China Cracks Down on Cross-Border Investment Brokers

China has launched a major crackdown on cross-border investment, targeting brokers accused of illegally moving money to foreign markets. The crackdown involves significant penalties and heightened scrutiny of capital outflows, affecting the operations of brokers like Tiger, Futu, and Longbridge. Consequences include a two-year wind-down period for illegal activities.

China has initiated a substantial crackdown on cross-border investment brokers accused of unauthorized financial activities, causing a significant plunge in their shares. The China Securities Regulatory Commission, along with several governmental agencies, announced severe penalties for brokers such as Tiger, Futu, and Longbridge, for engaging in business without an onshore license.

This move intensifies the scrutiny of capital outflows, which are stringently regulated by Beijing. It has also adversely affected shares of well-known Chinese firms listed overseas, as brokers' clients are restricted to selling, rather than buying shares. The CSRC stated that illegal profits would be confiscated.

Firms involved are facing heavy fines, with UP Fintech, Futu's parent company, penalized 308.1 million yuan. The crackdown, which coincided with other market regulations, aims to ensure legal capital flows and protect market stability. The firms have been given a two-year period to wind down non-compliant activities, during which new investments are prohibited.