China Cracks Down Hard on Cross-Border Illegal Securities Transactions, Demands Complete Cleanup in 2 Years

After the A shares closed on Friday, the Chinese regulatory authorities took a strong stance against illegal cross-border transactions, catching the market off guard.

Eight departments jointly issued a statement, announcing a comprehensive rectification campaign against illegal cross-border securities transactions. Immediately after, the China Securities Regulatory Commission (CSRC) named Futu Holdings, the parent company of Tiger Securities - Up Fintech, and ChangJiang Securities, accusing them of conducting business within the territory without permits and declared that it would confiscate all "illegal income" from related domestic and foreign entities. The Hong Kong Securities and Futures Commission followed suit, requiring relevant institutions to strengthen anti-money laundering controls and proposing additional measures for domestic investor accounts.

The market reaction was immediate and evident. Tiger Securities' pre-market drop reached as high as 35%, and Futu Holdings fell by about 36%, with the shockwave spreading to the China concept stocks segment as well, with Alibaba dropping by 4.2% and JD.com by 3.5%.

The deterrent of this rectification campaign comes not only from fines and licenses but also from an unprecedented requirement: non-compliant accounts must complete liquidation within two years.

According to Bloomberg citing Dante Research founder Chen Da, this is a "huge shock," with the greatest surprise coming from the requirement to "close existing accounts within two years." He warned that if investors sell en masse, China's ADRs and the Golden Dragon Index will face severe pressure.

According to an index compiled by Bloomberg Intelligence, the scale of China's "hot money" outflows in 2025 is expected to reach a record high of approximately $1.04 trillion since data began in 2006. At the same time, Chinese tax authorities are strengthening efforts to recover offshore income, with several investors having been asked to pay taxes on profits from overseas stock trading.

Allen Wang, a partner at Shanghai Jincheng Tongda Law Firm, pointed out that the strong performance of the Hong Kong stock market has attracted a large number of mainland investors to open accounts in violation of regulations, exacerbating capital outflows, which also provides a stronger motive for the authorities to intervene.

Specifically, the eight-department joint plan includes: overseas institutions will be prohibited from carrying out marketing and account opening services for securities, futures, and fund products within China's borders; domestic intermediaries, trading software providers, and customer service platforms that assist in such operations will also face enforcement; internet platforms and social media publishing illegal promotional content are also included in the rectification. On the banking level, regulatory authorities require financial institutions to strengthen cross-border foreign exchange compliance reviews, focusing on cracking down on money transfer activities through underground banks.

For investors, the two-year clearing period is the most critical variable—if a large number of mainland accounts are forced to liquidate their holdings in Hong Kong stocks and China concept stocks within a limited time, the potential scale of selling pressure should not be underestimated, and the logic of Chinese assets going public overseas will also face a fundamental reassessment.