Chinese regulators found two brokerages to be in violation of local rules
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Yesterday, December 30th, China’s securities regulator, the CSRC, announced that two brokerages that operate in the country — Futu Holding and UP Fintech Holding — were found to be in violation of local laws. According to the regulator, the two companies were involved in an unlawful business tied to securities.
The regulator added that the firms would be requested to take corrective measures. In the meantime, the regulator would ban both platforms from soliciting new business from investors in mainland China.
The problem with international brokers in mainland China
Futu Holding is a company backed by Tencent, one of China’s largest social media, venture capital, and investment corporations. The news started emerging after Futu suddenly decided to delay the listing of shares on the Hong Kong Stock Exchange. The company stated that it had to clarify some matters.
The move came on Thursday, while the listing itself was scheduled to take place on Friday. The unusual behavior caused the country’s financial regulator to investigate the matter.
Meanwhile, the regulator also looked into Up Fintech (Tiger Brokers), which is another popular online broker apart from Futu. Both offer mainland China investors access to stocks listed on global exchange platforms. Both firms are also registered in Hong Kong and also in several jurisdictions outside of China itself.
The problem lies in the fact that both firms operate in a legal gray area as far as mainland China is concerned, because this jurisdiction does not offer licenses to online brokers that offer cross-border trading services. This is where the “one country, two systems” situation involving China and Hong Kong creates problems for the firms that aim to serve both markets.
International brokerages still work on expanding
Online brokers that found themselves in this situation also expected mainland China to take action against them. One senior executive from the country’s central bank, the PBoC (People’s Bank of China), noted that overseas online brokerages are operating in the country without a license, and in doing so, they are conducting illegal financial activities.
While this is only illegal due to technicality, it is still a serious matter given the differences between the jurisdictions in which the firms are operating. Meanwhile, Futu has been seeking a way to improve its presence outside of China, and it made several steps to ensure it. It obtained a license to operate in Singapore, and it is working on acquiring users outside of mainland China.
As for Tiger Brokers, its operator follows the same strategy. It gained regulatory approval in Singapore, and after that, it acquired Ocean Joy Securities, a Hong Kong-registered firm that allowed it to establish a foothold in Hong Kong. Another reason for China to dislike the brokerages is the fact that they are both involved with cryptocurrencies — outside of China, of course.
