Exclusive: Hardline Regulatory Stance in China Pushes Some Brokers to Relocate

The regulatory crackdown on the retail brokerage industry in China is continuing, with the authorities focusing on some companies in particular. Sources with knowledge of the matter have shared with Finance Magnates that local officials are moving swiftly to pressure some parts of the industry further.

Their latest move is to crack down on three locally-based brokerage houses, arresting staff and closing the premises on which they were operating. The move follows up on recent pressure from the Chinese government that seems to be continuing after the local New Year celebrations.

One source explained that doing forex business in China has always been a risky thing for both traders and brokers, and the recent crackdown is not something new. While the atmosphere has become more tense than before, most brokers are staying in China and will simply be more cautious with the business they are still doing.

As Finance Magnates reported recently, one brokerage that was a target for Chinese authorities, BMFN, was forced out of the country altogether. Some local industry-focused people argue that its all business as usual with heightened alertness.

Not All Brokers Relocating, Big Brokers Continue from Australia

To tackle the challenges, some brokers have been shifting to a new (or rather old) tactic. Instead of having a physical presence in the country, they have been relocating to Australia, Hong Kong, Thailand, the Philippines, and Vietnam. Sources with knowledge of the matter stated that major brokers operating in China have not been summoned by local authorities, nor asked to exit China in any capacity, at this point.

The main conditions for having the resources to onboard Chinese clients is having enough Mandarin speakers with knowledge of the FX industry in China. Since the tough conditions created by the Chinese government are pressuring some brokers, the natural response is to shift into jurisdictions that are outside of China’s control.

Chinese Market Proves Too Big to Give Up On

Some brokerage houses have been operating under the radar of Chinese authorities for years and the original approach of the industry towards the Chinese market has been from offshore. Australian subsidiaries of many brokerages have been mainly focused on clients from China, creating a safe haven from a regulatory standpoint.

Big publicly-listed brokers have been using Australia as their home to target Chinese clients for years. While some more aggressive retail-focused companies have moved to expand with offices in Mainland China, most of them are merely adjusting their focus on the region.

Broad Political Shift

It would be unwise to ignore the broad shift in Chinese politics in recent quarters. The country is shifting into a more authoritarian state, with the dominion of Xi Jinping looking to have solidified in recent months. As such, big changes for Western companies operating in China are to be expected.

The government’s stance on capital leaving China remains unchanged for years, as the country is continually enforcing tough conditions on citizens that wish to transfer money offshore. Trading on the foreign exchange market can be seen by some authorities as a way to go around such regulations and the state is keen to fix all loopholes (as we have already seen with Bitcoin).

ASEAN Countries in Focus for Operations

Aside from just relocating their offices to other countries in South-East Asia, retail brokers that are operating in the area are also keen on on-boarding clients from the ASEAN region. While Singapore and Hong Kong are out of reach for many due to the tough regulatory environments in the financial centers, companies are increasingly looking at Indonesia, Malaysia, the Philippines, Thailand, Cambodia, Laos, Myanmar, and Vietnam.

Not only do these countries provide a cost-effective operational base, but they also are home to some of the world’s largest populations.

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