CSRC orders Futu, Tiger Brokers to stop letting new onshore traders tap global stocks

China’s securities regulator ordered Futu Holdings and Tiger Brokers to stop giving new onshore traders access to global equities, taking the strongest action yet to bar the two online brokerages from breaching the country’s capital controls.

Shenzhen-based Futu and Tiger Brokers’ operator UP Fintech Holding must rectify their “illegal operations” and stop signing on new customers based in mainland China, according to a statement by the China Securities Regulatory Commission (CSRC). Existing customers can continue trading on the platforms without putting in fresh funds, the regulator said.

The two online brokers had allowed China-based investors to transact in offshore equities “for the past few years,” and were deemed to have operated illegally, the regulator said, adding that it spoke to Futu and Tiger Brokers on November 11, 2021 about their operations.

A UP Fintech representative said in an emailed statement on Friday that the company “will continuously offer legitimate services to existing onshore customers in mainland China. While actively cooperating with the regulators, the company will take corrective measures to stop enrolling new onshore customers.” The company also confirmed that its global business outside mainland China will not be impacted.

Futu said in a Friday statement on its website that it will proactively seek guidance from, and cooperate with, the CSRC in connection with its efforts to ensure legal compliance of its business activities in mainland China, and continue to provide services to existing clients in China.

Futu postponed a dual listing today in Hong Kong, where it was due to allow its US-listed stock to be traded on the city’s exchange by introduction, citing the need to “clarify certain matters” with the bourse.

The latest crackdown marked an extension of the Chinese government’s heightened scrutiny of internet-related businesses, from e-commerce to financial services. The two online brokers, each backed by an internet behemoth, distinguished themselves from China’s traditional bricks-and-mortar brokers by letting customers trade online, offering them a vast portfolio of stocks across multiple markets.

Futu is backed by Tencent Holdings, the world’s largest games publisher, while UP Fintech counts China’s biggest smartphone maker Xiaomi as an investor.

The regulatory risks around the two companies surfaced in October last year, when the Chinese Communist Party’s mouthpiece People’s Daily newspaper questioned how the two companies handled Chinese investors’ personal data in cross-border stock trades.

China’s new Personal Information Protection Law (PIPL), one of the toughest in the world on personal information security, stipulated that companies transferring the state’s “core data” overseas without proper approval from Beijing will face a penalty of up to 10 million yuan (US$1.56 million) and could be forced to shut down.

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Sun Tianqi, head of the Financial Stability Department at the People’s Bank of China (PBOC), also warned publicly that the operations of online brokers offering offshore trades to mainland investors were not legal. Sun did not name the firms directly.

CSRC said it will send relevant authorities to conduct on-site inspection and supervise the rectification, and will take further measures depending on the process of the corrective actions.