China’s securities regulator has opened enforcement actions against Futu, Tiger Brokers, and Longbridge Securities, accusing the offshore brokerages of illegally serving mainland investors who used their platforms to trade U.S. and Hong Kong stocks. The China Securities Regulatory Commission (CSRC) announced on May 22 that it had issued administrative penalty pre-notification letters to the firms and their related entities.
Futu Holdings Ltd. faces proposed fines of $271 million, while Up Fintech Holding Ltd., the owner of Tiger Brokers, is subject to a combined $60 million in fines and confiscated income. Citic Securities estimates that Futu accounts for $19 billion to $23 billion of the affected assets, while Tiger Brokers represents $4.5 billion to $5 billion.
The crackdown follows a 28% drop in Futu’s shares on May 22, the largest decline in over three years. The company’s founder, Leaf Li, saw his wealth plummet by $1.7 billion in a single day, reducing his fortune to $4.7 billion from a peak of $10.1 billion in October 2023. The CSRC’s actions mark a reversal from earlier this year, when Futu had benefited from Hong Kong’s boom in initial public offerings (IPOs), with over half of issuers partnering with the firm.
Regulatory Rationale: The CSRC cited violations of Chinese laws prohibiting offshore brokerages from operating on the mainland without proper licensing. The enforcement aligns with Beijing’s broader efforts to tighten control over capital outflows and regulate cross-border financial activities.
Brokerage Responses: Futu and Tiger Brokers have acknowledged the penalties but did not disclose further details. The firms have not yet commented on potential appeals or adjustments to their operations.
Market Impact: Analysts suggest the crackdown could disrupt retail investor access to global markets and shift trading activity to licensed domestic platforms. The move also raises questions about the future of offshore brokerages operating in China’s financial ecosystem.