What EU Regulators Should Know About Neobrokers’ Retail Securities Lending

Neobrokers have transformed retail investing across Europe. App-based onboarding, low entry thresholds and low-cost, execution-only services have attracted a new wave of younger and first-time investors.

As the EU prepares to ban Payment for Order Flow (PFOF) from 2026, many digital brokers are moving away from trading-based revenues and towards business models that monetise client-held assets, most notably through securities lending.

While securities lending can generate additional income, BETTER FINANCE’s latest neobroker report finds that it also exposes retail investors to counterparty, collateral, operational and shareholder-rights risks, often with limited transparency and uneven protection.

Neobrokers and the Shift in Revenue Models

Neobrokers have significantly expanded retail participation in EU capital markets. In the EU alone, client assets grew from around €10 billion in 2018 to almost €150 billion in 2023. By 2022, nearly one in five Europeans aged 25 to 34 was active on a neobroker platform.

Unlike traditional brokers, many neobrokers do not rely on fixed execution fees. Instead, they generate income through alternative revenue streams, often involving third parties. With the ban on PFOF removing a key source of income for some platforms, securities lending is increasingly being promoted as a replacement.

What is retail securities lending?

Securities lending involves the temporary transfer of securities to a borrower in exchange for collateral and a fee, with equivalent securities returned at the end of the loan or upon recall. It supports activities such as short selling, market making and settlement efficiency and largely operates over the counter.

Although described as “lending”, legal ownership of the securities typically passes to the borrower during the loan period. This exposes the original owner to counterparty, collateral and operational risks.

Traditionally an institutional back-office activity, securities lending has been repackaged by neobrokers as a retail-facing product. It is usually offered as an opt-in feature and marketed using terms such as “passive income” or “stock yield enhancement”. While this can increase transparency and allow retail investors to share in revenues, it also transfers institutional-style risks to non-professional investors.

BETTER FINANCE’s Key Findings

BETTER FINANCE supports wider retail participation in capital markets, but not at the expense of transparency, investor protection or value for money. Its latest research highlights several recurring issues across neobroker securities-lending programmes.

Income sharing exists, but transparency is weak

Many platforms advertise headline revenue splits such as “50/50”. In practice, these typically apply only to net income after undisclosed costs and margins. Retail investors may receive only 20 to 40 percent of gross lending revenues, despite marketing that suggests otherwise.

Gross borrower rates and cost breakdowns are rarely disclosed, making it difficult to assess value for money or compare platforms. By contrast, UCITS funds generally pass lending revenues to investors net of operational costs, often resulting in a higher effective share.

Risks are understated and unevenly disclosed

Risk disclosures often emphasise collateral while downplaying residual counterparty, liquidity and operational risks. In stressed markets, collateral values may lag and liquidation can result in losses.

Retail investors may also face delays in recalling shares and usually lose voting rights while securities are on loan. Investor Compensation Scheme protection may not apply to lending-related losses, and tax implications are frequently poorly explained.

Consent and investor control are fragmented

Neobrokers differ widely in how they design opt-in consent and ongoing controls. Some require explicit, standalone consent, while others rely on default enrolment or less visible agreement flows.

Investors often have limited visibility over which securities are lent and little ability to monitor activity in real time. Most programmes offer only a full opt-in or opt-out, with no option to set exposure limits, exclude specific securities or prioritise governance rights.

Conflicts of interest and market integrity concerns

Retail securities lending creates structural conflicts of interest where broker revenues depend on lending volumes while retail investors bear the risks. Lending supports short selling and other strategies that may increase volatility and exert downward pressure on the very securities retail investors hold.

These tensions are particularly visible during periods of market stress, when misaligned incentives and opaque value chains become more apparent.

Regulatory coverage remains incomplete

EU rules address retail securities lending only indirectly. MiFID II sets general conduct and disclosure principles but no retail-specific standards. SFTR improves supervisory reporting but offers little decision-useful information for retail investors. ESMA guidance remains non-binding.

As a result, there is no dedicated EU framework governing retail securities-lending programmes, allowing wide variation in consent models, disclosures, revenue sharing and investor protection.

BETTER FINANCE’s Policy Recommendations

To ensure securities lending develops into a fair and well-understood feature of retail investing, BETTER FINANCE calls for EU-level action to:

• Clarify the MiFID II treatment of retail securities lending as a complex service, including appropriateness assessments

• Require standalone and explicit opt-in consent in all cases

• Harmonise risk disclosures, including insolvency, ICS coverage and tax treatment

• Ensure fair revenue distribution and meaningful value for money

• Protect tradability, portability and shareholder rights through effective recall-to-vote mechanisms

• Address conflicts of interest linked to broker incentives and market volatility

• Give investors ongoing control, including exposure limits and real-time monitoring

For more details, read BETTER FINANCE’s report on neobrokers & securities lending.