China’s securities regulator has intensified its crackdown on a cross-border trading channel that allowed mainland investors to trade global stocks through offshore brokers, imposing substantial fines and setting a two-year wind-down period that is already affecting corporate results.
The China Securities Regulatory Commission (CSRC) on May 22 named three firms involved in the channel and disclosed about $331 million in fines and confiscated income across two of them. Futu Holdings reported a proposed penalty of about RMB1.85 billion, or roughly $271 million, while UP Fintech, the parent of Tiger Brokers, disclosed RMB411.2 million, about $59.7 million. The regulator did not provide a penalty figure for the third firm, Longbridge Securities.
Impact on Earnings
The charges have had an immediate effect on reported profitability. Futu’s proposed penalty cut its reported first-quarter net income by 61.2% to HK$831 million. UP Fintech swung to a net loss of $26.9 million, compared with a profit of $30.4 million a year earlier. Both companies classified the penalties as one-time items in their financial statements.
Excluding the impact of the penalties, operating performance indicators continued to improve. Futu’s revenue rose 24.7% year over year, while funded accounts increased 34.3% and client assets expanded 47.2%. UP Fintech recorded a 26.3% year-on-year increase in revenue.
Regulatory Background and Wind-Down Plan
The latest enforcement action follows earlier steps by the CSRC. In 2022, the regulator declared the cross-border activity illegal and ordered Futu and UP Fintech to stop taking on new clients from mainland China. The recent penalties form part of an eight-agency plan that has been approved by the State Council.
Under the current wind-down rules, existing mainland clients can only sell securities and withdraw funds through the affected brokers. They are not permitted to initiate new purchases, which means revenue linked to this business is expected to decline gradually over a two-year period rather than ending immediately.
The combination of financial penalties and the mandated wind-down underscores the regulatory shift affecting offshore platforms that previously facilitated global stock trading for mainland investors. While the charges have weighed heavily on near-term earnings, the underlying growth in accounts, client assets and revenue reported by Futu and UP Fintech indicates that their broader operations remain active as they adjust to the new regulatory environment.
