China cracks down on illicit cross-border activities to close regulatory gaps: Report

 China has instructed its securities firms and offshore entities to quit engaging in  illicit cross-border activities, such as selling funds to domestic investors and brokering shares, in an effort to close regulatory gaps, reported Bloomberg. 

A notice from the China Securities Regulatory Commission reviewed by Bloomberg News stated that the overseas units have until October 31 to cease all marketing efforts and promotions directed towards mainland investors and to terminate all channels for new account openings, including onshore websites and apps. According to Bloomberg's report, the CSRC did not immediately reply to a faxed request for comment.

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In an effort to curb cross-border cash flows that would risk financial stability, Chinese authorities are stepping up their monitoring to stop individuals from dodging domestic capital controls. Simultaneously, a number of initiatives have been implemented to boost trust in regional markets following a sharp decline in stocks, said Bloomberg in its report.

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The notification includes more conventional mainland brokerages in its scope of directives. Online companies like Futu Holdings Ltd. and Up Fintech Holding Ltd. have faced regulatory action in the past for serving mainland Chinese customers with their popular trading apps, according to Bloomberg report.

As per the notice, Chinese investors who reside and work offshore may still open accounts with the foreign branches of domestic brokerages as long as they follow local legislation. Additionally, they can keep serving clients registered in Employee Stock Ownership Plans, a kind of incentive programme offered to employees by Chinese companies listed abroad, said Bloomberg in its news report.

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For brokerages such as state-owned Citic Securities , CICC and Haitong Securities , offshore trading services are a key source of revenue for their Hong Kong units. The three brokerages did not immediately respond to Reuters requests for comment.

Offshore trading services are a major source of income for brokerages like the state-owned Citic Securities, CICC, and Haitong Securities, which operate out of Hong Kong. Requests for comment from Reuters were not immediately answered by the three brokerages.

(With inputs from Bloomberg and Reuters)

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