Following the sanctions imposed by the China Securities Regulatory Commission on Futu, Tiger Brokers, and Chongyang Securities, three major cross-border securities firms, some banks and securities firms in Hong Kong have temporarily suspended opening accounts for mainland Chinese investors due to concerns about crossing regulatory red lines imposed by the Chinese Communist Party.
According to a report by Hong Kong’s “Sing Tao Daily” on June 1, almost simultaneous with the announcement of penalties against the three securities firms mentioned above, the Hong Kong Monetary Authority wrote to banks, demanding additional measures when opening and managing investment accounts for mainland investors to comply with regulatory requirements.
The additional measures proposed by the Monetary Authority for banks include conducting account opening verification and closing investment accounts opened using suspicious or forged documents, closing zero-balance investment accounts, and obtaining written declarations from mainland investors when opening new accounts, confirming that all funds used to support investment activities and related settlement funds are from legitimate sources outside mainland China, among others.
The report revealed that ICBC Asia Bank has issued an internal notice suspending the opening of new investment accounts for mainland investors, while HSBC Bank still allows mainland investors to open accounts but through online channels and with written declarations.
In another report by the same publication, following the actions taken by the China Securities Regulatory Commission (CSRC), although the Hong Kong Securities and Futures Commission stated that local securities firms can still open new investment accounts for mainland investors (those who provide mainland identity documents), concerns within the industry about regulatory red lines have not been completely eliminated.
The report stated that over the past week, some securities firms have tightened the requirements for mainland clients opening accounts in Hong Kong, with some even suspending account openings for mainland investors.
On May 22, the CSRC announced penalties against Futu, Chongyang, and Tiger Securities, three major cross-border securities firms, for conducting securities business in mainland China without permission.
Subsequently, Futu announced that the regulatory authorities proposed a fine of 1.85 billion RMB for the company, while the parent company of Tiger Securities, UP Fintech, disclosed that its subsidiaries face a total penalty of 411 million RMB and confiscation of income.
A follow-up analysis by Bloomberg indicated that after $1 trillion flowed out of China last year, authorities launched a comprehensive crackdown on offshore trading platforms that help investors bypass capital controls.
Insiders revealed that some mainland Chinese securities firms’ Hong Kong subsidiaries are also awaiting clearer policy guidelines to assess the impact of this crackdown and decide whether to adjust their operations. Some institutions still hope that accounts opened before 2022 may not be included in this round of rectification.
The article pointed out that over $1 trillion in foreign exchange reserves not reflected on the central bank’s balance sheet makes it difficult to trace their exact destination. China needs to purchase high-end chips, energy, and minerals, all requiring dollars. Selling US bonds to obtain dollars for strategic purchases and currency rate interventions are crucial for China.
Previously, Bloomberg cited market surveys predicting that China’s foreign exchange reserves could decrease by about $300 billion this year, falling to around $3 trillion. If this forecast holds true, the central bank’s ability to intervene in the yuan exchange rate may further weaken.