Does a prop firm need a licence?
An evaluation firm sells a challenge on a simulated account and pays a share of simulated profits. Whether that is a regulated activity has no consistent global answer: regulators apply their existing rules, and the answer depends on where your company is, where your traders are, and how your model works.
The best-known test case did not settle it. In May 2025 a US federal judge dismissed the CFTC's case against the company behind My Forex Funds with prejudice, as a sanction for the CFTC's own conduct, and ordered the agency to pay legal fees 1. The court never ruled on whether the funded-account model needs registration, so the question remains open.
Choosing where to incorporate
Founders often pick a jurisdiction for tax. The better test is whether your partners will accept it.
- Platform vendors. Some ask for corporate substance, not just a certificate. In our experience MetaTrader 5 needs a broker backing you or a dedicated licence of your own, and a Saint Lucia licence is accepted.
- Payment providers and banks. They decide whether you can take money at all, and some jurisdictions make that much harder.
- Tax and accounting. Where profit is taxed, VAT on challenge fees, and how payouts to traders are treated.
- Where your traders are. Rules on marketing and consumer protection follow your customers as well as your company.
Terms and conditions that hold up
Your terms are the contract every dispute is judged against. Vague terms lose disputes, and then reviews. Make sure they cover:
- Every rule a trader can break, written the way your platform actually enforces it.
- How a breach is decided, what evidence you rely on, and how a trader can contest it.
- Payout conditions: when a trader can request one, how long it takes, and what can delay it.
- Refunds and chargebacks: what happens to fees after a failed challenge.
- Governing law and complaints: which courts and which process apply.
Marketing and wording
Describe the product as it is. If accounts are simulated, say so, and do not imply that traders manage your capital when they do not. Avoid wording that suggests a regulatory status you do not have. Regulators and payment providers read your website, and the words on it can decide how both classify you.
Where you can sell
Sanctions, the FATF call-for-action list and your partners' own restrictions decide which countries you must block. The KYC hub sets out how to tier them.
Countries, sanctions and fraud dataWhich countries to block, which to watch, and how to use your own KYC data.Read the KYC hubGet an introduction
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