Two firms can look identical on a website and sit in completely different regulatory categories. One routes every client order to a liquidity provider and earns a markup. The other holds the opposite side of the trade on its own book. The screens look the same to a client. The permission set, the capital, the reporting and the supervisory attention are not remotely the same.
Regulatory perimeters are drawn around activities, not around business names. So the first job is not choosing a country. It is writing down, in plain sentences, what the firm will actually do, and then finding the activity descriptions that catch it.
The questions that decide the category
A short list separates most retail trading businesses. Does the firm take the other side of a client trade, or does it always act as agent. Does it hold client money, or does a third party hold it. Does it give personal recommendations. Does it manage anyone's money on a discretionary basis. Does it operate a venue where third party orders meet. Does it introduce clients to another firm without executing or holding funds.
Each yes pulls in a different activity. Dealing on own account is the heaviest of the common ones because the firm carries market risk against its own clients, which is why it usually attracts the highest capital floor and the most detailed conflict of interest expectations. Holding client money adds a whole separate regime of segregation, reconciliation and audit, described in client fund segregation. Advice and discretionary management add suitability obligations that a pure execution business never touches.
Introducing is the lightest, and the most misunderstood. In several regimes an introducer who never touches client funds and never executes needs registration or an appointed representative arrangement rather than a full licence. In others the activity of arranging deals is itself regulated. Assuming the lighter answer without checking is how firms end up doing unlicensed regulated activity, which is not a paperwork problem.
The perimeter that matters is the one where the client is, not only the one where the company is. Soliciting retail clients in a jurisdiction generally engages that jurisdiction's rules regardless of where the entity sits. The reverse solicitation exception, where it exists at all, is far narrower than marketing teams assume.
Prop firms sit in an unresolved space
Firms that sell evaluations and fund traders on simulated accounts have been the hardest category to place, because the traditional definitions were written for firms that execute client orders with client money. A model where the participant pays a fee, trades a demo environment, and receives a share of a notional result does not fit neatly into dealing or agency execution. Several supervisors have published statements and consultations examining whether particular variants amount to a regulated investment activity, and outcomes differ by jurisdiction and by the exact mechanics of the offer.
The features that tend to attract attention are whether the participant's own money is at risk in a way that resembles a trade, whether the account is live rather than simulated, whether the payout is a share of real market profit, and how the product is marketed. Two prop firms with different rulebooks can land on different sides of the same test. We set out the current state of the argument in the prop firm MiFID question. Anyone building in this space needs jurisdiction specific legal advice on their own mechanics, not a general answer.
Where the model changes the jurisdiction shortlist
Once the activities are named, the shortlist narrows fast. A firm intending to serve retail clients inside the European Economic Area realistically needs an authorised investment firm inside it, because passporting only works from inside and the third country routes are narrow. An offshore registration does not solve that, whatever the marketing around it says, and the consequences are covered in offshore firms marketing into the EU.
A firm serving clients across Asia, the Middle East and Latin America has a wider set of options, and the deciding factor is often not the regulator at all. It is which counterparties will deal with the resulting entity. Banking, card acquiring, liquidity and platform vendors all rate jurisdictions independently, and a licence that is cheap to obtain can leave a firm unable to take card payments. That trade off is the real content of offshore versus onshore costs.
Structure follows the model, not the other way round
Multi entity structures exist because one company rarely fits every activity and every market. A common pattern places the regulated execution entity in one jurisdiction, a technology or marketing entity in another, and a holding company above both. That is legitimate when each entity does what its documents say and the intragroup agreements are real. It becomes a problem when the structure exists to make it look as though activity happens somewhere it does not. Supervisors and banks both test that, and both apply the same question: does the activity happen where the documents say it happens.
Whatever the model, the plan filed with the regulator has to describe it accurately, which is why model selection and drafting belong together. Regulatory classification is jurisdiction specific and changes; treat this as background and take advice from counsel where the firm and its clients actually are.
"Decide whether you are taking the other side of client trades before you decide which country to file in. Everything downstream depends on that one answer."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Regulatory perimeters attach to activities, so define what the firm will do before shortlisting any jurisdiction
- Dealing on own account, holding client money, advising and managing each add distinct obligations and capital consequences
- Prop firm evaluation models sit in a category regulators are still resolving, and outcomes depend on the exact mechanics of the offer
- For retail clients inside the EEA an offshore registration does not substitute for authorisation inside it
Frequently Asked Questions
Is an introducing broker always required to be licensed?
It depends on the jurisdiction and on what the introducer does. Where the introducer never handles client money and never executes, some regimes use registration or an appointed representative arrangement instead of full authorisation. Others treat arranging deals as a regulated activity in its own right.
Does a prop firm need an investment firm licence?
There is no single answer. Supervisors have been examining whether particular evaluation and funding models amount to regulated activity, and the analysis turns on details such as whether accounts are simulated, whether client money is at risk and how the product is marketed. Firms need advice on their own specific mechanics.
Can one licence cover clients in every country?
No. Passporting works inside specific blocs, and outside them each jurisdiction decides who may solicit its residents. Firms serving several regions usually end up with more than one authorisation or with restricted target markets.
About the Author
Alex Onta is an Executive Director at SINGUARD. He built eTrader, the terminal, the mobile apps, eTrader Broker, Copytrading, Business and Community, along with the worldwide clustered-server infrastructure it all runs on, with his brother Roman Onta helping on the design, and he leads that division today. Together with Roman he builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals, and the two of them carry worldwide compliance, payment processing and international business structuring side by side. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.