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China warns unlicensed online brokerages they are breaking the law -Breaking

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© Reuters. FILE PHOTO – The People’s Bank of China’s (PBOC) headquarters is pictured in Beijing on September 28, 2018. REUTERS/Jason Lee

SHANGHAI (Reuters). – Chinese online brokerages are operating illegally if they offer Chinese clients over the internet. The statement was made by a Chinese central banking official in response to recent reports about regulatory risks faced firms, such as Futu Holding in the U.S. and UP Fintech Holding.

Cross-border brokerages driving in China with no driver’s licence. “They’re engaging in illegal financial activity,” Sun Tianqi of the Financial Stability Department of People’s Bank of China, stated in a speech. A transcript of his remarks was released Wednesday.

Futu Fintech and UP Fintech are at risk as China’s personal data privacy law comes into effect Nov. 1. According to the People’s Daily, an analysis was posted on their website Oct 14.

The shares listed on Nasdaq by Futu Fintech and Futu have plunged since then, raising concerns that Beijing will soon regulate the sector. China launched an avalanche of enforcement actions targeting various sectors, from property to technology to cryptocurrency.

Sun from PBOC stated at the Bund Summit Shanghai that certain online brokerages have only international licenses and serve primarily mainland Chinese investors. This allows them to trade U.S. stocks as well.

Sun claimed that 88% of the accounts for a Cayman Islands-registered brokerage were opened by mainland customers, while 55% of another Hong Kong brokerage’s account was opened by mainland clients.

Sun stated that financial licenses are subject to national borders.

It is illegal to conduct business in China with overseas institutions that have only obtained licenses from other countries.

Sun’s speech transcript was made available on the Finance 40 Forum website, which organized the summit.

Futu stated in the 2020 Annual Report that they primarily serve China’s emerging wealthy population. A large portion of their clients are Chinese nationals.

Futu claimed that although it believes it has no involvement in China’s securities brokerage industry, by redirecting customers and clients to create accounts in China and then make payments outside of China, there are still regulatory risks.

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