European regulators have quietly stepped away from the question of how to police retail prop trading, even as the industry posts some of the fastest growth it has ever seen. According to comments given to Finance Magnates by Dr George Theocharides — chairman of Cyprus’s CySEC and head of ESMA’s Risk Standing Committee — the European Securities and Markets Authority is “not currently engaged in any substantive discussions regarding retail prop trading.” A year ago the sector was, in his words, “on the radar.” Today it has slipped down Paris’s pecking order just as the United States moves in the opposite direction.
For the thousands of traders buying evaluations from prop firms every week, the regulatory temperature on both sides of the Atlantic matters more than it first appears. It shapes which firms survive, how payouts are protected, and whether the “funded account” you trade is treated as a financial product or something closer to a game.
ESMA Says Prop Trading Isn’t a Priority — For Now
Two years ago there was a real expectation in the market that retail prop trading would be folded into MiFID II, the EU framework that governs traditional proprietary trading. That conversation has cooled. ESMA declined to comment directly, but Theocharides made clear the topic is being monitored only “as part of broader market developments” and “does not appear to rank among the Authority’s immediate priorities, given the relatively limited size of the sector.”
Put plainly: in the regulator’s eyes the sector is still too small to justify dedicated rule-making. That is a defensible position today. It may not hold for long, because the numbers underneath it are moving fast.
A Booming Market Built on a Legal Grey Area
The growth is hard to ignore. Google Trends data cited by Finance Magnates shows search interest in “prop firm” climbing across the UK, US and Germany over five years — with Germany posting an extraordinary surge of more than 1,050%, peaking in February 2026. The audience skews young: Gen Z and millennial traders drawn to the promise of trading large capital without risking their own savings. Two firms, FundingPips and FundedNext, even landed on Deloitte’s 2026 Fast 50 list for the Middle East and Cyprus.
Yet the model sits in an uncomfortable legal space. Most prop firms are not financial institutions at all — they describe themselves as simulation platforms or educational providers. For anyone trying to separate genuine opportunity from marketing gloss, understanding how proprietary trading firms actually operate is the single most useful piece of due diligence. The economics are unforgiving: figures from FPFX suggest only about 7% of traders who buy a challenge ever reach a payout, which means firms lean heavily on evaluation fees from the 93% who fail. Before paying any entry fee, it is worth understanding the profit-split economics that determine whether a firm is built to pay traders or simply to collect fees.
Brokerage and Prop Are Merging — and That Complicates Everything
The “educational platform” label is getting harder to defend, because the industry is structurally converging with regulated brokerage. FTMO has acquired retail broker OANDA; The Trading Pit launched its own CFD broker, TTP Markets; Australia’s Axi rolled out a prop arm in Axi Select; and ATFX introduced ATFunded. The direction of travel is unmistakable.
Much of this was triggered by MetaQuotes’ 2024 crackdown, when it pulled MT4 and MT5 licences from prop firms and pushed brokers to drop them as clients or lose access themselves. Firms had to migrate platforms or buy broker licences outright — and many secured brokerage licences in lighter-touch jurisdictions such as Mauritius. FM Intelligence estimates that up to 100 prop firms shut down between early 2024 and late 2025, wiping out roughly 14% of the market.
The merge creates a funnel: a low-cost challenge attracts a beginner who is then converted into a traditional brokerage client trading their own money. ATFX said it had converted more than 10% of its prop traders into brokerage clients in South America before pausing ATFunded to assess whether the model is sustainable. That fragility is also why the instant-funding model attracts so much scrutiny — when a business depends on a steady stream of new sign-ups, any slowdown can turn into a liquidity problem fast.
The US Is Walking the Opposite Path
While Europe steps back, Washington is stepping forward. Large American firms are already seeking registration with the CFTC. Topstep, for example, is now a registered Introducing Broker, routing client orders to a Futures Commission Merchant — Plus500 — for execution and clearing. The shadow of the 2023 CFTC raid and asset freeze against My Forex Funds still looms, and a “better safe than sorry” posture is taking hold. Traders comparing US futures prop firms such as Topstep and Apex are increasingly treating regulatory standing as a differentiator, not just pricing.
There is no equivalent push in Europe. Under MiFID II a firm would generally need a Reception and Transmission of Orders licence to route client orders and earn commissions on those trades — but no European prop firm has signalled it is heading in that direction.
What This Means for the Broader Prop Industry
The regulatory gap now opening between Europe and the US is more than a bureaucratic footnote. It will quietly influence where firms incorporate, how aggressively they can market, and which operators traders should trust with their money. A US sector inching toward CFTC oversight is, for all its friction, building a paper trail and an accountability structure. A European sector left in regulatory limbo keeps its flexibility — but also keeps the grey area that has allowed staged “security breach” marketing stunts, misleading “funded account” language, and a wave of copycat firms competing on unsustainable perks.
For traders, the practical takeaway is simple: the regulatory wrapper around a “funded account” varies enormously by firm and by jurisdiction, and right now nobody in Brussels is rushing to standardise it. That places the burden of due diligence squarely on the individual. Knowing where a firm is licensed, how it actually generates revenue, and whether it has a regulated brokerage behind it tells you far more about payout safety than any marketing page. Newer participants in particular should treat firm selection as a risk decision first — which is why choosing among the best prop firms for beginners should start with stability and track record, not the size of the discount on offer.
Europe’s stalemate will probably hold until something forces a rethink. As the industry itself acknowledges, it may take a high-profile scandal — another My Forex Funds moment — to pull retail prop trading back onto ESMA’s agenda. Until then, the divergence between a tightening US and a hands-off Europe is the defining regulatory story of the sector.
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Source: Finance Magnates
