PFOF: Bafin specifies rules for neobrokers

What Changed

• - Credit institutions and investment firms are no longer permitted to accept payments, fees, commissions or non‑monetary benefits from third parties (e.g. market makers, proprietary traders, trading venues) in return for forwarding client orders for
• The prohibition applies to the forwarding of both retail and professional client orders and covers any form of economic benefit linked to routing orders to a specific counterparty or venue.
• Germany’s previous use of the MiFIR national exemption for domestic clients has ended; there is no longer any national carve‑out for PFOF in relation to clients resident or established in Germany.
• BaFin’s supervisory statement specifies how firms must interpret and apply the EU‑level PFOF ban in practice, including alignment with ESMA’s interpretative decisions on the scope of prohibited benefits and routing arrangements.
• The stated regulatory objective is to improve the quality of client order execution and prevent conflicts of interest arising from execution venues or market makers incentivising brokers to route flow to them.
• Any business models that relied on third‑party kickbacks or rebates for order routing (e.g. zero‑commission neobroker models funded by PFOF) must be discontinued or restructured to remove such third‑party remuneration links.

Suggested Considerations

• Identify and map all current remuneration streams linked to order routing, including explicit PFOF arrangements, volume‑based rebates, and other benefits from market makers or venues, and cease any arrangements that constitute PFOF or similar third‑party inducements for forwarding orders.
• Review and update MiFID II / MiFIR inducement policies to explicitly classify PFOF and similar execution‑related rebates as prohibited benefits, ensuring no reliance on inducement disclosure or quality‑enhancement arguments to justify them.
• Amend best‑execution policies and procedures to remove any consideration of third‑party payments from venues or market makers in the execution‑venue selection process and to emphasise price, cost, speed, likelihood of execution, and other MiFID II best‑execution factors.
• Conduct a conflicts‑of‑interest assessment to identify any residual incentives or arrangements that could compromise the duty to act in the best interests of clients in order routing, and implement mitigation measures or remove such conflicts where necessary.
• Redesign pricing and revenue models for neobroker and low‑fee brokerage services to replace PFOF‑funded “zero‑commission” offerings with compliant alternatives, such as explicit commissions, spreads, subscription fees, or other transparent charges.
• Update client agreements, terms and conditions, pre‑contractual information, and cost and charges disclosures to reflect both the cessation of PFOF and any new fee structures, ensuring that changes are communicated clearly and in good time.

Key Dates

Who is Affected