Zhejiang Bureau Penalizes Caitong Securities Over Overseas Crypto Unit Risk Control

Executive Summary

The Zhejiang Securities Regulatory Bureau issued warning letters to Caitong Securities and a key executive for significant compliance failures and inadequate risk control within its overseas subsidiary, Caitong Securities (Hong Kong), which had recently secured qualifications for virtual asset ETF client trading.

The Event in Detail

Caitong Securities and its assistant general manager, Qian Bin, who also served as former chairman of Caitong Securities (Hong Kong), received official warning letters from the Zhejiang Securities Regulatory Bureau. The regulatory action stemmed from multiple identified compliance loopholes and ineffective risk control mechanisms within the overseas subsidiary. Specifically, the penalty highlighted that Caitong Securities failed to establish an effective risk isolation and control system for its Hong Kong entity, thereby expanding cross-border operational risk exposure.

Prior to this regulatory intervention, Caitong Securities (Hong Kong) was among the first Chinese institutions to obtain qualification in June for offering brokerage services for Bitcoin (BTC) ETF and Ethereum (ETH) ETF products. This approval positioned the subsidiary to facilitate client trading in virtual asset ETFs, reflecting a strategic move into the nascent digital asset market.

Market Implications

This regulatory action is indicative of a broader trend toward increased scrutiny and potentially tighter compliance requirements for traditional financial institutions, particularly those with mainland Chinese ties, seeking to engage with virtual asset products through overseas entities. The penalty suggests a re-evaluation of risk management frameworks for cross-border operations involving virtual assets.

The market sentiment surrounding such developments is currently uncertain to slightly bearish for traditional finance entities venturing into regulated crypto markets. Such regulatory enforcement may lead to increased caution or the implementation of more stringent compliance frameworks across the industry, potentially slowing the pace of integration between traditional finance and the crypto ecosystem in regions like Hong Kong.

Broader Context

Hong Kong has been actively positioning itself as a leading digital asset hub, exploring virtual asset ETFs, licensed exchanges, and tokenization financing regulatory frameworks. The Stablecoin Bill, passed in May 2025, further solidifies Hong Kong's regulatory stance, aiming to attract global capital while prioritizing investor safeguards. Major state-owned financial institutions have begun experimenting with tokenized funds through their Hong Kong subsidiaries, following a model of "offshore piloting, onshore observation."

Despite Hong Kong's progressive stance, mainland China maintains a strict ban on cryptocurrency trading and mining, enforced by regulations like Circular No. 237 from September 2021. This circular prohibits onshore business related to virtual currencies and restricts onshore entities from investing in offshore assets due to stringent foreign exchange regulations. Reports indicate that Chinese firms, including state-owned enterprises and those with strong mainland ties, may face restrictions on participating in Hong Kong's crypto activities, such as stablecoin licensing, reflecting Beijing's ongoing caution towards cryptocurrencies and concerns over capital flight and illicit financial activity. The penalty against Caitong Securities underscores the complexities and inherent regulatory risks involved when mainland-linked financial entities engage with the digital asset market, even through their independently regulated overseas operations in Hong Kong.