China trading apps tank after PBOC official calls them 'illegal'

[BEIJING] China's largest cross-border online brokers plummeted in US pre-market trading after a central bank official questioned the legitimacy of their operations amid Beijing's continuing crackdown on private enterprise.

Cross-border Internet brokers are engaged in "illegal financial activities" because they have no "driving licences" to operate in China, something that is unrelated to the convertibility of China's capital account, Sun Tianqi, a senior People's Bank of China (PBOC) official wrote in an article published on the website of Finance 40 Forum.

Tencent Holdings-backed Futu Holdings tumbled as much as 31 per cent in US premarket trading while Xiaomi-backed Up Fintech Holding fell as much as 23 per cent.

China has been tightening control over broad swathes of its economy, in particular cracking down on firms that collect data from consumers such as ride-hailing apps and other technology giants.

Futu and Up Fintech have been operating in a gray area, allowing millions of Chinese investors to evade capital controls to trade shares offshore in markets such as Hong Kong and New York.

In an analysis earlier this month, the People's Daily said online brokerages operating across borders run the risk of violating data privacy rules and are in the spotlight as China's personal information protection law takes effect on Nov 1, pointing to Futu and Up Fintech as case studies. The article said user data of both brokers are at risk of being compromised as they are required to provide certain information to the US Securities and Exchange Commission.

Sun said one company, registered in Cayman Islands, received 80 per cent of the funds from mainland China while another Hong Kong-based company received 55 per cent. He did not name them.

"Since Futu Securities became a licensed institution under the supervision of the Securities and Futures Commission of Hong Kong, the institution has been running well without any bad regulatory records," Futu founder Leaf Li said in a statement on Thursday (Oct 28). Futu Holdings has raised more than HK$15 billion (S$2.6 billion) in the past year, and the proceeds are mostly going to support Futu Securities' business operations, the capital is ample and there is no problem of bankruptcy, he added.

BLOOMBERG