China on Friday announced a sweeping crackdown on cross-border investments and imposed penalties on brokerage firms it accused of illegally channeling funds into overseas markets, triggering a sharp fall in their share prices.
The measures tightened control over capital outflows, already heavily regulated in China, and dragged down shares of Chinese firms listed abroad, as affected brokers may now only be allowed to facilitate selling, not purchasing, of equities.
The China Securities Regulatory Commission, which launched the crackdown with seven other government agencies including the central bank, said in a statement it was targeting overseas firms and their local partners operating without approval.
The CSRC plans to impose penalties on online brokerages Tiger, Futu and Longbridge for soliciting business in China without an onshore licence, the statement said, with illegal gains to be forfeited although no financial amount was mentioned.
A Tiger spokesperson said the company “has always placed compliance as a top priority”. It noted the CSRC statement, would cooperate and “all business operations remain normal.”
Futu said it had high compliance standards, had previously stopped adding accounts for mainland applicants and rejected tens of thousands of applications that did not meet requirements. At the end of the first quarter, mainland investors accounted for 13% of its customer base.
No New Investments Allowed During Two-Year Wind-Down
The firms will be given a two-year grace period to wind down illegal activities, the regulator said, during which time customers will only be allowed to sell existing holdings and withdraw funds, with no new investments allowed.
Shares in Tiger parent UP Fintech Holding and in Futu Holdings notched falls of more than 30% in pre-market trade. Longbridge is not listed.
U.S.-listed shares of Chinese companies Alibaba and PDD Holdings, the operator of online marketplace Temu, fell sharply in pre-market trade with PDD down about 6% and Alibaba falling 4%.
Market Impact and Regulatory Expansion
Friday’s crackdown widens years of scrutiny, which stepped up late in 2022 when the CSRC banned overseas institutions from opening accounts for mainland investors.
It is aimed at protecting “healthy development of the capital market, channel outbound investments via legal channels, and protect investors,” the CSRC said.
In Hong Kong, where most of the accounts in question are located, the financial hub’s Securities and Futures Commission, also said Friday it discovered “significant deficiencies” after conducting a review of 12 brokers operating in the market.
Hong Kong’s SFC said it will require brokers to close accounts opened with questionable or forged documents and make stricter checks for new accounts and their funding sources.
The city had claimed top spot globally in the first quarter after companies raised HK $209.9 billion ($26.79 billion) in equity capital, according to KPMG.
Share sales to retail clients constitute a sizable portion of brokers’ revenue, with Futu and Tiger acting as underwriters of stock offerings for more than 80 and 45 listings since the start of 2025, exchange filings showed.
(With inputs from Reuters)
