Is it compliant for Chinese users to trade US stocks or Hong Kong stocks on ZA Bank?

Today, a young lady asked me a similar question. I thought about it and realized it might offend many friends, but if I approached it from another angle, it would be fine.

First, let’s talk about ZA Bank itself.

ZA Bank is a licensed virtual bank in Hong Kong, regulated by the Hong Kong Monetary Authority (HKMA). It has also obtained qualifications for regulated activities from the Hong Kong Securities and Futures Commission (SFC) under Category 1, which is related to securities trading. Therefore, from the perspective of the Hong Kong regulatory framework, ZA Bank provides banking services and securities trading services in Hong Kong and is not an illegal platform.

PS: Tiger, Futu, and ChangQiao are also compliant in the jurisdictions where their licenses were issued.

But the issue has never been whether foreign institutions have licenses abroad; rather, it’s whether foreign institutions can conduct securities business with Chinese residents within China.

Currently, ZA Bank does not have any license to conduct securities brokerage business within China, which is the premise. So theoretically, ZA Bank cannot directly recommend account openings, direct traffic for account openings, or market US or Hong Kong stock trading to Chinese residents in mainland China. It also cannot treat mainland Chinese users as its main target audience to provide cross-border securities services.

Then we get to the more complicated part.

ZA Bank's official website states that Hong Kong residents and visitors to Hong Kong can open accounts online. This means that ZA can indeed serve mainland residents who open accounts in Hong Kong.

However, if the user resides in mainland China long-term after opening the account, uses mainland networks, mainland funds, and mainland identities, and continuously trades US or Hong Kong stocks via ZA Bank, then the situation becomes complicated.

For Chinese regulators, the key points to focus on are:

First, whether foreign institutions are illegally conducting operations within the country.

Second, whether account opening, marketing, directing traffic, customer service, and transaction instruction processing occur within mainland China.

Third, whether the funds are legally allowed to exit.

Fourth, whether users bypass domestic cross-border securities investment regulation through foreign accounts.

Fifth, whether tax resident status and CRS information exchange could lead to subsequent tax issues.

Particularly, one should not be careless about fund issues. As I mentioned in previous tweets, although Chinese residents have an annual foreign exchange quota equivalent to $50,000, this quota cannot be used for overseas stock investments.

So in summary, if a Chinese user is in Hong Kong, and opens a ZA Bank account in compliance with Hong Kong rules, with legitimate fund sources and transactions occurring within the licensed institution system in Hong Kong, then ZA Bank is primarily regulated by Hong Kong, and the China Securities Regulatory Commission may not directly oversee this transaction.

However, if ZA Bank promotes, opens accounts, directs traffic, or processes trades for users in mainland China, or a significant number of mainland residents use ZA Bank to circumvent and buy US or Hong Kong stocks, then ZA Bank faces the risk of being scrutinized or even named by Chinese regulators.

The above applies not only to ZA Bank but also to other Hong Kong banks, Hong Kong securities firms, Singapore securities firms, and American brokers; essentially, the same logic applies.

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