Trading Places

Through a business model that straddled two legal jurisdictions, investors could download an app and transfer funds overseas to trade US and Hong Kong-listed stocks from their smartphones, without authorization Afrom Chinese central authorities.　

But this era is coming to an end. On May 22, the China Securities Regulatory Commission (CSRC), along with other seven government agencies including the People's Bank of China (PBoC) and the Ministry of Public Security, launched an implementation plan aimed to "completely eradicate the illegal cross-border operations of overseas securities, futures and fund management institutions" within two years.　

On May 22, the CSRC released a statement accusing Futu Securities International (Hong Kong) Limited, Tiger Brokers (NZ) Limited and Longbridge HK Limited of providing unauthorized cross-border securities services to Chinese mainland investors that violate securities, funds and futures laws. The CSRC said it plans to confiscate all illegal gains from the firms' mainland and offshore entities and impose substantial financial penalties.　

That same day, Futu confirmed it had received a notice of investigation and a proposed administrative penalty from the CSRC. Regulators proposed a fine of 1.85 billion yuan (US$271m), while founder and CEO Li Hua faces a personal fine of 1.25 million yuan (US$184,000).　

Tiger Brokers said its mainland subsidiaries had been penalized 411.2 million yuan (US$57m) in confiscated funds and fines. CEO Wu Tianhua was issued a warning and fined 1.25 million yuan (US$184,000).　

Longbridge, a privately held firm that does not share the same public market obligations, has yet to disclose its penalties Existing mainland investors have been given two years to unwind their overseas positions, and Tiger Brokers was the first platform to announce how. Beginning June 12, investors physically located in the Chinese mainland can no longer hold new positions or increase their existing ones. Deposits into their accounts have also been suspended, although withdrawals remain available.　

The crackdown marks the strongest effort so far to close a regulatory loophole that for years allowed mainland investors to access overseas stock markets despite China's strict controls on capital flows abroad.

Yang said licensed subsidiaries in Hong Kong and overseas markets provided these brokerage services. Their mainland affiliates were not licensed, officially registered as software development, tech support and customer service businesses.　

Although offshore entities placed the trades and marketed to mainland investors, handling trade details and collecting commissions took place in the Chinese mainland. But under Chinese law, this amounts to securities business and requires regulatory approval, Yang said.　

For years, online brokerages steered clear of foreign-exchange activities. Unlike the illegal money-transfer networks long targeted by Chinese authorities, they did not help clients convert Chinese yuan into foreign currencies or move funds across borders.

"As far as our Hong Kong entity is concerned, all client deposits originate from offshore funds. We do not know how clients transfer their money to overseas bank accounts, as that is a process handled entirely by the clients themselves. We do not participate in or facilitate those transactions," Li said.　

Wu described a similar approach. "As an overseas brokerage, we are required to comply with know-your-customer (KYC) and anti-money laundering (AML) requirements. We only accept remittances from overseas bank accounts held in the same name as the investor. Third-party transfers and deposits funded through digital currencies are not permitted," he said.　

But it ultimately did not shield the firms from scrutiny. Regulatory concerns over Tiger Brokers' mainland operations date back nearly a decade. In its IPO prospectus, the firm reported in September 2016 that securities authorities required its Beijing branch to stop supporting unauthorized overseas firms to conduct business in the Chinese mainland.　

The company said it responded by removing the option to open an account from its mainland website and app, dropping the words "securities" and "stocks" from its app's name, and further restructuring its mainland operations to comply with Chinese regulations.　

Regulatory scrutiny only intensified, and in December 2022, the CSRC charged Tiger Brokers and Futu with providing cross-border securities services to mainland investors without regulatory approval.　

Tiger Brokers removed its app from Chinese mainland app stores in May 2023 and stopped accepting new account applications from mainland residents.　

But the retreat was only partial. Tiger and other online brokerages continued to solicit mainland clients through indirect channels.　

The recent implementation plan aims to eliminate unauthorized cross-border operations altogether. Under the plan, existing mainland clients will only be allowed to sell their holdings and withdraw funds, while domestic websites, trading apps and supporting servers used by such businesses will be shut down within two years.　

As long as trades are initiated from within the mainland, securities activities are considered to fall within China's regulatory jurisdiction, Yang said.

The special administrative region has seen a wave of mainland investors seeking to open bank and brokerage accounts. Branches near major transport hubs, especially around West Kowloon Station, a high-speed rail hub with many mainland connections, have reported a noticeable increase in customers arriving from across the border.　

Opening an investment account in Hong Kong remains legal for mainland investors. On the day the new plan was announced, Hong Kong's Securities and Futures Commission and the Hong Kong Monetary Authority updated their requirements for mainland customers.　

While mainland residents can still open brokerage accounts in Hong Kong, institutions are required to conduct additional checks to ensure funds are coming from legal sources outside the Chinese mainland.　

Brokerages now require a mainland identity card, Hong Kong travel permit, proof of entry into Hong Kong and an existing Hong Kong bank account. Customers must also declare the origin of their funds.　

The crackdown also has smaller Hong Kong brokerages vying for clients. Some are offering "same-day account opening," advertising themselves as the "last window of opportunity" before tighter controls arrive. Industry observers claim some firms are approving clients with questionable documentation.　

But lawyers say many investors underestimate how complicated legally funding a brokerage account in Hong Kong can become.　

Mainland residents may exchange up to US$50,000 in foreign currency each year for travel, education and medical expenses, but not for overseas securities or property investment.　

"The account itself may be compliant," one investor said. "The real question is how the money gets there for the purpose of financial investment."　

Lawyers warn that as investors search for alternative ways to access overseas markets, some may be drawn to smaller brokerages with weaker compliance standards or internal controls, exposing them to additional legal and financial risks.

These include the Qualified Domestic Institutional Investor (QDII) program, under which licensed domestic financial institutions invest overseas on behalf of clients. Also, the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes allow eligible investors to trade a designated list of Hong Kong-listed stocks and exchange-traded funds (ETFs) through mainland brokers.　

Another option is the Cross-boundary Wealth Management Connect scheme. First piloted in 2021, the program allows eligible residents to invest in approved financial products through participating banks. By August 2025, 14 securities firms had joined the scheme, although its reach remains largely limited to residents of the Guangdong-Hong Kong-Macao Greater Bay Area.　

The recent crackdown makes it clear that China wants investors who previously relied on offshore online brokerages to migrate to these regulated channels. The implementation plan specifically encourages overseas investment through Stock Connect, QDII and the Wealth Management Connect scheme.　

The shift could involve a sizeable amount of capital. Tian Liang, chief financial sector analyst at CITIC Securities, estimates that mainland clients affected by the crackdown hold between HK$150- 180 billion (US$19.1-23b) in assets at Futu and HK$45-50 billion (US$5.7- 6.4b) at Tiger Brokers. Including other affected brokerages, the total could reach HK$250 billion (US$31.6b).　

Whether existing legal channels can absorb that demand remains a major question. As of June 2026, China had approved a cumulative US$176.2 billion in QDII investment quotas. But access to QDII products is constrained by foreign exchange quotas, fund capacity and risk management requirements, meaning subscriptions are often capped or suspended.　

Stock Connect offers a more direct route to Hong Kong equities, but it too has limits. Investors can trade only eligible stocks and ETFs, southbound trading is subject to a daily quota of 420 billion yuan (US$58.5b), and individual investors generally must maintain at least 500,000 yuan (US$73,650) in securities and cash assets to qualify.　

In a May 25 report, Kaiyuan Securities said rising demand may prompt regulators to broaden the slate of available securities through Stock Connect, increase QDII quotas and product offerings, and extend the geographic coverage of the Wealth Management Connect scheme.　

Total approved quotas for QDII reached US$176.2 billion by June 30, US$5.3 billion more than at the end of June last year, according to the State Administration of Foreign Exchange. The People's Bank of China announced in early July the annual investment quota of Southern Bond Connect, an access for mainland investors to Hong Kong's bond market, would be raised from 500 billion yuan (US$73.5b) to 800 billion (US$117.7b).