China bars brokerages from opening overseas accounts for onshore investors in bid to stem outflows as yuan, stocks wobble
- Offshore units of Chinese brokerages prohibited from attracting domestic investors and barred from promoting new account openings and money wiring
- The regulatory action is an extension of the clean-up of grey areas in brokerage businesses run by Futu and UP Fintech, also known as Tiger Brokers
Offshore units of Chinese brokerages have been told to stop marketing activities to attract domestic investors, and their websites prohibited from showing content promoting new account openings and money wiring, according to a notice issued by the China Securities Regulatory Commission (CSRC) to its local branches, a copy of which was obtained by the Post. These overseas units should shut down apps, websites and counters involved in these activities by the end of the month, it said.
The CSRC did not respond to the Post’s request for comment.
The move highlights the increased scrutiny by financial regulators to check the flight of capital that could further weaken the local currency and roil the securities market. An exodus of foreign investors that sold an aggregate 127 billion yuan (US$17 billion) worth of Chinese stocks over the past two months has undermined government efforts to bolster the US$9.6 trillion equity markets.
Chinese assets ranging from the yuan currency to stocks have been under pressure despite Beijing’s range of supportive measures to revive growth. These steps have included policy loosening in the property market where mortgage rates have been cut and purchase restrictions scrapped in big cities, and injecting liquidity into the system by cutting banks’ reserve requirement ratios and policy rates.
China currently bans its citizens from investing directly in overseas securities products. The official channels for overseas investments are the qualified domestic institutional investor funds sold by domestic mutual-fund firms and the stock connect programme that allows access to Hong Kong stocks, for investors who meet the minimum threshold of 500,000 yuan assets in their stock accounts.
Futu has not received the latest CSRC notice, but this would have no material impact on the company’s business operation as it mainly targets domestic brokerages, said an official at the online broker.
American depositary receipts of Futu, which is backed by Tencent Holdings, have surged 51 per cent on the Nasdaq this year, while those of UP Fintech, which has smartphone maker Xiaomi as its major investor, have jumped 49 per cent.
Overseas units of Chinese securities firms are also prohibited from opening fund accounts for domestic citizens and are required to monitor and check if any individuals open new accounts using virtual private networks or via foreign institutional investors, according to the CSRC notice.
Brokerages should strengthen the oversight of fresh capital remitted to the existing overseas accounts owned by onshore traders to make sure there is no violation of China’s foreign-exchange regulations, it said.
Still, Chinese securities firms can open trading accounts for Chinese citizens working or living overseas, and that needs to be reported to the CSRC’s local branches, according to the notice.
