How can internet brokers be lawless?

On October 15, people close to the regulatory authorities stated to the media that in accordance with the requirements that all financial activities should be included in the supervision, the CSRC and other regulatory authorities are focusing on improving relevant regulatory rules, and will regulate such activities (Futu, Tiger, etc.) in accordance with the law, strengthen regulatory law enforcement, and comprehensively protect the legitimate rights and interests of investors. Affected by this news, the stock prices of Futu Holdings and Tiger Securities have fallen continuously.

Previously, the People's Daily mentioned that Futu Holdings and Tiger Securities have completed their listing in the United States, and in the context of the "Personal Information Protection Law" clarifying the rules for the cross-border provision of personal information, the issue of the export of personal information by mainland citizens may become a new test that Internet brokers that provide stock trading services in major global markets such as US stocks and Hong Kong stocks will face.

According to the financial network, in addition to information security risks, there are other problems with cross-border Internet brokers such as Futu and Tiger, such as unlicensed exhibitions, unequal competition compared with mainland securities companies, and suspected of assisting individuals in asset transfer.

Futu Holdings was listed on the NASDAQ exchange (stock code FUTU) on March 8, 2019. According to the prospectus, the largest shareholder of Futu Holdings is its founder and chairman Li Hua, holding 51.7% of the shares. In addition, Tencent holds 38.2% of the shares, Jingwei China holds 6.1% of the shares, and Sequoia Capital holds 4%.

In June 2017, Futu Securities announced the completion of Tencent's US$145.5 million Series C financing, which was completed by Three of the world's top investment institutions, Tencent, Jingwei and Sequoia, two previous rounds of Investors A and B of Futu, and Tencent continued to lead the investment. In March 2018, it was selected into the "China Unicorn List" selected by the Ministry of Science and Technology.

Since 2016, Futu, as a joint lead manager, has been the only one to participate in the IPOs of new economy star Internet companies such as Xiaomi, 51 Credit Card, Seventh Avenue, Meitu and Yuwen, including pre-IPO corporate services and distribution businesses. In May 2014, it cooperated with Tencent Cloud to optimize network access services, and in July 2014, reached in-depth cooperation with Tencent's QQ self-selected stocks to provide trading services for SELF-selected stock users in the United States and Hong Kong stocks.

In a risk warning issued by the CSRC in July 2016, institutions such as Futu Network were mentioned. According to the CSRC, domestic investors participating in overseas securities market transactions through the platform websites or mobile clients of domestic Internet companies, because there is no corresponding legal protection, and the securities investment accounts and funds are overseas, once a dispute occurs, the rights and interests of investors will not be effectively protected.

Founded in 2014, Tiger Brokers has its main team members from well-known financial institutions and Internet companies such as Goldman Sachs, Chicago Stock Exchange, Guosen Securities, NetEase, Tencent, Baidu, xiaomi and so on. The founder of the company is Wu Tianhua, born in 1984, graduated from the Department of Computer Science of Tsinghua University, and is Wang Xing's younger brother. Xiaomi holds a 14.1% stake in Tiger Brokers through a wholly-owned company, in addition to Zhen Fund, Huachuang Capital, Ruiyin Capital, and Wang Xing.

On July 16, 2019, the Central APP Special Governance Working Group issued the Notice on Urging 40 App Operators with Problems in Collecting and Using Personal Information to Rectify as Soon as Possible, and Tiger Brokers was named by the Working Group for having problems in the use of personal information mobile phones and not disclosing effective contact information. Futu Holdings said that for the situation that there are problems in the collection and use of personal information in the App in 2019, all rectification work has been completed in accordance with regulatory requirements.

Tiger Brokers, in its 2021 annual report, although the company obtained financial-related licenses in the United States, New Zealand, Australia, Hong Kong and other countries and regions, it did not Chinese mainland related financial licenses. At the same time, Futu Holdings also revealed to investors that there is no way to guarantee the content it provides, it will not be regarded as a securities investment service by the regulator, nor can it guarantee its own operating model, and it will not be regarded as a fund sales service by the supervision.

The Securities Times pointed out that such overseas securities business institutions carry out marketing and account opening activities for domestic investors through domestic affiliated platform institutions, which does not conform to the spirit of China's "Securities Law" and "Securities Company Supervision and Administration Regulations" that no unit or individual may engage in securities business without permission and approval.

In October 2019, US short-selling agency Geoinvesting released a short selling report on Tiger Brokers, accusing it of illegal money laundering, no Chinese securities brokerage license, risk of commission income, consolidated accounts not protected by SIPC, repeated customer complaints about non-compliance, and interest-free loans to related parties.

Over the past few years, Internet companies have invested in and supported securities institutions, quickly gathering high-end customer resources, while bringing overseas investment returns to some people, there are inevitably risks. At the same time, although some Internet brokers are registered overseas, their main business is actually in the mainland, and they have also become invisible market realization assistants for some Internet capital after segmenting the track through traffic control.

At its november 2020 meeting, the China Banking and Insurance Regulatory Commission (CBIRC) stressed that financial activities will be fully included in supervision in accordance with the law, and similar businesses and similar entities will be treated equally. "Zero tolerance" for all kinds of violations of laws and regulations, and effectively protect the legitimate rights and interests of financial consumers. Now it's the SFC's turn.