How eBrokers are Skirting Chinese Regulations

By Eli Waldman

Senior Customer Success Manager


Chinese officials try to crack down, but eBrokers find loopholes. Western regulators also face challenges regulating forex and crypto trading.

China is one of the most tightly regulated markets in the world. However, even the Chinese government has not been entirely successful in imposing rules for forex or crypto trading and many brokers are finding ways to get around regulations. 

The story of eBrokers in China has implications for traders in other countries. Attempts to regulate the forex market and cryptocurrency trading in Europe and the United States are met with many challenges. Meanwhile, unregulated brokers crop up more quickly than regulators, and governments can pass laws and update policies to protect the public against them. 

This means that consumers who face disputes or need fund recovery from brokers should seek the aid of financial services. Since regulators and governments seem to be a step behind in containing the fraudulent online trading crisis, people who have lost money to unlicensed brokers or need to pursue a dispute should work with professionals to retrieve their funds. 

MyChargeBack provides guidance to consumers who are trying to recover their funds from merchant disputes, forex scams or other types of fraud. Talk to MyChargeBack professionals and get started on fund recovery. 

China’s Warnings Against Online Trading

The Chinese government has been concerned about online trading for a long time, mainly because it allows its citizens to bypass laws. Futu, a Chinese online wealth-management service whose stock is traded on the New York Stock Exchange, and UPFintech are two main culprits, according to Chinese regulators.

When Chinese officials denounced these apps as illegal because they are not licensed in China, the stocks of both Futu and UPFintech, also known as Tiger Brokers, immediately fell 25% and 20% respectively

Chinese officials also warned the public that these trading apps violate personal data privacy laws and urged consumers not to use them. Both of the companies are located offshore, and Futu is based in the Cayman Islands. It is a cross-border service serving Chinese customers, and the Chinese government is concerned that these apps violate the country’s staunch trading rules. 

For instance, according to local laws, Chinese citizens can only invest overseas through stock connect links and the Qualified Domestic Institutional Investors scheme. Although these are stiff regulations, Chinese traders can get past them through offshore accounts. Futu has said it doesn’t move yuan out of China, but that doesn’t mean there aren’t Chinese traders using the app. These investors simply have overseas accounts and keep the money in other currencies. 

According to research by Rhodium Group, Chinese investors hold an estimated $700 billion worth of U.S. stocks, which is triple Chinese government figures. Some experts predict that China may close these loopholes by influencing overseas banks not to open accounts for residents of mainland China. However, it is uncertain if overseas banks will comply with these requests. 

What About Regulation of Online Trading in Other Countries?

Although this story may seem to be limited to China, it has profound implications for the relationship between government regulations and online trading in the rest of the world. 

China is known for its imposition of strict financial rules, but at least on the surface, the laws are designed to protect consumers. Cynics claim that the Chinese government uses these regulations to maintain its authority, but at least the philosophy of imposing some degree of regulation on online trading is good for customers and public security. 

Whether the laws in China are too strict or not is a subject of another debate. The main takeaway from this story for traders in the rest of the world is that calls for tighter regulation of the fintech sector may not be entirely successful. As long as people can open overseas accounts online and trade beyond borders, local regulations may not have the reach to regulate financial services that they did in the past. 

The Pros and Cons of Online Trading

Online trading is convenient. There is no need to trade only with a broker that you have to meet in person or talk to over the phone. An entire world of trading opens up during an online search for brokers. This offers greater choice for traders and the use of apps makes opening an account fast and easy.

However, many critics question whether trading should be so fast and easy. Trading apps and bots can make assets more volatile. In addition, it is tempting for traders to sign up with brokerages that are not licensed if they offer attractive, if unreliable, deals. This means traders may not have the protection and oversight if a dispute arises. 

As a result, governments and regulators warn the public against the pitfalls of online trading and are careful about which brokers they license. However, many traders find quick deals on social media tempting and may want to try a new and popular trading app. 

It is not clear that the majority of consumers are getting the memo from regulators warning of the perils of online trading and unregulated brokers. However, it is still important to publicize warnings and suggest best practices for online trading. 

How to Trade Safely Online

The following are essential tips to trade safely. Every online brokerage should:

  • Be regulated
  • Show contact information
  • Reveal the names of its owners and operators
  • Show terms and conditions
  • Warn about risky investments
  • Have fees, commissions and spreads that are consistent with industry standards
  • Maintain regular communication with clients

What If You Need Fund Recovery?

If you have a dispute with a broker, it is important to file a complaint with a regulator. If the brokerage is not registered, seek assistance from a government oversight agency and look for fund recovery services to bolster your claim and help you retrieve funds. 

Consult with MyChargeBack experts and get started with your fund recovery claim. We have extensive working knowledge and relationship with banks and can improve our prospects of getting your money back. Talk to our professionals today.