China has unveiled a sweeping crackdown on what it describes as illegal cross-border securities activity, targeting online brokerages accused of helping mainland investors channel money into overseas markets without proper approval.
Investors reacted swiftly. Shares in Futu and UP Fintech, Tiger’s parent company, tumbled by more than 30 per cent in pre-market trading in the United States, while broader Chinese technology stocks listed overseas also came under pressure.
Under the new measures, the firms will be given a two-year transition period to wind down the activities deemed unlawful. During that time, existing clients will be allowed to sell holdings and withdraw money, but they will not be permitted to make fresh investments.
The crackdown is widely seen as part of Beijing’s broader effort to tighten oversight of capital leaving the country. China maintains strict controls over outbound investment, and authorities have repeatedly stressed the need to ensure money flows remain within officially approved channels.
“The government wants to ensure that any outbound capital flows are under its scrutiny,” said Gary Ng, senior economist for Asia Pacific at Natixis.
Futu said it had already taken steps in recent years to strengthen compliance procedures, including halting new account openings for mainland applicants and rejecting tens of thousands of applications that failed to meet regulatory standards. Mainland Chinese clients represented around 13 per cent of its customer base at the end of the first quarter.
The company later disclosed that regulators had proposed a penalty of 1.85 billion yuan (£200 million).
Tiger, meanwhile, said compliance had “always” been a top priority for the company. In a statement, a spokesperson said the firm would cooperate fully with authorities and that “all business operations remain normal”. Regulatory filings showed subsidiaries linked to UP Fintech were facing penalties and confiscations totalling more than 400 million yuan.
Longbridge said it would implement all required corrective measures and insisted client funds remained secure.
The regulatory action also rippled across wider markets. Shares in major Chinese technology groups including Alibaba Group, JD.com and PDD Holdings fell in pre-market trading in New York, while futures linked to Hong Kong’s Hang Seng Index dropped after the announcement.
Analysts warned the measures could dampen trading activity in Hong Kong, where many of the affected brokerage accounts are based.
“In the short term, these actions may cool down some trading and speculative activities in Hong Kong,” said Steven Leung, director of institutional sales at UOB-Kay Hian.
The latest intervention builds on a years-long campaign by Beijing to tighten supervision of financial markets and curb speculative investment behaviour. In late 2022, Chinese regulators barred overseas institutions from opening new accounts for mainland investors, arguing the measures were necessary to support the “healthy development” of the capital markets and protect investors.
Hong Kong regulators also revealed on Friday that a review of 12 brokerages had uncovered “significant deficiencies”, including concerns over questionable documentation used to open accounts. The city’s Securities and Futures Commission said brokers would now be required to conduct stricter checks on clients and funding sources.
Despite the tougher regulatory climate, Hong Kong’s capital markets have remained buoyant. According to KPMG, companies raised nearly HK$210 billion through listings during the first quarter of the year, making the city the world’s leading venue for initial public offerings over that period.
Legal experts suggested the penalties imposed so far may not represent the final stage of enforcement.
“The penalties appear relatively lenient for now, though we cannot rule out the possibility of larger fines down the road - or even criminal prosecution,” said Zhan Kai, a partner at Shanghai-based law firm Dacheng.
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