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China regulator asks Futu and UP Fintech to stop soliciting mainland clients

SHANGHAI/HONG KONG (Reuters) -China's securities regulator said on Friday that online brokerages Futu Holding and UP Fintech Holding have conducted unlawful securities businesses, and will be banned from opening new accounts from mainland Chinese investors, sending their shares tumbling.

The long-awaited official penalty comes more than a year after Chinese official media warned that New York-listed Futu and UP Fintech, which do not have licences in China, face regulatory risks.

Reuters reported earlier that Chinese officials were planning to ban online brokerages such as Futu Holdings Ltd and UP Fintech Holding Ltd from offering offshore trading services to mainland clients.

The announcement also came a day after Futu, backed by Chinese internet giant Tencent Holdings, delayed its listing plan in Hong Kong. The company said it was "clarifying certain matters concerning the Group with the Hong Kong Stock Exchange", in a filing to the Hong Kong bourse on Thursday night.

U.S.-listed shares of Futu fell by 25% and UP Fintech stock tumbled 32.3% in premarket trade.

Futu and UP Fintech Hong Kong have conducted cross-border securities businesses involving domestic investors without regulatory consent, contravening Chinese laws, the China Securities Regulatory Commission (CSRC) said in a statement.

The CSRC will ask the brokerages to take corrective measures, such as to stop soliciting new business from mainland investors, the watchdog said.

Although existing Chinese clients will still be allowed to trade via existing platforms, new money must not flow into these accounts unlawfully, the CSRC added.

Futu and UP Fintech do not have brokerage licences on the mainland, but Chinese citizens can open accounts online after submitting personal information related to ID cards and bank cards.

In 2021, a Chinese central banker had warned that online brokerages not licenced in China were acting illegally if they served Chinese clients via the Internet.

It was not immediately clear how the new measures would impact the brokers' future business.

In statements late on Friday, Futu and UP Fintech said they would cooperate with the CSRC and rectify their business accordingly. Futu said would actively communicate with the regulators and find out specific compliant measures to provide cross-border securities services for onshore investors, while UP Fintech said 90% of its new clients now come from markets outside mainland China, including Singapore, Hong Kong, and the United States.

Futu, which holds a licence in Hong Kong, Singapore and the United States, said in its 2020 annual report that it primarily serves the emerging affluent Chinese population and a large number of its clients were mainland Chinese citizens.

(Reporting by Shanghai newsroom and Xie Yu from Hong Kong, Editing by Louise Heavens)