File photo shows the entrance of the China Securities Regulatory Commission (CSRC) in Beijing, capital of China. (Photo:Xinhua)

The China Securities Regulatory Commission (CSRC) announced on Friday it plans to confiscate all illegal gains obtained by the domestic and overseas entities affiliated with Tiger Brokers, Futu Securities International (Hong Kong) and Longbridge Hong Kong, and impose severe penalties in accordance with the law, as they were engaged in illegal cross-border business activities.

The CSRC said their illegal cross-border business activities violated China's laws and regulations governing securities, funds and futures, disrupted market order and must be punished according to the law. 

According to the CSRC, the domestic and overseas related entities of Tiger Brokers, Futu, and Longbridge have not obtained approval from the CSRC, nor have they acquired the securities brokerage business license or the securities margin financing and securities lending business license. They have engaged in securities trading marketing and promotion, order execution, and other related securities business services within China and derived related revenues, which violates the Securities Law and constitutes illegal securities business operations.

In addition, the domestic and overseas related entities of the three institutions have also constitute illegal public fund distribution business and illegal futures brokerage business, said the CSRC. 

In recent years, certain overseas securities, futures, and fund operating institutions, without approval, have used their domestic affiliated or cooperative entities to solicit customers within China, and provided account opening and trading services for overseas stocks and other products to domestic investors through websites and apps, seriously disrupting the order of China's financial market, the Xinhua News Agency reported on Friday.

In 2022, the CSRC said that Futu and Tiger Brokers, without approval from the CSRC, have engaged in cross-border securities business targeting domestic investors. In accordance with the Securities Law and other relevant laws and regulations, their conduct constitutes illegal operation of securities business.

The CSRC required the two institutions to rectify the above violations and irregularities. Illegal incremental business activities shall be lawfully banned. The institutions are prohibited from soliciting domestic investors, developing new domestic clients, or opening new accounts. In addition, existing business shall be properly handled. To maintain market stability, existing domestic investors will be allowed to continue conducting transactions through the original overseas institutions. However, the overseas institutions are prohibited from accepting any incremental funds transferred into such investors' accounts that violate China's foreign exchange management regulations.

The Friday's announcement was made as eight Chinese government departments including the CSRC jointly issued an implementation plan for comprehensive rectification of illegal cross-border securities, futures, and fund business activities, which clearly stipulates that after two years of concentrated rectification, the illegal cross-border business activities of overseas securities, futures, and fund operating institutions will be fully banned.

According to the plan, a two-year concentrated rectification period will be established to clean up illegal existing business. During the period, overseas institutions are prohibited from illegally providing buy transactions, fund inflows, and other services to existing domestic investors within China. Only one-way sell transactions and outward fund transfers will be permitted. 
 
After the concentrated rectification period expires, overseas institutions must completely shut down their domestic websites, trading software, and supporting servers, and are prohibited from providing trading and other services to existing investors within China.

Regarding the rectification, all parties are highly concerned about how the legitimate rights and interests of existing investors will be protected. In response, the plan emphasizes that investors' asset safety will not be affected by the rectification, Xinhua reported.

Xinhua said that investors may have the following question: Will the rectification cut off channels for investing in overseas markets such as Hong Kong stocks? 

Market participants believe that the rectification targets illegal cross-border business activities by overseas institutions and will not affect existing legitimate channels. Investors can still conduct overseas investments through legal channels such as Stock Connect and the Qualified Domestic Institutional Investor program, per Xinhua.

At the same time, the plan adopts a phased approach to suspend domestic services, guiding investors to handle their existing accounts and assets. It does not restrict overseas institutions from providing trading services to domestic investors who are physically located overseas. Overall, the impact on overseas markets is expected to be controllable, Xinhua said.

Global Times