Retail “prop trading” firms that sell funded-account challenges are being pulled toward the regulatory perimeter across the US, EU, UK and Australia in 2026 — but the collapse of the CFTC’s flagship My Forex Funds case has left the United States without the precedent it wanted, even as European and Australian regulators tighten the screws through leverage caps and marketing rules.

The retail proprietary-trading industry — firms that charge traders an evaluation fee for the chance to trade a “funded” account and split the profits — is converging on a regulatory reckoning in 2026. The pivotal event is not a new rule but a courtroom defeat: on May 13, 2025, a US federal judge dismissed the Commodity Futures Trading Commission’s (CFTC) fraud case against Traders Global Group, the parent of My Forex Funds, with prejudice and sanctioned the agency. That outcome reshapes how regulators on three continents now approach a model most of them have never formally authorised. This analysis compares four jurisdictions and sets out what compliance teams should expect next.

Key Facts:

• The CFTC charged Traders Global Group (trading as My Forex Funds) and founder Murtuza Kazmi in August 2023, alleging fraud exceeding $300 million from retail customers in simulated trading — CFTC Release 8771-23
• The case was dismissed with prejudice on May 13, 2025 in CFTC v. Traders Global Group, Inc., No. 1:23-cv-11808 (D.N.J.) — court record
• The court imposed Rule 11 sanctions of more than $3 million in attorneys’ fees and costs on the CFTC — Quinn Emanuel
• A CAD $31.55 million transfer the CFTC called suspicious was in fact a legitimate tax payment to the Canada Revenue Agency — court opinion
• EU retail forex leverage is capped at 1:30 under ESMA product-intervention measures; the UK (FCA) and Australia (ASIC) apply the same 30:1 ceiling, while US retail forex sits at 50:1 — ESMA / FCA / ASIC / NFA
• Germany’s BaFin and Italy’s Consob have issued investor warnings on high-leverage CFDs marketed by prop firms — regulator notices

Methodology and sources

This analysis draws on primary documents: the CFTC’s 2023 charging release (8771-23), the docket and dismissal order in CFTC v. Traders Global Group, Inc. (D.N.J.), and the published product-intervention measures of ESMA, the FCA and ASIC. It compares four jurisdictions — the United States, the European Union, the United Kingdom and Australia — as of June 2026, focusing on the retail funded-account model rather than institutional proprietary trading. Caveats: the funded-trader sector is fast-moving and largely operates through offshore entities, so registration data is incomplete; several regulators are mid-consultation, and positions cited here reflect the state of play in mid-2026 and may shift as rules finalise.

The model regulators are circling

The retail prop-firm model is simple to describe and hard to classify. A trader pays an upfront fee — typically $50 to $1,000 — to attempt an “evaluation” or “challenge,” hitting profit targets without breaching drawdown limits. Pass, and the firm grants a “funded” account; the trader keeps a share of any profit, often 80% to 90%. The regulatory question is what that account actually is. In most cases the customer is trading a simulated or demo account against the firm’s own risk engine, not live markets, with the firm acting as counterparty. That structure sits awkwardly between gambling, a forex brokerage, and an unregistered collective investment or advisory arrangement.

Are retail prop firms regulated? For the most part, historically, no. The majority of funded-account providers have operated without registration with the National Futures Association (NFA) in the United States or authorisation from the Financial Conduct Authority (FCA) in the United Kingdom, positioning themselves as sellers of “educational” or “simulated” products rather than financial services. That gap is now closing. The CFTC, FCA, ASIC and EU national authorities have all signalled that a fee-for-evaluation, profit-share model can fall within their perimeters depending on whether real customer funds are at risk and whether the firm is, in substance, soliciting retail traders to speculate. The industry’s defence — that no client money touches live markets — is precisely the feature that invites the fraud and mis-selling questions regulators are now asking.

The case that was meant to set precedent — and collapsed

The CFTC’s August 2023 action against My Forex Funds was, on paper, the template enforcement: a headline fraud figure exceeding $300 million, a named founder, and an asset freeze. The agency alleged the firm misled customers about how their accounts worked and profited by ensuring traders failed.

“The CFTC’s case against the ‘My Forex Funds’ defendants is emblematic of our commitment to stamping out retail fraud in our markets. Anyone offering or entering into leveraged retail forex contracts without registration, or offering or entering into leveraged retail commodity contracts off-exchange, is acting in clear violation of the law.”

— Ian McGinley, Director of Enforcement, Commodity Futures Trading Commission (CFTC)

The case did not survive contact with the evidence. The CFTC told the court that a CAD $31.55 million transfer pointed to asset dissipation; in reality it was a routine corporate tax payment to the Canada Revenue Agency, and the agency knew it before seeking the freeze. A Special Master recommended dismissal and sanctions, and Judge Edward S. Kiel dismissed the case with prejudice on May 13, 2025, ordering the CFTC to pay more than $3 million in fees and costs.

Jurisdiction / Regulator	Status in 2026	Key requirement / stance	Retail FX leverage cap / sanction
US (CFTC / NFA)	Aggressive intent, weakened hand after My Forex Funds dismissal	Off-exchange leveraged retail forex requires registration; debate over reclassifying firms as Commodity Trading Advisors (CTAs)	50:1; civil penalties — but $3m+ in sanctions ran against the CFTC in this case
EU (ESMA + BaFin, Consob)	Product-intervention regime plus national warnings	Leverage caps and CFD marketing limits; national regulators warn on prop-firm CFDs	30:1; national fines under MiFID II transposition
UK (FCA)	Financial-promotions and authorisation scrutiny rising	CFD leverage limits; unauthorised solicitation of retail clients in scope	30:1; unlimited fines and unauthorised-business action
Australia (ASIC)	Product-intervention order in force, active surveillance	CFD leverage and distribution limits; design-and-distribution obligations	30:1; civil penalties and licence action

Sources: CFTC Release 8771-23; ESMA, FCA and ASIC product-intervention measures; BaFin and Consob investor warnings. Last updated: June 2026.

How four jurisdictions actually treat the funded-account model

The comparison table shows convergence on outcome but divergence on mechanism. In the European Union, regulators have not needed a bespoke prop-firm rule: ESMA’s product-intervention measures cap retail forex leverage at 1:30 and restrict CFD marketing, and national authorities such as Germany’s BaFin and Italy’s Consob have issued warnings naming the high-leverage CFD exposure that sits behind many funded-account products. The United Kingdom’s FCA applies the same 30:1 ceiling and leans on its financial-promotions and authorisation regimes — a firm soliciting UK retail traders without authorisation is exposed regardless of how it labels the product. Australia’s ASIC has run a CFD product-intervention order since 2021 and pairs it with design-and-distribution obligations that force issuers to define a target market.

The United States is the outlier. Its statutory hook — registration for off-exchange leveraged retail forex and commodity contracts — is arguably the strongest, and the live debate over whether evaluation-fee firms should register as Commodity Trading Advisors could be the most consequential reclassification of all. Yet the My Forex Funds defeat has blunted the CFTC’s willingness to bring the next marquee case quickly. The agency has the theory; what it lost was the credibility of its execution, and defendants now have a template for fighting back. For the EU’s parallel move to bring proprietary trading inside the regulatory net, see our analysis of how EU regulators are pulling prop trading inside MiFID II, and on the leverage backdrop, why 2026 retail FX rules move beyond the 30:1 cap.

What this means for prop firms, brokers and compliance teams

For prop firms, the operational message is that the “it’s only simulated” defence is necessary but no longer sufficient. Regulators are looking through the demo-account label to the economic substance: who bears risk, how marketing represents the odds of success, and whether profit-share arrangements amount to soliciting speculative trading. Firms that publish pass-rate and payout statistics, segregate any real client funds, and avoid leverage claims that breach local caps will be better placed than those relying on offshore incorporation alone.

For brokers and liquidity providers, counterparty due diligence now carries regulatory tail-risk: servicing an unregistered prop firm that is later reclassified can pull a regulated broker into the perimeter. For compliance and legal teams, the My Forex Funds dismissal is a double-edged lesson. It shows that aggressive asset-freeze tactics can backfire when the underlying evidence is thin — but it does not validate the model. The court sanctioned the regulator’s conduct, not the firm’s business. The CTA-reclassification debate in the US and the financial-promotions perimeter in the UK remain live exposures.

“The CFTC’s conduct, which was undertaken over the course of a year and involved numerous instances of sanctionable behavior, was willful and undertaken in bad faith.”

— US District Court for the District of New Jersey, opinion in CFTC v. Traders Global Group, Inc. (Quinn Emanuel)

What did the My Forex Funds dismissal actually decide? Narrowly, it decided that the CFTC mishandled its own case — misrepresenting a Canadian tax payment as asset dissipation and earning more than $3 million in Rule 11 sanctions. It did not rule that the funded-account model is lawful, nor did it define how such firms should be classified. For the industry, that is a reprieve, not a green light: the next regulator to act will simply be more careful with its evidence. The substantive questions — whether evaluation fees fund a regulated activity, whether profit-share is advisory, and whether simulated accounts marketed to retail traders need authorisation — remain entirely open across all four jurisdictions examined here.

The forward view: reclassification, registration and what’s contested

Three threads will define 2026 and 2027. First, registration: expect at least one major jurisdiction to move toward mandatory registration for firms offering funded accounts, likely paired with disclosure of pass rates and average payouts. Second, reclassification: the US CTA debate, and parallel questions in the EU about whether the model is a MiFID investment service, could force firms to choose between authorisation and exit. Third, enforcement posture: after the My Forex Funds sanctions, the CFTC will be slower and more evidence-driven, which paradoxically may push the first clean precedent to the FCA or ASIC, whose product-intervention and promotions tools do not require proving fraud. For the broader split in US market-structure authority that frames the CTA question, see our explainer on how the CLARITY Act carves jurisdiction between the SEC and CFTC and how the CFTC’s crypto-perpetuals opening splits four markets.

FAQ

Are retail prop trading firms regulated?

Mostly not directly, though that is changing. Most funded-account firms have operated without NFA registration in the US or FCA authorisation in the UK, marketing “simulated” products. Regulators in all four jurisdictions examined are now testing whether the model falls within their perimeters.

What happened in the CFTC’s My Forex Funds case?

The CFTC charged Traders Global Group in August 2023 alleging fraud exceeding $300 million. A US federal court dismissed the case with prejudice on May 13, 2025 and imposed more than $3 million in Rule 11 sanctions on the CFTC after it mischaracterised a CAD $31.55 million tax payment as asset dissipation.

Does the dismissal mean prop firms are legal?

No. The court sanctioned the regulator’s conduct, not the business model. Whether evaluation fees and profit-share arrangements constitute regulated activity remains an open question in the US, EU, UK and Australia.

What leverage caps apply to the CFDs behind funded accounts?

The EU (ESMA), UK (FCA) and Australia (ASIC) cap retail forex leverage at 30:1; US retail forex is capped at 50:1 by NFA rules. National regulators including BaFin and Consob have warned on high-leverage CFDs marketed by prop firms.

Could prop firms be reclassified as advisers?

Possibly. In the US there is active debate over registering evaluation-fee firms as Commodity Trading Advisors, and EU authorities are weighing whether the model is a MiFID investment service. Reclassification would force firms to seek authorisation or exit a market.

Which regulator is most likely to set the next precedent?

After the My Forex Funds sanctions, the FCA or ASIC may act first, because their product-intervention and financial-promotions powers do not require proving fraud — a lower evidential bar than the CFTC’s failed fraud theory.

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.