China Just Gave Offshore Brokers Two Years to Exit the Mainland

China’s
securities regulator has set a two-year deadline to close the cross-border
channel that let mainland investors trade global stocks through offshore
brokers, and the bill is already showing up in earnings.

The China
Securities Regulatory Commission (SRC) named three firms on May 22 and disclosed
about $331 million in fines and confiscated income across two of them. A new FM Intelligence analysis breaks down who pays, how much
revenue is at risk and how fast it could disappear.

Futu
Holdings disclosed a proposed penalty of about RMB1.85 billion, or roughly $271
million, while UP Fintech, the parent of Tiger Brokers, reported RMB411.2
million, about $59.7 million.

The
regulator did not attach a figure to the third firm, Longbridge Securities. FinanceMagnates.com
first reported the Futu penalty when the company disclosed it.

The Penalties Hit Reported
Profit but Not the Underlying Business

The charges
cut Futu’s reported first-quarter net income 61.2% to HK$831 million, and
pushed UP Fintech to a $26.9 million net loss against a $30.4 million profit a
year earlier. Both firms booked the penalties as one-time items.

Strip out
the charge and the operating picture looks different. Futu’s revenue rose
24.7%, funded accounts climbed 34.3%, and client assets grew 47.2% year over
year. UP Fintech‘s revenue rose 26.3%.

“This
amount does not impact our business fundamentals or financial stability,”
said Arthur Yu Chen, chief financial officer of Futu Holdings.

Investors
took a darker view at first. Futu shares fell 27.5% on the day, then rebounded
about 20% three sessions later, helped by an S&P Global Ratings decision to
reaffirm the company’s
investment-grade rating.

How Much Mainland Revenue
Is Actually at Stake

This is
where the FM Intelligence modeling comes in. Futu has said mainland clients
make up about 13% of funded accounts but roughly 20% of revenue, a gap that
signals each mainland account is worth more than the firm-wide average.

Because the
wind-down lets existing clients only sell and withdraw, that revenue erodes
over two years rather than vanishing at once.

FM
Intelligence models three paths for how much survives, with a base case that
sees the mainland contribution roughly halve in the first year and shrink
further in the second.

The action
is not isolated. The CSRC first declared the activity illegal back in 2022,
when it ordered Futu and UP Fintech to stop
taking new mainland clients, and the latest penalties sit inside an eight-agency plan approved by
the State Council.

The full FM Intelligence analysis lays out the scenario ranges, the
annualized revenue exposure and why the regulator’s two-year deadline may run
faster than an orderly runoff.

This article was written by Damian Chmiel at www.financemagnates.com.



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