PBOC Official Calls Cross-Border Trading Apps, Brokers ‘Illegal’
A senior Chinese central bank official blasted the nation’s brokers for providing “illegal” cross-border securities trading services to mainland investors, just three months after he questioned the legitimacy of some online trading apps.
Some brokers’ offshore units worked with overseas branches of Chinese banks to help mainland investors wire their money across the border, often under false claims that the foreign exchange is used for personal travel, Sun Tianqi, head of the financial stability bureau at People’s Bank of China, wrote in an article published Tuesday on the central bank’s bi-weekly China Finance magazine. While their parent firms are licensed to conduct brokerage business in China, cross-border securities trading is still off limits and such activities should be labeled “illegal,” he said.
Sun first raised concerns on the issue in late October, saying online brokers have no “driving licenses” to operate in China. While no names were given, the criticism prompted a plunge in shares of Tencent Holdings Ltd.-backed Futu Holdings Ltd. and Xiaomi Corp.-backed Up Fintech Holding Ltd. In his latest article, Sun said cross-border online brokers are suspected of conducting illegal financial activities.
China has been tightening controls over broad swathes of its economy, in particular cracking down on firms that collect data from consumers such as ride-hailing apps and other technology giants. Futu and Up Fintech, as well as some Chinese brokers’ Hong Kong units, have been operating in a grey area, allowing millions of Chinese investors to evade capital controls to trade shares in markets such as Hong Kong and New York. The country currently bars individuals from using their $50,000 annual forex quota for direct offshore investments.
While internet platforms and related technology enhanced financial institutions’ ability to attract customers and deepen their services, some “issues and latent risks” have also emerged during the process, Sun wrote. Financial licenses are confined to national boundaries and even though opening up financial sector is inevitable, foreign institutions must abide by domestic regulations while operating in China, he added.