Executive Summary
By prioritising app-based onboarding, frictionless trading and low entry thresholds, neobrokers have broadened retail engagement, and especially among younger and first-time investors. They also expand access to asset classes and “modern” digital functionality. This ease of access can improve outcomes through lower explicit costs and, in some cases, revenue sharing; but it can also create new risk channels, behavioural frictions and conduct challenges.
As the EU phases out Payment for Order Flow (PFOF) from 2026, attention is shifting to how online brokers will replace or supplement execution-linked income; likely accelerating diversification and re-bundling around ancillary services and operational practices that can materially shape retail outcomes.
A prominent example is the recent “retailisation” of securities lending: programmes offered to individuals and embedded as an in-app “passive income” feature, typically via simplified (more or less explicit) opt-in/opt-out flows. On the one hand, this can return part of the value generated from client assets to retail investors. On the other, it can function as a substitute or complement to other monetisation, raising questions about incentives, transparency, and how risks and rewards are allocated between clients and firms.
This represents a meaningful departure from legacy brokerage, where securities lending often sat in the back office: client instruments could be on-lent under general terms rather than explicit, decision-point consent, and revenues were rarely clearly attributed to, or shared with, the client (relying on as a “service enhancement” through custody efficiency or lower operating costs argument). Neobrokers, by contrast, can introduce a welcome degree of explicit revenue sharing and greater transparency, making participation more legible as an opt-in feature rather than a silent balance-sheet practice.
Yet transparency does not eliminate complexity. Even when packaged as a retail “programme”, securities lending can create conflicts of interest and shift the retail investor from owner to creditor, with exposure to collateral management, counterparty and operational risks, and shareholder-rights frictions (including recall-to-vote and constraints on transferability). These trade-offs are most acute in stress scenarios and in intermediary failure or asset-segregation questions, where retail expectations about “safeguards” may not align with how protections operate in practice.
Against this backdrop, retailisation should be used to bring securities-lending into clear, retail-fit rules; so non-professional investors can understand the service, benefit from it, and not absorb hidden risks or conflicts. Our initial review already shows wide divergence in consent design, decision-point disclosures and revenue attribution. And the promise of “extra yield” can mask that securities lending is a complex arrangement: beyond safeguards and disclosure, supervisors should consider whether appropriateness/suitability expectations should apply, and ensure investors grasp that modest income may come with new (and asymmetric) risks.
The following policy and market considerations should be central for retail securities-lending programmes:
- MiFID II classification: treat retail securities lending as a distinct complex market practice (not as a mere ancillary nor custody-like feature) and consider a harmonised appropriateness approach.
- Clarify opt-in requirements: require standalone consent at onboarding and differentiate from marketing; require (i) plain language, point-of-decision disclosure and (ii) a specific, digitally recorded agreement.
- Harmonised disclosure, protection and tax awareness: Standardise minimal onboarding and consider risk warnings on complex services by clarifying Investor Compensation Schemes (ICS) may not apply as assets are on loan. Flag tax impacts upfront, notably reporting/withholding impact of manufactured (“in-lieu”) dividends resulting from programmes.
- Fee & revenue transparency (“value for money”): Set expectations for “fair compensation” and revenue splits, and require clear gross-to-net disclosures so investors can see what typical “50/50 net” arrangements translate into in terms of returns.
- Preserve tradability & shareholder rights: Enforce a friction-free recall-to-vote standard and ensure lending status does not impede selling, transferring, or portfolio portability (mitigate lock-in/settlement frictions).
- Conflicts of interest oversight: Further scrutinise incentives (including short-selling facilitation) and require mitigation where revenue motives may undermine “best interest” outcomes for retail clients.
- Empower investors to limit exposure and monitor risks: Provide meaningful visibility and control beyond a binary opt-in/opt-out by requiring exposure limits and monitoring of assets are on loan, how collateral coverage compares to the current value of lent securities, and require events affecting recalls or settlement.