Futu Securities and Tiger Brokers recently updated their account opening terms, imposing restrictions on mainland Chinese investors. Mainland Chinese residents without permanent residency in Hong Kong, Macau, or elsewhere are now virtually unable to access overseas trading through Futu and Tiger. This is a bolt from the blue for countless mainland retail investors hoping to invest in Hong Kong and US stocks.
Account opening standards have changed suddenly, and mainland Chinese citizens are excluded again
According to Yicai Global , Futu Securities stated that according to the latest regulatory requirements, mainland Chinese clients who wish to open an account must hold proof of overseas permanent residency. Futu's customer service also emphasized that the platform is currently undergoing a system upgrade and currently only supports account openings by clients with Hong Kong and Macau ID cards. After the upgrade is complete, mainland Chinese users will need to provide both a mainland ID and proof of overseas permanent residency. Tiger Brokers' customer service also clarified that they will no longer process account opening requests unless the client holds a non-mainland Chinese ID.
Double-line closing of supervision and taxation
It is worth mentioning that as early as 2022, cross-border brokerages such as Interactive Brokers and LongBridge have gradually tightened the account opening channels for Chinese customers. Now Futu and Tiger have once again strengthened their review, which actually implies the official Chinese regulatory stance: It is almost impossible to invest directly overseas without an overseas identity.
Further analysis of this phenomenon reveals two "invisible hands" behind the scenes. The first is the China Securities Regulatory Commission's crackdown on illegal cross-border industries. At the end of 2022, regulators designated the domestic solicitation activities of Futu Holdings and Tiger Securities' parent company, UP Fintech, as illegal operations and set the requirement to "effectively curb the increase and orderly resolve the existing problem."
The second-highest priority lies in the tax system. Since the second quarter of this year, many mainland Chinese investors in Hong Kong and US stocks have reported receiving tax refund notices, driven by the CRS information exchange mechanism.
Note: CRS, short for Common Reporting Standard, is an international tax standard published by the Organisation for Economic Co-operation and Development (OECD) in July 2014. It aims to promote global tax transparency and combat cross-border tax evasion and avoidance through the automatic exchange of financial account information.
Cryptocurrencies are also subject to strict regulation
With the increased account opening threshold, investors without overseas identities are forced to turn to regulated channels. Those seeking exposure to Hong Kong stocks can use the Stock Connect or ETFs tracking the Hang Seng Index. For US stocks, exposure can only be gained indirectly through products such as Qualified Domestic Institutional Investor (QDII) funds. While these regulated channels offer certainty regarding taxation and tax filing processes, they also come with higher fees and fund management charges.
In addition to cross-border stock investment and securities account opening, as the popularity of cryptocurrencies continues to rise, the mainland Chinese market is also embracing emerging models such as DeFi and RWA tokenization. Unfortunately, mainland China has not yet introduced a specific regulatory framework, and recently, the authorities have also successively restricted companies' exploration in areas such as stablecoins and RWA, increasing the compliance risks of the mainland Chinese market in contacting related fields.
