Zhejiang Securities Regulatory Bureau has imposed a fine! Financial通Securities' subsidiary has "multiple compliance loopholes" and obtained qualifications for client trading of virtual asset ETFs in June.

Recently, the Zhejiang Securities Regulatory Bureau issued a "double penalty" to Caitong Securities and its executives, revealing serious flaws in the management of this rapidly expanding brokerage's overseas operations. It is worth following that this penalty happened shortly after Caitong Hong Kong obtained qualifications for virtual asset ETF client trading, raising concerns in the market about the prospects of its innovative business. This incident also serves as a wake-up call for the entire securities industry: international expansion and risk management must advance simultaneously.

The Double-Edged Sword of 'High Growth' and 'High Risk'

Caitong Securities (Hong Kong) has recently shown remarkable performance. In the first half of 2025, the company achieved revenue of 44.188 million yuan, an astonishing nearly 9-fold increase compared to the same period in 2024, leading the industry in growth rate. Behind this explosive performance are Caitong Hong Kong's continuous breakthroughs in business qualifications and core operations.

In February 2025, Caita Hong Kong was approved for the Vietnam stock trading code, becoming one of the few Chinese brokerages with the qualification for direct trading of all varieties in Vietnam; even more noteworthy is that in June of this year, the company also obtained the qualification for virtual asset ETF agency trading, joining the ranks of the first batch of Chinese institutions that can provide brokerage services for Bitcoin and Ethereum related ETFs.

However, behind the rapid growth, the risk control system of Caitong Securities has failed to keep pace. The penalty documents from the Zhejiang Securities Regulatory Bureau reveal three major fatal flaws in the management of the company's overseas subsidiaries:

1. Lack of Decision-Making Supervision: There is no effective system established to track the implementation of decision-making matters and evaluate the effectiveness of decisions covering overseas subsidiaries, resulting in major decision execution being in a "black box" state.

2. Inadequate risk management: Failed to establish an effective risk isolation and control system for overseas subsidiaries, resulting in an expanded exposure to cross-border operational risks.

3. Inadequate personnel appointments: Some nominated directors of the overseas subsidiary do not meet the corresponding qualifications, exposing fundamental flaws in corporate governance.

The Regulatory Trends and Industry Warnings Behind the "Double Penalty"

This punishment targets not only the company itself, but also the personal accountability of the assistant to the general manager and the then chairman of Caitong Securities (Hong Kong), Qian Bin, reflecting the regulatory authority's clear enforcement characteristic of "holding individuals accountable." The Zhejiang Securities Regulatory Bureau requires Qian Bin to "take it as a warning, seriously identify and deeply rectify problems, further strengthen personnel management, and effectively improve the company’s compliance management level."

This "double penalty" model is not an isolated case. According to statistics, regulatory authorities have issued 12 fines regarding the overseas subsidiaries of securities companies in 2024, compared to no related penalties throughout 2023, indicating a significant increase in the intensity of penalties. This reflects the regulatory authorities' "zero tolerance" attitude towards the risks of brokers' overseas operations, as well as a shift in regulatory focus from "encouraging going out" to "ensuring proper management."

Financial regulatory experts point out that in recent years, regulatory policies have continued to tighten, with increasingly detailed and in-depth control requirements for brokerage firms' overseas institutions. In particular, there is an emphasis on penetrating supervision, requiring parent companies to have the ability to penetrate multiple layers of legal structures and substantially grasp and manage the business risks and compliance status of overseas subsidiaries.

The prospects of virtual asset business are shrouded in shadows

The qualification for virtual asset ETF agency trading obtained by 財通香港 in June this year is an important part of its "internationalization and innovation dual-driven" strategy. However, the recent risk control issues being named by regulators undoubtedly cast a shadow over its virtual asset business development.

Industry insiders analyze that the virtual asset business itself has a higher risk characteristic, which poses higher requirements for the brokerage's risk control capabilities. In the case where the parent company's risk control system still has defects, whether Financial通 Hong Kong can properly manage the special risks of the virtual asset business has become the focus of market attention.

"The qualification for virtual asset ETF agency trading is hard-won. If business is restricted or even the qualification is revoked due to risk control issues, it will be a significant blow to Financial Hong Kong," said a compliance officer from a brokerage who wished to remain anonymous. "This also serves as a reminder to all brokerages that have obtained innovative business qualifications that compliance and risk control are the foundation of business development."

The Three Major "Soft Spots" of Brokerage Cross-Border Business

The case of Caitong Securities is not an isolated incident. Analyzing industry punishment cases, there are three common issues behind the frequent penalties faced by brokerages in cross-border operations:

1. The extension of management radius leads to the decline of control effectiveness

Overseas subsidiaries exhibit significant differences from the parent company in aspects such as geography, legal environment, market rules, and cultural background. The physical distance and institutional differences make it easy for the parent company's management intentions and risk control requirements to be compromised in actual execution. The traditional vertical management model often faces the dilemma of being "out of reach" in cross-border scenarios.

2. The complexity of risks far exceeds that of traditional businesses

Cross-border business typically involves more complex financial products, a more open market environment, and new risk factors such as geopolitical issues, exchange rate fluctuations, and international sanctions. This places extremely high demands on risk identification, measurement, and management, while some brokerage firms' risk management systems have not kept pace with the internationalization of their business.

3. Talent Gap

Effectively managing overseas subsidiaries requires a multifaceted talent that is not only familiar with the rules of international financial markets but also deeply understands the parent company's risk management requirements, along with cross-cultural management skills. The scarcity of such talent makes it difficult for some brokerages to select overseas institution leaders, directors, or to build professional management teams.

The Balance Between 'Going Far' and 'Managing Well'

Faced with the dual pressures of tightening regulation and business expansion, how can brokerages achieve a balance between "going far" and "managing well"? Industry experts have put forward the following suggestions:

Establish a multi-level risk control system: Create a three-tier risk control structure consisting of headquarters, regional centers, and overseas subsidiaries to achieve comprehensive risk management.

Enhancing technology empowerment: Utilizing financial technology methods to achieve real-time monitoring and early warning of cross-border risks, compensating for the control lag caused by physical distance.

Cultivating composite talents: Strengthen the cultivation and introduction of international talents, and establish a professional cross-border business management team.

Improve corporate governance: Enhance the board structure of overseas subsidiaries to ensure the professionalism and independence of the decision-making mechanism.

Strengthen compliance culture construction: Integrate compliance concepts into corporate culture to form a top-down risk awareness.

The case of Caitong Securities provides valuable lessons for the entire securities industry. Against the backdrop of an increasingly interconnected global financial market, the internationalization of Chinese brokerages will not stagnate, but how to strengthen risk control while expanding business will be a challenge that every brokerage must face.