On Friday, May 22, Chinese regulatory authorities launched a sweeping crackdown on illegal cross-border securities trading, targeting major online brokerages Futu Holdings, Tiger Brokers, and Longbridge Securities.
The China Securities Regulatory Commission (CSRC) and seven other government agencies announced that these firms violated domestic laws by facilitating unauthorized overseas stock trades for mainland retail clients without the necessary onshore licenses. In response to the breaches, regulators are imposing severe financial penalties, including a proposed $271 million fine for Futu and over $50 million in combined fines and asset confiscations for Tiger Brokers.
As part of a two-year campaign to aggressively enforce the country’s strict capital controls, the targeted brokerages are now barred from accepting new investments from mainland clients and have been ordered to systematically wind down existing non-compliant accounts.
Is this a surprise?
While the sheer size of the fines and the strict two-year mandate to entirely shut down operations for mainland clients made headlines, the writing has been on the wall for years. This recent announcement represents the final “dropping of the shoe” in a 5-year-long regulatory campaign rather than a sudden policy pivot.
Here is a timeline of key events leading up to today:
October 15, 2021: The CSRC first expressed its displeasure with cross-border online brokers’ “illegal activities” through media reports.
December 30, 2022: The CSRC issued an official warning that Futu and Tiger Brokers were conducting cross-border securities business for mainland investors without the necessary approvals. The regulators explicitly labeled these activities as illegal and ordered the firms to stop soliciting new mainland clients, while leaving open the question about how to treat existing clients.
January 13, 2023: The CSRC released the Securities Brokerage Business Management Measures, which formally established that “domestic securities business must be licensed” and expressly prohibited foreign institutions from conducting unauthorized marketing, account opening, or trading services.
May 2023: In a major step toward compliance, both Futu and Tiger Brokers voluntarily removed their trading apps from online app stores in mainland China, effectively cutting off the easiest access point for new domestic retail investors.
July 2025: The China Securities Journal exposed how Tiger Brokers was still attempting to circumvent the regulatory ban by using “edge-pushing” (擦边) tactics, such as using WeChat customer service agents to supply mainland investors with fake overseas stock trading records, to help them qualify as “existing overseas investors” and bypass the compliance blocks.
May 22, 2026: Friday’s final regulatory decision was made.
What’s the impact on online brokers like Futu?
According to various sources, about 13% of Futu’s accounts are held by mainland investors, which represent around 20% of Futu’s client assets and 25% of revenue. Theoretically, if all of those mainland investors sell their shares, that would be about a 20-25% hit to Futu’s financials.
The actual impact could be smaller because the government is also making it clear that mainland investors who live overseas and trade overseas will not be affected, limiting the actual impact.
Moreover, in practice, determining if someone is “living overseas” is more nuanced than it sounds. It is certain that Futu will close all its mainland-based operations and will likely block visits from mainland China. However, in practice, it is entirely conceivable that someone with a VPN and some form of proof of a foreign address could establish themselves as a foreign-based investor and thus continue trading.
What’s the impact on China ADRs
Futu and Tiger Securities' stocks collapsed due to this news. Along with it, the entire China ADR and internet space also dropped on Friday. There were fears that the “forced selling” by these brokers would exert significant selling pressure on the ADRs.
But these fears do not stand up to scrutiny.
Of the mainland investors investing through Futu and Tiger, it is likely that purely US stocks like Nvidia and Tesla make up the majority of their portfolios. This is because many dual-listed ADRs (e.g., Alibaba) and most large to mid-cap Hong Kong stocks (Tencent, Meituan, etc.) are already accessible through the Stock Connect program, allowing mainland investors to invest directly from onshore. Consequently, there is no particular reason these investors would go all the way overseas to invest heavily in China ADRs.
Let’s take Tencent, a popular Chinese stock listed overseas, as an example. According to the Hong Kong Stock Exchange’s own data, investors who bought Tencent shares through Futu accounted for only ~0.8% of Tencent’s total share base. Assuming 20% of those are held by mainland investors, Tencent's actual stake “at risk” would be less than 0.2%.
For the bigger picture, at the end of 2025, Futu held around $160 billion in total client assets. At 20%, around $32 billion of those belong to “mainland investors”. If we assume 30% of those were held in overseas-listed Chinese stocks, that would amount to only $10 billion. On the other hand, all of the companies in the KraneShares CSI China Internet ETF (KWEB) alone are worth more than $1 trillion. So, at most, it will have a net selling impact of just 1%. And if we take into account all non-KWEB Chinese companies and the aforementioned fact that some “mainland” money would still remain, the final impact will be far less than 1%.
Is this the beginning of a market-wide, 2021-style regulatory crackdown?
I suspect the actual reason for the broader sell-off was the PTSD that investors still had from the terrible memories of the 2021-2022 period of government crackdown, such as the infamous one on after-school tutoring. At the time, there was a consensus (which I didn’t agree with) that there was a systematic and concerted effort to crack down on the private economy.
Is this regulatory action against overseas online brokers a sign of the bigger crackdown? I don’t think so. This is clearly an industry-specific regulatory action that has been lurking around for years.
The regulator, drawing on lessons from the past, seems also to be trying to compartmentalize the issue. The actual fines imposed on Futu and Tiger for the illegal offenses are lower than many expected, and a two-year window for asset liquidation seems very reasonable. Also, as mentioned previously, it took them about 5 years of piecemeal regulation and cat-and-mouse games to get to this point.
Overall, the authorities did not seem as heavy-handed as they were in 2021 during the “double-reduction” episode, and the market has now developed a normalized view of the regulatory landscape.
Any other stones unturned?
By now, a natural question is whether there are still similar “slow-burn” regulatory stories lurking in the corner that we should be aware of.
In the paywall section below, I’ll give a full review of 2 potential flashpoints and 2 areas that are seemingly flashpoints but aren’t.
