The end of a regulatory grey zone: Why China is cracking down on offshore brokerages
China’s toughest crackdown yet on offshore brokerages is closing a popular route to overseas markets for mainland investors. Analysts say the move is about more than investor protection.
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SHENZHEN: When China unveiled its toughest crackdown yet on offshore trading platforms, Beijing-based investor Elaine Liang began exploring alternatives.
“The first thing I worried about was whether the trading restrictions would come immediately,” said the 30-year-old finance industry researcher, who has used Hong Kong-based brokerage app Futu since studying in the city several years ago.
Her dilemma is shared by many mainland Chinese investors following a sweeping campaign launched by the China Securities Regulatory Commission (CSRC) and seven other agencies on May 22.
The crackdown targets offshore brokerage platforms including Futu, which owns online platform MooMoo, and other widely used overseas trading apps like Tiger Brokers and Longbridge - both headquartered in Singapore.
Under the new measures, mainland clients using these platforms can only sell existing holdings and withdraw funds. They can no longer buy new securities or transfer money into accounts.
The goal is to “completely eradicate” illegal cross-border securities activity over the next two years, regulators said - a move that marks Beijing’s most aggressive move yet against a fast-growing route used by mainland Chinese investors to access overseas markets.
While regulators said the crackdown is aimed at protecting investors and curbing illegal financial activity, analysts said it also reflects Beijing’s broader effort to tighten oversight of outbound capital flows and channel overseas investing back through state-approved channels.
“So I think this is more about reasserting state control over financial plumbing,” said Lizzi C Lee, a fellow on the Chinese economy at the Asia Society Policy Institute's (ASPI) Center for China Analysis.
WHAT IS CHINA TARGETING?
Chinese authorities are not banning overseas investing outright.
Instead, regulators are targeting offshore brokerages they said have been illegally conducting cross-border securities, futures and fund business.
Futu, Tiger Brokers and Longbridge were among the firms specifically named and targeted for penalties by state regulators, though the campaign extends beyond those three companies.
The latest measures prohibit mainland investors from transferring new funds or opening new trading positions. Existing holdings can still be sold and funds withdrawn during the transition period.
Analysts said the crackdown reflects Beijing’s growing discomfort with what had become a regulatory “grey zone”.
“For years, Beijing tolerated a degree of ambiguity around cross-border internet brokerages because they helped meet investor demand during a period when China’s official outbound investment channels were very quota-constrained and narrow,” said Asia Society’s Lee.
“But regulators seem to now see these platforms as unlicensed cross-border financial infrastructure operating outside the state’s supervisory perimeter.”
Lee added that regulators were now “explicitly framing these activities as illegal financial business and tying them to broader anti-money laundering and financial security concerns”.
CHINA’S MOST FORCEFUL CRACKDOWN YET
The latest campaign is widely seen as Beijing’s most forceful move yet against offshore brokerages.
In late 2022, regulators banned unauthorised brokers from onboarding new mainland investors, while their apps were later removed from mainland app stores in 2023.
Existing users were largely unaffected and many investors continued trading through older accounts.
This time, however, Chinese state regulators are directly targeting existing accounts and imposing a two-year rectification timeline.
The proposed penalties are also sizeable.
Futu faces fines and confiscations worth around 1.85 billion yuan (US$272.87 million), while Tiger Brokers could face penalties exceeding 400 million yuan.
Tiger Brokers said it would fully cooperate with regulators and implement rectification measures, while Futu said the proposed penalty remained subject to further procedures and a final CSRC decision.
Longbridge said it would comply with the relevant rectification requirements.
The regulatory action has also raised questions about the overseas operations of the affected brokerages, including their Singapore units.
Kenneth Goh, director in private wealth management at UOB Kay Hian, told CNA that the Singapore arms of these firms are “separately licensed by the Monetary Authority of Singapore (MAS) and operate under Singapore law”.
“Chinese action targets their parent groups for cross-border activity into mainland China without Chinese approval. The Singapore arms are not the subject of that action,” Goh said.
He added that MAS rules require client money to be “kept separate from company funds”.
“MAS itself has said that the Singapore companies are financially independent of the group entities targeted in China,” Goh added.
Investor concerns also spilled into markets.
Shares of Futu Holdings and UP Fintech, the parent company of Tiger Brokers, plunged more than 30 per cent in pre-market trading on May 22 following the announcement.
The move also comes against the backdrop of China’s broader capital controls regime, where outbound investing remains tightly regulated despite gradual financial opening.
Under current rules, mainland residents face an annual foreign exchange quota of US$50,000 (338,987.50 yuan).
Authorities remain sensitive to large-scale capital outflows after the 2015 to 2017 period, when yuan depreciation pressure triggered significant money leaving the country and led regulators to tighten scrutiny over outbound flows.
Analysts said Beijing is now trying to steer overseas investing back into regulated and state-approved channels.
Yet the popularity of offshore brokerages highlights a challenge for Chinese policymakers: Investor demand for overseas assets has continued to grow despite Beijing's efforts to keep capital flows tightly managed.
THE RISE OF OFFSHORE TRADING
Hong Kong-based brokerages in particular, became a relatively convenient route for mainland investors seeking exposure to US and Hong Kong stocks.
Tyrone Ge, a 30-year-old software engineer in Beijing, told CNA that he began investing in Hong Kong and US-listed Chinese technology companies last year after opening a Hong Kong bank account.
“A lot of the Chinese internet and technology companies I follow are listed in Hong Kong or the US,” Ge said.
Beijing investor Liang said overseas investing was less about abandoning Chinese markets and more about diversification and gaining direct exposure to global companies.
“It was part of broader asset allocation,” she said.
Platforms like Futu became popular partly because of easy onboarding, referral promotions and their close integration with Hong Kong banking services, she said.
Their appeal grew during the pandemic-era rally in US technology shares, while prolonged weakness in China’s domestic equities and property market pushed more investors to look overseas.
A renewed rebound in Hong Kong technology and AI-related shares since late 2024 also added fresh momentum.
Futu and Tiger expanded rapidly during this period by offering mainland investors relatively easy digital access to overseas markets, lower trading costs and broader product selection compared with traditional approved channels.
Analysts said the platforms ultimately succeeded because they met strong underlying demand for overseas diversification.
“That diversification demand will not go away,” said Asia Society’s Lee.
“If anything, it reflects real concerns over domestic weakness and the desire for asset diversification,” she added.
State Administration of Foreign Exchange (SAFE) data showed outbound securities investment by Chinese domestic investors surged 70 per cent year on year to a record US$360.6 billion in 2025, highlighting growing demand for offshore assets and global diversification.
Liang, the investor in Beijing, remains unconvinced that the tighter restrictions will necessarily bring money back to China.
“The money already offshore is even less likely to return,” she said.
Overseas investing is mainly channelled through state-approved programmes such as the Qualified Domestic Institutional Investor (QDII) scheme, Stock Connect and Wealth Management Connect.
But investors said that official state channels are more restrictive and can carry higher fees than direct access through offshore brokerage apps.
Stock Connect provides access to eligible Hong Kong listed shares but not direct access to US stocks, while QDII products offer overseas exposure through approved funds rather than direct stock picking.
“As China grows into a major economy, it’s natural that households want to diversify their investments,” said Xu Tianchen, senior economist at the Economist Intelligence Unit (EIU).
“Their appetite for market depth and breadth exceeds what the QDII scheme can offer.”
WHY BEIJING IS ACTING NOW
Analysts said the crackdown is also taking place as regulators gain stronger enforcement capabilities and become increasingly focused on financial security.
“Beijing always cares about financial security and wants strong control over these ‘illicit’ flows,” said Xu from EIU. “But in the past it lacked the ability to do so.”
He highlighted how modern regulatory tools are improving oversight of cross-border finance, including international tax information sharing systems such as the Common Reporting Standard (CRS), which allows authorities to automatically exchange data on overseas financial accounts.
This, he said, gives regulators a much clearer view of overseas financial activity and makes it easier to spot hidden assets, tax avoidance and unregulated capital flows.
Asia Society’s Lee said the persistence of mainland Chinese investors using offshore workarounds even after the 2022 crackdown likely reinforced official concerns over regulatory loopholes and uncontrolled capital movement.
Still, analysts said Beijing is pursuing a controlled form of financial opening rather than shutting its doors altogether.
The balancing act can be seen in China’s broader financial opening efforts.
Earlier this month, US multinational investment bank Citigroup became the seventh foreign bank allowed to fully own a brokerage in China.
Foreign investors now hold more than 4 trillion yuan worth of tradable A shares, according to CSRC Vice Chairman Liu Haoling, underscoring the importance of overseas capital to China's markets.
“There are some gradual steps in terms of opening up China’s financial sector, such as Beijing awarding Citigroup a Wholly Foreign-Owned Enterprise (WFOE) brokerage license,” Xu said.
But he added that Chinese residents’ access to foreign markets “doesn’t seem to be a top policy priority”.
HOW MUCH IMPACT WILL THE NEW MEASURES HAVE?
For now, analysts believe the immediate market impact is likely manageable.
CITIC Securities estimates the affected Hong Kong-related assets amount to around 200 billion to 250 billion yuan, although actual selling pressure should remain controllable given the two-year transition period and the fact that not all holdings are Hong Kong stocks.
Not all investors are rushing for the exits.
UOB’s Goh said that the measures provide a two-year transition period and do not require investors to immediately liquidate existing holdings.
“There is no mechanical reason to act today,” he said, noting that investors can still sell and withdraw funds during the transition period.
Ge, the software engineer and investor in Beijing, said he felt some relief because the brokerage platform he uses was not among the three offshore brokerages specifically named by regulators this time round.
He is taking a wait-and-see approach because regulators appeared to be phasing in the restrictions gradually, and investors still had time to respond.
Goh at UOB noted that changing brokers is often more complicated than simply opening a new account, especially for investors who have built up portfolios over several years.
“Trusting a platform with new money and feeling you must sell what you already hold are two different things,” he said.
Some may shift back into approved channels such as QDII, Stock Connect or Wealth Management Connect, while others could explore overseas bank accounts, family offices or offshore structures, other experts said.
Brock Silvers, chief investment officer of Hong Kong private investment firm Kaiyuan Capital, said the latest restrictions do not represent a broader reversal of Beijing’s financial opening agenda.
“Authorities remain committed to financial opening, but primarily for inbound capital,” he said.
“Outbound capital flows remain controlled, and investors shouldn’t expect rapid changes.”
Back in Beijing, Liang the investor believes that demand for overseas investing is unlikely to disappear despite tighter restrictions.
Investors seeking global diversification are unlikely to abandon overseas markets simply because one route has been closed, she said.
“People determined to invest overseas will still look for other ways,” she added.
