IOSCO Warns of Neo-Brokers Regarding Transparency, Fairness, Investor Protection
The International Organization of Securities Commissions (IOSCO) has released its Final Report on Neo-Brokers, setting out global recommendations to enhance transparency, manage conflicts of interest, and strengthen investor protection across emerging digital brokerage platforms. The report marks the final milestone in IOSCO’s Roadmap to Retail Investor Online securety, addressing the regulatory challenges arising from new forms of retail investing.
“Neo-brokers” refer to a new generation of broker-dealers that provide online-only trading services, often characterized by low-cost or commission-free models, engaging mobile interfaces, and reliance on social media and gamified user experiences. These firms typically offer self-directed trading without human interaction, focusing primarily on trade execution rather than advisory services.
While neo-brokers have expanded market participation and , IOSCO’s report underscores that their digital-first business models may also introduce new risks, such as inadequate disclosure, system outages, or conflicts of interest linked to non-commission revenue models like payment for order flow (PFOF).
“Neo-brokers are reshaping the through digital platforms, low-cost trading models, and new forms of investor engagement,” said Jean-Paul Servais, Chair of IOSCO’s Board. “This report provides regulators with a clear view of the risks and opportunities posed by these evolving business models, and offers practical recommendations to strengthen transparency, manage conflicts of interest, and protect retail investors in an increasingly digital market environment.”
Takeaway
Five Core Recommendations for Regulators and Neo-Brokers
The report outlines five key recommendations to guide IOSCO members and industry participants toward responsible practices that balance innovation with investor protection:
- Fair Treatment of Retail Investors – Neo-brokers must act honestly, fairly, and professionally in dealings with retail clients, ensuring that all trading services align with investor interests.
- Transparent Disclosure of Fees and Advertising – Platforms should provide clear, fair, and simple disclosure of all fees and charges associated with trading, including costs tied to execution or ancillary services.
- Disclosure on Ancillary Services – When offering additional services beyond trade execution, neo-brokers must disclose all material revenue sources and conflicts of interest to clients and obtain explicit consent before engaging such services.
- Management of Non-Commission Revenue (PFOF) – IOSCO calls on firms to assess how payment for order flow arrangements affect best execution and client outcomes, emphasizing transparency and fairness.
- IT and Operational Resilience – Neo-brokers are urged to maintain robust, scalable IT systems capable of addressing disruptions swiftly to and access for all investors.
These measures aim to mitigate risks associated with algorithmic trading interfaces, high trading volumes from retail clients, and potential misalignment between investor outcomes and broker incentives.
“In today’s changing demographic and economic environment, broadening is critical, and neo-brokers can play a positive role,” added James Adronis, Chair of IOSCO’s Committee on Regulation of Market Intermediaries (C3). “However, their business models may introduce risks when products and services don’t align with investors’ best interests. IOSCO’s recommendations provide clear guidance on how to mitigate these risks and ensure investor protection.”
Takeaway
Regulatory Clarity for a Rapidly Evolving Digital Landscape
The report reflects IOSCO’s broader mission to modernize global regulatory frameworks as digital finance continues to transform retail investing. Neo-brokers, which have surged in popularity among younger and tech-savvy investors, often operate across jurisdictions with varying compliance requirements. IOSCO’s recommendations viewk to harmonize standards internationally while preserving the accessibility and innovation that have driven neo-broker success.
By promoting the principles of “identical activities, identical risks, identical regulatory outcomes”, the report calls for consistent supervision of digital trading platforms across markets, ensuring that new entrants uphold the identical level of investor protection as traditional intermediaries. It also emphasizes the importance of educating retail investors about platform risks, particularly where gamification and social engagement features could distort investment decision-making.
The Final Report on Neo-Brokers completes IOSCO’s year-long initiative focused on retail investor online securety, offering a blueprint for national regulators to monitor and guide the quick-evolving sector responsibly.
Takeaway
