming they fall within national CFD product-intervention measures — leverage limits, negative balance protection and marketing-benefit bans. Its relevance to prop firms is the method: ESMA applied existing MiFID II tools to a novel product rather than waiting for new law, the template supervisors are expected to reuse for funded-trader models.

What should prop-firm compliance teams do now?

Map each product against the MiFID II investment-services definitions, document whether payouts depend on in-scope instruments, prepare target-market and appropriateness frameworks, and assess whether automated evaluation systems could attract EU AI Act high-risk obligations from August 2, 2026. Firms that wait for the first CNB or ESMA classification decision will be remediating under deadline.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.