UK regulator couldnʼt provide data on supervisory of ‘neo-brokersʼ

The UK Financial Conduct Authority (FCA) has been unable to provide data on the enforcement and supervisory measures it has taken against ‘neo-brokersʼ. This is despite having recently conducted a multi-firm review of these digital-only financial services firms. 

In a Freedom of Information request, FOI12180, Compliance Corylated asked the regulator for a list of: FCA-imposed voluntary requirements; rejected neo-broker applications; enforcement investigations; and s166 (skilled person) reviews for neo-brokers. In its April 22 response, the FCA said it has “only very recently formulated a working definition of neo-brokers” and therefore does not hold “a readily accessible list”.

Yet the FCA recently surveyed 27 trading platforms in its multi-firm review published on April 11, addressing their good and bad practices. This reported: “Trading apps, commonly known as ‘neo-brokersʼ, have allowed more retail investors easier access to a wider range of investments. We issued a survey to 28 firms and received 27 responses, although two firms had not started trading at the time.”

The FCA told us it does not “currently categorise firms specifically as neo-brokers in our records” and, as a result, does not hold a definitive list dating back to 2020. However, its multi-firm review also examined trading apps offered by traditional investment brokers — suggesting the FCA had differentiated between traditional and neo-brokers.

Defined as neo-brokers

Compliance Corylated asked a financial services regulation expert what it means to be defined as a “neo-broker” by the FCA.

Michael Thomas, a partner in the financial services team at law firm Hogan Lovells, explained: “What that generally means is that [the FCA] has identified a category of investment firm that provides services to clients in a specific way, and that comes with particular regulatory considerations relevant to that business model.

“For example, enabling retail customers to trade in securities or other types of financial instruments — especially where there’s no individual directly involved in the transaction process — doesn’t remove the regulatory obligations.”

The FCA’s definition of neo-brokers is based on firms’ business models that offer commission-free or low-cost digital platforms for execution-only trading of financial instruments, such as equities, fractional shares and exchange-traded funds (ETFs). This definition may also include related services, including securities or margin lending, and access to higher-risk products such as crypto assets and contracts for difference (CFDs), said the FCA in the FOI.

Neo-brokers in Europe

The European Securities and Markets Authority (ESMA), meanwhile, identified 27 EU-based neo-brokers in its 2024 report, which noted that only 11 out of 27 firms were authorised by national competent authorities (NCAs). EU-based neo-brokers have about 10 million client accounts across Europe, with eToro, Robinhood and Trade Republic covering 72% of these. The most common types of financial instruments traded are shares, ETFs, CFDs, derivatives and crypto assets.

Similarly, ESMA defines neo-brokers as “new digital-only investment firms that enable retail investors to invest and trade online, often with low commissions or zero-commission trading”.

The EU watchdog highlighted that neo-brokers primarily generate revenue through “payment for order flow” (PFOF), a practice where brokers are paid by market makers for directing client orders to their platforms. Under the Markets in Financial Instruments Directive II (MiFID II), there is an EU-wide ban on PFOF, with a phased-out approach until June 2026.

The International Organization of Securities Commissions (IOSCO) also highlighted neo-brokersʼ compliance weaknesses in a March consultation report, in which the FCA shared its experiences of regulating neo-brokers.