Lawyers are cautioning companies against operating in regulatory grey areas after Futu, Tiger Brokers and Longbridge face investigations by the China Securities Regulatory Commission (CSRC) into the alleged illegal operation of securities business.
The lawyers have also stressed the importance of companies to undertake end?to?end substantive compliance. Futu also confirmed that it is facing a proposed fine of RMB1.85 billion (USD273.4 million).
Wang Tiantian, a partner at Jia Yuan Law Offices, said: “Chinese financial regulators and other relevant authorities have shown a consistent trend towards tightening oversight of marketing, client solicitation and business development activities conducted within the Chinese mainland. Recent legislative and enforcement actions are aligned with this longstanding regulatory direction.”
She added that legislation enacted several years ago had already explicitly prohibited unlicensed overseas institutions from conducting securities marketing and account?opening activities in the Chinese mainland.
Eric Zou, a partner at Merits & Tree Law Offices, observed that the CSRC first publicly flagged risks associated with Futu and Tiger Brokers as early as 2016. Since then, the regulator has taken various measures against such brokers, including public statements through the media, regulatory interviews and characterising certain business activities as illegal.
Regulatory action has now culminated in administrative penalties. On 22 May 2026, the CSRC issued a notice announcing formal investigations into Futu, Tiger Brokers and Longbridge and the prior notification of administrative penalties.
Futu subsequently responded in a public statement, confirming that it faces a proposed fine of RMB1.85 billion, while its founder and CEO, Li Hua, is reportedly subject to a personal fine of RMB1.25 million.
Targeting illegal cross-border securities
On the same day, the CSRC, together with seven other authorities – the Ministry of Industry and Information Technology, the Ministry of Public Security, the People’s Bank of China, the State Administration for Market Regulation, the National Financial Regulatory Administration, the Cyberspace Administration of China (CAC) and the State Administration of Foreign Exchange (SAFE) – jointly issued the Implementation Plan for the Comprehensive Rectification of Illegal Cross?Border Securities, Futures and Fund Business Activities (the Implementation Plan).
The plan requires relevant institutions to wind down existing illegal business within a two-year rectification period. During this period, they are prohibited from providing purchasing or deposit services to existing investors and may only facilitate sell orders and fund withdrawals.
Addressing attempts by institutions to circumvent supervision through formalistic measures, such as establishing “onshore?offshore firewalls” or using internet technology to bypass physical restrictions, the Implementation Plan expands the scope of enforcement.
It covers not only overseas institutions engaged in illegal cross?border activities, but also onshore institutions, internet platforms and online influencers that assist in providing services or soliciting investors.
“If a market participant is substantively conducting regulated business development or targeted marketing activities within the Chinese mainland, whether through offshore entities or domestic affiliates and partners, such measures may not effectively mitigate or isolate regulatory risk,” Wang said.
She added that the joint action by eight ministries and commissions, including the involvement of public security authorities and co-ordinated enforcement by the SAFE and the CAC, demonstrates limited regulatory tolerance for such business models. “Market participants should avoid interpreting past business models as tacit regulatory approval,” she cautioned.
Zou cited fund sales as an example. Under Chinese law, fund sales includes promotional and marketing activities, not merely transactional buying and selling, Zou said. Therefore, promoting cross-border investment products within China may itself constitute illegal activity subject to rectification under the Implementation Plan.
He advised in-house counsel to “carefully and accurately interpret the law and conduct compliance assessments in line with the principle that substance prevails over form, rather than operating in so-called grey areas. A compliant business model must withstand scrutiny at every stage”.
Proactive compliance essential for brokers
For companies planning to develop cross?border securities businesses, both lawyers emphasised the importance of proactive engagement with regulators and accurate implementation of applicable rules.
Zou warned: “In highly regulated sectors such as finance and cross?border business, models seeking to exploit regulatory arbitrage or technical workarounds increasingly expose significant risk. The absence of regulatory notices or penalty precedents should not be construed as regulatory acquiescence.”
Wang similarly stressed that market participants “must not substitute formalistic or technical compliance for substantive business compliance”. Instead, companies should “review their entire business chain based on regulators’ substantive standards for determining regulated activities”.
She added: “Beyond securities and futures licensing compliance, institutions should carefully assess risks relating to foreign exchange controls, anti?money laundering (AML), cybersecurity and data compliance, and personal information protection.”
She cautioned that areas such as outbound fund transfers, AML obligations and cross-border data transmission may also entail potential criminal exposure.
During the two?year rectification period, Zou suggested that in?house legal teams focus on “building a rectification process visible to regulators” by proactively reporting action plans and progress.
Wang recommended that companies comprehensively review existing legal documentation, identify gaps in customer agreements and implement appropriate remedial measures, while ensuring that properly documented customer authorisations and complete operational records are maintained for sell orders and fund transfers.
She also advised brokers to review whether investor agreements include necessary provisions to mitigate liability exposure, such as representations and warranties regarding investor eligibility and source of funds; clauses allowing adjustments in response to regulatory or mandatory law changes; and provisions requiring investors to dispose of holdings themselves or authorising brokers to do so. Where such clauses are absent, supplemental arrangements with clients should be considered.
Finally, she cautioned that investors may initiate litigation if forced sales during the rectification process result in losses. They may also pursue claims based on alleged mis?selling. Brokers should remain vigilant in managing such risks.
