China’s Securities Regulator Says Online Brokerage Platforms Futu Holding, UP Fintech Holding Conducted Unlawful Securities Transactions

China’s securities regulator stated on Friday (December 29, 2022) that online brokerage platforms Futu Holding and UP Fintech Holding have allegedly carried out unlawful securities businesses/transactions, and will now be banned from opening new accounts from mainland China investors.

The penalty comes after over a year when Chinese official media had cautioned that New York-listed Futu and UP Fintech, which do not have operational permits in China, face certain regulatory risks.

Recently, Reuters reported that Chinese officials have been planning to ban online brokerages including Futu Holdings Ltd and UP Fintech Holding Ltd from providing offshore trading services to mainland customers.

This latest update also came just a day after Futu, supported by Chinese Internet firm Tencent Holdings, announced that it would postpone its listing plan in Hong Kong. The firm stated that it was “clarifying” certain issues relating to the Group with the Hong Kong Stock Exchange, in a filing to the Hong Kong bourse (submitted on Thursday).

Futu and UP Fintech have reportedly carried out international securities businesses involving local investors, but without obtaining regulatory approval, thus contravening Chinese laws, the China Securities Regulatory Commission (CSRC) noted.

The CSRC will now be telling the brokerages to take appropriate measures, such as to no longer solicit business from mainland China investors, the regulator stated.

While existing Chinese customers will be permitted to perform trades through existing platforms, new funds may not be sent to these accounts in an unlawful manner, the CSRC clarified.

Futu and UP Fintech don’t have brokerage permits on the mainland, however, Chinese residents may open accounts online after turning in personal details related to ID cards and banking cards.

Last year, a Chinese banker had cautioned that online brokerages not permitted to do business in China were acting unlawfully if they chose to serve Chinese customers.

It is not quite clear just how these measures may affect the brokers’ future business plans.

Futu, which has a license in Hong Kong, Singapore and the US, stated in its 2020 annual report that it mainly serves the affluent Chinese community and a fairly large number of its customers are, in fact, mainland Chinese residents.

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