Broker Due Diligence 2025: Regulator Checklist & Fees

Introduction — Why refreshed broker due diligence matters in 2025

Market structure and regulator priorities shifted significantly during 2023–2025. Regulators in the U.S., EU and UK have moved from data‑dump disclosures toward more prescriptive supervision of best‑execution practices and clearer public reporting expectations. That combination makes a compact, evidence‑based due‑diligence checklist essential for any trader or quant who cares about execution costs, product access and operational safety.

This article gives a practical, regulator‑aware checklist, explains the fee categories and hidden costs to watch for, and lists the execution‑quality metrics you should obtain (and how to interpret them) before you commit capital.

Regulator checklist: what to verify (U.S., EU/UK and global points)

Start with the regulator basics, then verify disclosures, governance and monitoring procedures.

U.S. (SEC, FINRA, CFTC/NFA)

Confirm the broker is registered with the appropriate regulator (SEC/FINRA for securities; CFTC/NFA for retail FX/derivatives) and check for recent enforcement actions or disclosures.
Request the firm’s documented best‑execution policy, periodic reviews and the board‑level reports that document those reviews — regulators expect documented periodic reviews and escalation.
Order‑routing disclosures and Rule 606/Rule 605‑style reporting: request evidence of how the firm monitors order routing, any payment for order flow (PFOF) arrangements and monthly order‑routing statistics or summaries the firm provides to clients.

EU & UK (MiFID II / ESMA / National Competent Authorities)

Confirm the broker’s MiFID II / national licence status and ask for its Order Execution Policy (OEP) and the internal CFI (classes of instruments) used for monitoring. ESMA has recently published technical standards to tighten the internal rules firms must use when assessing order execution quality.
Note: publication obligations for RTS 27/RTS 28 were de‑prioritised/removed under the MiFID review; however, best execution obligations remain and NCAs expect firms to maintain robust internal monitoring even where public RTS‑style reports are no longer required. Ask how the firm has adapted its public disclosures and internal monitoring since the MiFID review.

Operational & global points

Custody & segregation: obtain the custody arrangements for client assets and evidence of segregation in insolvency scenarios.
Business continuity and outage history: request an outages log, root‑cause analyses and remediation steps for any significant downtime in the last 36 months.
Third‑party dependencies: list of execution venues, prime brokers, market‑making counterparties and data vendors; ask what independent checks the broker runs on those third parties’ execution quality.

Documents to request immediately: licence/certificates, latest audited financials, AML/KYC policy, best‑execution policy + latest review, order routing disclosures (Rule 606 summary or equivalent), systems uptime / outage log, custody agreements, and a sample execution‑quality report for your instrument and order sizes.

Fees & hidden costs: a trader’s taxonomy

Fees are more than the headline spread. Use this taxonomy to compare total trading cost across brokers.

Common explicit fees

Spreads and commissions — the obvious per‑trade costs.
Overnight financing / swap rates for leveraged FX/CFD positions.
Platform or API subscription fees — monthly/annual charges for direct market access or advanced data feeds.

Common implicit or hidden costs

Slippage and price‑improvement shortfall (execution price vs benchmark).
Payment for order flow (PFOF) and routing incentives — these are legal but can create conflicts; regulators require disclosure and monitoring because PFOF arrangements can coincide with materially different execution outcomes across brokers. Historical enforcement (e.g., the SEC action and settlement involving Robinhood) highlights the reputational and monetary risk when disclosures or execution quality are deficient.
Data and market‑access fees (exchange real‑time feeds, consolidated tapes, market‑data redistributor fees) — some brokers push these fees to clients or require expensive direct‑feed subscriptions for low‑latency access.
Withdrawal, inactivity and conversion fees (currency conversion when you fund or withdraw in a different currency).

How to price total cost

Ask the broker for a sample cost breakdown for a realistic order profile (e.g., 0.1 lot EUR/USD market order; or X shares of a mid‑cap stock). Compare: explicit fees + average slippage (vs mid/VWAP/arrival) + any per‑trade data charges.
Ask whether the broker re‑bills venue or clearing fees directly to clients; request a recent monthly invoice example.
When comparing zero‑commission offers, insist on side‑by‑side execution quality evidence (price improvement, fill rate) not just promotional claims.

Regulators have increased attention on disclosures and routing transparency — make the broker demonstrate how its routing choices maximize client outcomes, not firm revenues.

Execution‑quality metrics every trader should request (and how to interpret them)

Below are the core metrics, the usual benchmarks and pragmatic questions to ask your prospective broker.

Core metrics

Price improvement / % executed at quote or better — percent of market orders executed at NBBO midpoint (or better) at order arrival.
Effective spread & quoted spread — effective spread measures actual cost of execution versus the quoted spread.
Implementation shortfall (arrival price) — difference between decision/arrival price and executed price (captures market impact + delay).
VWAP deviation — execution price vs daily VWAP for the same volume/time window (useful for larger orders).
Fill rate and partial fills — percent of orders (or quantity) executed within targeted timeframe.
Latency percentiles (median, 95th, 99th) — routing and execution latency from order acceptance to fill.
Rejection/cancel rates — order rejection rates or cancel‑on‑send behaviour that can impair strategy execution.

Benchmarks & interpretation

There’s no universal “good” number: benchmarks depend on instrument, order type and size. Institutional reports often break metrics by order size and type (market vs marketable limit). For retail FX and smaller equity orders, look for high percentages executed at or better than NBBO, consistently low effective spreads and low tail latency (small 95th/99th percentile latencies). For algorithmic strategies, examine implementation shortfall and market‑impact profiles versus a comparable VWAP or arrival price baseline.

Practical due‑diligence KPI checklist to request

One‑year historical sample of the broker’s execution metrics for your primary instruments and for order sizes matching your workflow (include arrival‑price IS, VWAP slippage, fill rates and latency percentiles).
Clear definition of the benchmarks and timestamps used (order arrival timestamp, execution timestamp, source of reference prices).
Breakdown of results by order type and size (market, limit, odd lot, large blocks).
Proof of independent monitoring: does the broker use third‑party consolidated tapes, consolidated transaction processors, or an independent auditor to validate execution statistics?
Service Level Agreement (SLA) clauses for API/gateway availability and mean/median latency; escalation path for outages.

Regulators and market‑structure reforms during 2024–2025 have pushed firms to measure at finer time granularity and to use robust reference datasets when benchmarking execution quality; insist on millisecond timestamps and transparent methodologies when comparing brokers.

Red flags

Refusal to provide order‑level or aggregated execution metrics for the instruments and sizes you trade.
Vague benchmarks (e.g., “we beat the market”) without methodology disclosure.
No evidence of independent validation or reliance on opaque wholesaler reports for execution quality claims.

Final tip: treat execution quality as a recurring review — request quarterly updates and watch for meaningful shifts in slippage, latency or routing that coincide with new PFOF agreements, venue changes or vendor swaps.

Broker Due Diligence 2025: Regulator Checklist, Fees & Execution‑Quality Metrics