Retail proprietary-trading firms — the “funded trader” challenge industry — now face opposite regulatory trajectories on either side of the Atlantic: US firms are voluntarily registering with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA), while the European Securities and Markets Authority (ESMA) has dropped the sector from its priority list, according to a July 2, 2026 statement from CySEC’s chairman.

The divergence is the story of 2026 for the funded-account model. On July 2, 2026, George Theocharides — Chairman of the Cyprus Securities and Exchange Commission (CySEC) and Chair of ESMA’s Risk Standing Committee — said ESMA is holding “no substantive discussions” on retail prop trading, two years after the sector was described as “on the radar” in Paris. In the same window, Topstep, Tradeify and FTMO have all moved inside the US regulatory perimeter through NFA membership, Introducing Broker (IB) structures or Retail Foreign Exchange Dealer (RFED) acquisitions. This analysis walks through the perimeter question on both sides, the enforcement collapse that reshaped US policy, the cross-jurisdictional patchwork, and what pending steps operators and compliance teams should watch into 2027.

Key Facts:

• Roughly 100 retail prop firms — about 14% of the market — ceased operations between early 2024 and late 2025 — Finance Magnates, via Cyprus Mail, July 2, 2026
• Only about 7% of traders who purchase evaluation challenges ever receive a payout — Finance Magnates industry data, July 2026
• The CFTC’s fraud case against Traders Global Group (My Forex Funds), filed August 29, 2023, was dismissed with prejudice on May 13, 2025, with more than $3 million in sanctions against the agency — US District Court, D.N.J.
• Topstep is now an NFA member registered as a Commodity Trading Advisor; Tradeify launched the CFTC-regulated IB platform Slay Markets; FTMO acquired OANDA in December 2025, one of only four US RFEDs — Finance Magnates, May 21, 2026
• The US has 885 registered Introducing Brokers, the channel through which futures-prop firms are formalising — Finance Magnates, May 21, 2026
• Searches for “prop firm” in Germany grew 1,050% by February 2026, underlining retail demand ESMA is choosing not to prioritise — Finance Magnates, July 2026

Methodology and sources

This analysis draws on primary court documents in CFTC v. Traders Global Group Inc. (US District Court for the District of New Jersey) — the August 29, 2023 complaint and the Special Master’s May 13, 2025 report and recommendation on sanctions, both hosted by the CFTC — together with the text of the Markets in Financial Instruments Directive (MiFID II, Directive 2014/65/EU) for the EU perimeter analysis. Secondary sourcing comes from Finance Magnates’ reporting on US registrations (May 21, 2026) and its interview with CySEC Chairman George Theocharides as reported by the Cyprus Mail (July 2, 2026). The jurisdictional scope covers the US, the EU (ESMA and national competent authorities, with Cyprus and Italy as case studies), and offshore licensing hubs. The time window is January 2024 through July 5, 2026. Where the industry publishes its own statistics, they are labelled as industry data, not audited figures.

What the perimeter question actually turns on

The funded-trader model sells evaluation “challenges”: the customer pays a fee, trades a simulated account to hit profit targets under drawdown rules, and — if successful — receives a share of profits generated on a “funded” account that, at most firms, is also simulated, with payouts made from fee revenue. The legal question in every jurisdiction is the same: is this a regulated financial service, a gambling product, or an unregulated skill game?

The US analysis runs through the Commodity Exchange Act. If a firm’s customers trade real off-exchange leveraged forex, the counterparty generally must register as a Retail Foreign Exchange Dealer under Section 2(c)(2)(C) of the Act — the theory behind the CFTC’s 2023 case against My Forex Funds. If the activity is simulated and payouts come from fee pools, registration triggers are murkier, which is why the emerging US pattern is voluntary registration through adjacent categories: IB status for firms routing real futures orders, Commodity Trading Advisor status for firms advising on accounts, and RFED acquisition for firms that want to internalise real trading. Topstep’s NFA membership, Tradeify’s Slay Markets IB and FTMO’s purchase of OANDA in December 2025 each map to one of those routes, per Finance Magnates.

The EU analysis runs through the Markets in Financial Instruments Directive (MiFID II). A firm that deals on own account in financial instruments, or that executes client orders in Contracts for Difference (CFDs), needs authorisation under Article 5 of Directive 2014/65/EU. But a challenge on a simulated account arguably involves no financial instrument at all — the customer buys access to a game with a cash prize. ESMA floated the own-account analysis in exploratory discussions during 2024 and 2025; those discussions have now lapsed without producing guidance, leaving each national competent authority to improvise. Italy’s Consob warned in 2024 that prop-firm websites promote what amounts to simulated trading in “a type of finance video game”; Cyprus, home to much of the sector’s corporate infrastructure, monitors without acting.

How the jurisdictions compare

Jurisdiction / Regulator	Status as of July 2026	Scope analysis	Key requirement / action	Enforcement reference
US (CFTC / NFA)	No bespoke framework; voluntary registration wave	RFED under CEA s.2(c)(2)(C) for real retail off-exchange FX; IB / CTA for futures routing and advice	Topstep (NFA member, CTA), Tradeify’s Slay Markets (IB), FTMO (RFED via OANDA, December 2025)	CFTC v. Traders Global Group, D.N.J., filed August 29, 2023; dismissed with prejudice May 13, 2025; $3m+ sanctions against the CFTC
EU (ESMA / NCAs)	Deprioritised — “no substantive discussions” (July 2, 2026)	MiFID II Article 5 authorisation only if a financial instrument is involved; simulated challenges arguably out of scope	2024-25 exploratory discussions lapsed without guidance	None at EU level
Italy (Consob)	Public warning stance	Marketing-focused: simulated trading promoted as finance “video game”	2024 investor warning on prop-firm websites	Website warnings; no fines published
Cyprus (CySEC)	Monitoring, not acting	Hosts corporate structures of major firms; MiFID II analysis unresolved	Chairman statement, July 2, 2026 — monitoring as part of broader market developments	None specific to prop firms
Mauritius (FSC) and offshore hubs	Growing venue of choice	Lighter-touch brokerage licences attract prop-adjacent structures	Standard FSC investment-dealer licensing	None published

Sources: CFTC complaint, August 29, 2023; Special Master report and recommendation, May 13, 2025; Cyprus Mail, July 2, 2026. Last updated July 5, 2026.

The comparison exposes a regulatory-arbitrage corridor. A firm can incorporate in Cyprus, license a light structure in Mauritius, market simulated challenges into Germany’s fast-growing demand — up 1,050% in search interest by February 2026 — and face no authorisation requirement anywhere in that chain, provided no financial instrument changes hands. Meanwhile the same firm’s US-facing futures affiliate may be an NFA member with disclosure, capital and supervision duties. The result is one brand operating under two incompatible compliance postures, which is precisely the structure that preceded enforcement waves in retail CFDs a decade ago — the history TheIndustrySpread traced in its retail FX leverage-cap analysis.

“To the best of my knowledge, ESMA is not currently engaged in any substantive discussions regarding retail prop trading. While the topic may be monitored as part of broader market developments, it does not appear to rank among the Authority’s immediate priorities, given the relatively limited size of the sector.”

— George Theocharides, Chairman, Cyprus Securities and Exchange Commission and Chair of ESMA’s Risk Standing Committee (Cyprus Mail)

Enforcement context: the case that broke both ways

The sector’s defining enforcement action is CFTC v. Traders Global Group Inc., the operator of My Forex Funds — the case at the centre of TheIndustrySpread’s earlier analysis of how regulators closed in on retail prop trading. The CFTC filed its complaint in the District of New Jersey on August 29, 2023, alleging the firm defrauded customers by acting as the undisclosed counterparty to their trades, and obtained an ex parte asset freeze that shut a business with hundreds of employees overnight. The case then inverted. Court-appointed Special Master Jose L. Linares — a former chief judge of the district — found the agency had mischaracterised a CAD $31.55 million payment to the Canada Revenue Agency as an improper asset transfer despite knowing it was a tax payment, and recommended terminating sanctions.

On May 13, 2025, Judge Edward S. Kiel dismissed the case with prejudice and ordered the CFTC to pay more than $3 million in fees and costs. The Special Master’s report found the agency made “false representations” to the court and acted “willfully and in bad faith on several occasions,” per the Finance Magnates report on the ruling. The dismissal is why the US now proceeds by voluntary registration rather than test-case litigation: the agency’s one perimeter-defining prosecution ended in sanctions against the agency itself, and no US regulator has since issued formal guidance on whether challenge fees are regulated products. Firms drew the operational lesson quickly, rewriting site language to emphasise simulated environments while acquiring licences that signal legitimacy without conceding the perimeter question.

What this means for brokers, prop operators and compliance teams

For US-facing prop operators, the practical baseline is now set by the registration wave, not by rule. An operator offering futures challenges that route any real order flow should assume IB registration and NFA membership are the market-access ticket, with the disclosure and supervision duties that follow. Operators staying fully simulated should document that no customer funds face market risk and that payout liabilities are funded from segregated fee revenue — the absence of that documentation was what let the counterparty-fraud theory run in the My Forex Funds case.

For EU-based operators and the CySEC-regulated brokers that supply them technology and liquidity, ESMA’s deprioritisation is a reprieve, not a clearance. The MiFID II own-account analysis lapsed unresolved, meaning a future retail-harm event can revive it at any time, and national authorities can move unilaterally — Italy’s warning shows the marketing surface is already being policed. Brokers with prop-firm B2B revenue lines (the Axi Select model) should map which entity in the chain would need authorisation if a national competent authority decides a funded account is a CFD by another name — the same perimeter mapping now standard for crypto perpetual futures and for best-execution obligations across the EU, UK and US.

For fund managers and acquirers, the FTMO-OANDA transaction is the template to study: buying an RFED converts an unregulated challenge business into a regulated dealer group, at the price of capital requirements and CFTC examination exposure. The 885-strong US IB population gives futures-prop firms a well-trodden, cheaper alternative path.

“The CFTC made false representations to the Court… and acted willfully and in bad faith on several occasions by failing to fully correct the prior incorrect statements.”

— Jose L. Linares, Special Master and former Chief Judge, US District Court for the District of New Jersey, report and recommendation of May 13, 2025 (CFTC-hosted court document)

The forward view: what’s pending and what’s contested

Three threads matter into 2027. First, the US formalisation trend has momentum but no rulemaking behind it: the CFTC has issued no official statement on prop-firm legality since the Traders Global dismissal, so each registration is a private bet on where the perimeter will land. Watch for NFA guidance on prop-firm marketing and for whether the agency’s next enforcement theory targets payout failures rather than counterparty structure — consumer-harm cases are less exposed to the perimeter question. Second, in the EU, the question is dormancy versus trigger: a large prop-firm collapse with EU retail victims would put the file back on ESMA’s table quickly, and the 7% payout statistic is the kind of number consumer-protection mandates are built on. Third, the offshore migration continues — Mauritius and similar hubs are absorbing structures that want a licence artefact without conduct supervision, which shifts the eventual enforcement burden to marketing rules in consumer jurisdictions, the pattern Italy has already started. The asymmetry with the sector’s growth — German search demand up 1,050% — is the gap this industry’s next crisis will occupy.

FAQ

Do prop firms need a licence in the US?

There is no prop-firm-specific licence. Registration triggers depend on structure: firms acting as counterparties to real retail off-exchange forex need RFED status under Section 2(c)(2)(C) of the Commodity Exchange Act; firms routing real futures orders typically register as Introducing Brokers; advisory models register as Commodity Trading Advisors. Fully simulated challenge businesses currently operate without registration, though the CFTC has never formally blessed that position.

Are funded-trader challenges regulated in the EU?

Not as such. MiFID II authorisation under Article 5 of Directive 2014/65/EU applies only where a financial instrument is involved, and a simulated challenge arguably involves none. ESMA explored whether the model falls under own-account dealing during 2024-25 but confirmed on July 2, 2026 that no substantive discussions are under way, leaving national authorities to act case by case.

What happened in the My Forex Funds case?

The CFTC sued Traders Global Group on August 29, 2023, alleging counterparty fraud, and froze the firm’s assets. A Special Master later found the agency had misrepresented a CAD $31.55 million Canadian tax payment as asset dissipation. On May 13, 2025, Judge Edward S. Kiel dismissed the case with prejudice and ordered the CFTC to pay more than $3 million in fees — the first CFTC enforcement dismissal of its kind with terminating sanctions.

Why are US prop firms registering if no rule requires it?

Three reasons: market access (IB status lets firms route real futures flow through clearing partners such as NinjaTrader), acquisition insurance (registered status reduces the risk that a future rulemaking strands the business model), and marketing (regulated status differentiates in a market where roughly 14% of firms failed in two years). Registration is a hedge against an unresolved perimeter, not compliance with a settled one.

Which jurisdictions have acted against prop firms?

The US brought the only major enforcement case (which failed on agency misconduct). Italy’s Consob issued a 2024 public warning describing prop-firm marketing as promoting a finance “video game”. Most other authorities — including CySEC, which hosts much of the sector’s corporate infrastructure — describe their posture as monitoring. No EU-level action exists.

What should compliance teams document today?

Simulated-only operators should evidence that customer funds never face market risk and that payout liabilities are funded and segregated. Hybrid operators should map every entity that touches real order flow against the registration triggers in each target jurisdiction, and align marketing claims with the simulated/live distinction — misleading marketing is the enforcement surface regulators are policing first.

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.