China to rectify 1 illegal cross-border brokerage scheme

China’s securities watchdog announced a comprehensive plan to rectify illegal cross-border securities operations, a move that targets unlicensed foreign institutions and their domestic collaborators and threatens a lucrative gray market.

"Foreign institutions and their related domestic entities that have not obtained approval to conduct securities business in the country are engaged in illegal activities," a China Securities Regulatory Commission (CSRC) official said in a statement.

The crackdown focuses on activities including marketing, account opening, and order processing. The move creates significant headwinds for brokerage firms such as Futu Holdings and UP Fintech Holding, known as Tiger Brokers, which have built substantial businesses catering to mainland Chinese clients.

The rectification plan signals a hardening stance from Beijing, aiming to enforce capital controls and reduce financial risks. For Chinese retail investors, it may significantly restrict access to international markets, while forcing a strategic rethink for foreign brokers who depend on this client base.

A Broadening Regulatory Net

The CSRC's announcement clarifies that any part of the brokerage service chain performed in China without a license constitutes illegal activity. According to the commission's spokesperson, this includes initial marketing and client recruitment, the opening of trading accounts, processing transaction orders, and facilitating cross-border fund transfers.

The "comprehensive整治 (zhěngzhì) or rectification" framework means that both the offshore brokers and any onshore entities that assist them will be subject to action. This broad scope suggests authorities are looking to dismantle the entire infrastructure that supports these gray-market operations, which have for years provided an outbound channel for the country's retail investors.

Domestic Consolidation, Foreign Scrutiny

This crackdown on foreign-facing loopholes runs parallel to a major push for consolidation within China's domestic securities industry. In March, the CSRC issued guidelines encouraging local brokerages to improve competitiveness through mergers and restructuring. The State Council echoed this in April, calling for industry leaders to step up M&A to foster "first-class investment banks."

The policy is already in motion. Guolian Securities recently announced its plan to acquire Minsheng Securities in a deal worth about 29.5 billion yuan ($4.1 billion). Other deals, including Zheshang Securities' planned acquisition of a stake in Guodu Securities, are also advancing. This dual strategy of strengthening domestic champions while closing gaps for unlicensed foreign players indicates a clear policy direction: to build a more robust, controlled, and internally-focused financial market.

This article is for informational purposes only and does not constitute investment advice.