China Sets Two-Year Deadline for Offshore Brokers to Exit Mainland Market

China's securities regulator has set a two-year deadline to close the cross-border channel that allows mainland investors to trade global stocks through offshore brokers, with the financial impact already appearing in company earnings. The China Securities Regulatory Commission (CSRC) named three firms on May 22 and disclosed approximately $331 million in fines and confiscated income across two of them.

Futu Holdings disclosed a proposed penalty of about RMB 1.85 billion ($271 million), while UP Fintech, parent of Tiger Brokers, reported a penalty of RMB 411.2 million ($59.7 million). The regulator did not specify a fine for the third firm, Longbridge Securities.

The charges reduced Futu's reported first-quarter net income by 61.2% to HK$831 million and pushed UP Fintech to a $26.9 million net loss, compared to a $30.4 million profit a year earlier. Both firms classified the penalties as one-time items. Excluding these charges, Futu's revenue rose 24.7% year-over-year, funded accounts climbed 34.3%, and client assets grew 47.2%. UP Fintech's revenue increased 26.3%.

"This amount does not impact our business fundamentals or financial stability," said Arthur Yu Chen, CFO of Futu Holdings. Initially, investors reacted negatively, with Futu's shares falling 27.5% on the announcement day before rebounding roughly 20% three sessions later, aided by an S&P Global Ratings decision to reaffirm the company's investment-grade rating.

An FM Intelligence analysis highlights the revenue at risk. Futu has stated mainland clients constitute about 13% of funded accounts but roughly 20% of revenue, indicating higher average value per mainland account. As the wind-down only permits existing clients to sell and withdraw, this revenue is expected to erode over the two-year period rather than disappear immediately. Modeling suggests the mainland contribution could roughly halve in the first year and shrink further in the second.

This regulatory action is part of a broader crackdown. The CSRC first declared the activity illegal in 2022, ordering Futu and UP Fintech to stop accepting new mainland clients. The latest penalties fall under an eight-agency plan approved by China's State Council.