Source: Visual China

The U.S.-listed shares of Futu Holdings, a Tencent-backed broker, and UP Fintech Holdings Ltd., an operator of Tiger Brokers, plummeted by 31% and 28.5% respectively on Friday after the China Securities Regulatory Commission (CSRC), the primary regulator of the country’s securities industry issued severe warning against their business engaged with mainland investors.

CSRC plans to ask Futu and Tiger to rectify their illegal practices and take actions as follows: the first, to stop further expansion of illegal businesses, namely, to solicit onshore investors, develop new customers or open new accounts for customers are prohibited; the second, to allow existing onshore customers to continue trading through the offshore brokers but not allowed new funds transferred to accounts of these customer via non-compliant channels, according to a statement earlier Friday.

CSRC said it determined Futu and Tiger have carried out illegal cross-border securities businesses for domestic investors these years as they hadn’t obtained the regulator’s approval, which is against the Securities Law and relevant regulations. Therefore, the regulator decided to proceed with the rectification of ongoing illegal cross-border businesses by ordering enforcement units to conducted on-site inspections and supervisions, and further regulatory measures depending on progress in the recification.

In the statement, CSRC noted that it had made it clear through the media that the cross-border businesses that Futu and Tiger conducted violated laws and regulation back to October, 2021. And it met with executives of the two companies a month later to clarify its attitude and asked them to correct their practices.

“Essentially speaking, cross-border online brokers’ operating in China is just like driving without any license, such nature of their business, effectively conducting illegal financial activities, has nothing to do with exchangeability of their capitalization”, claimed Sun Tianqi, the Director-General of the Financial Stability Bureau of the People's Bank of China (PBOC, in his keynote at a summit in October 2021. Sun also noted the state media’s recent comment on Futu and Tiger when the effective date of the Personal Information Protection Law looms. Earlier that month, a report of state-owned People’s Daily pointed out that these securities brokers would face new compliance challenges in handling the personal information they collect from residents in mainland China, since the law has specified the rules for handling cross-border communication of personal data.

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