[Summary]
Futu Holdings (NASDAQ: FUTU) was heavily sold on May 22, 2026.
The direct reason is that the company announced that it had received an investigation notice and advance notice of administrative sanctions from the China Securities Regulatory Commission (CSRC) and the Shenzhen Securities and Supervisory Bureau. The CSRC alleges that FUTU affiliates conducted securities business, public fund sales, and futures business in mainland China without the necessary licenses and approvals, and is proposing a penalty of approximately 1.85 billion yuan, or approximately $271 million in U.S. dollars, including forfeiture of illegal profits and fines.
On the other hand, FUTU's performance in 2025 is very strong. Sales increased by 68.1% from the previous year, net profit increased by 108.0%, and gross profit margin rose to 87.1%. In other words, the recent sharp drop in stock prices is not due to a recent deterioration in business performance, but rather a move in which the market suddenly priced in the regulatory risk of business in mainland China.
First, the conclusion
FUTU is an excellent online securities and asset management platform if you look only at its business model.
Through Futubull and moomoo, we are engaged in a wide range of activities including stock/option trading, margin trading, securities lending, wealth management, IPO allocation, and ESOP support. The numbers for 2025 were also strong in terms of sales, profits, customer assets, and transaction volume.
However, the issue this time is not whether the company is a good company or not.
What the market sees is
To what extent will regulatory risks originating from mainland China cut into FUTU’s growth story?
It is.
Even in a situation where the P/E ratio appears to be low, it is difficult to simply judge whether the company is undervalued or not as long as the amount of fines, extent of business suspension, treatment of existing customers, and speed of overseas growth are not visible.
What happened?
On May 22, 2026, FUTU announced that it had received an investigation notice and advance notice of administrative disposition from the CSRC and the Shenzhen Securities and Supervisory Bureau.
According to a company statement, the CSRC is concerned that FUTU's affiliates in mainland China and Hong Kong were allegedly conducting securities business, public fund distribution business, and futures business in mainland China without obtaining the necessary licenses and approvals.
The main contents of the proposed disposition are as follows.
| Item | Contents |
|---|---|
| Target | FUTU's mainland China/Hong Kong affiliates |
| Points to note | Unauthorized securities business, public fund sales, futures business |
| Proposed disposition by the company | Correction or suspension, confiscation of illegal income, fine |
| Planned disposal amount | Approximately 1.85 billion yuan, approximately 271 million dollars |
| Personal penalty proposal | Founder and CEO Li Hua will be fined 1.25 million yuan, approximately $184,000 |
| Status | Pre-announcement stage, not final decision |
What is important here is that the punishment has not yet been finalized. The company explains that it has the right to express opinions, defend itself, and request a hearing.
However, the market is more wary of ``the extent to which cross-border securities business in mainland China will be restricted in the future,'' rather than ``whether the final amount will change somewhat.''
Reasons why stock prices plummeted
The sharp decline in FUTU cannot be explained solely by the amount of fines.
1.85 billion yuan is a lot, but in 2025, FUTU will earn HK$11.30 billion in net profit alone, or $1.45 billion in US dollars. Rather than the amount of money that would immediately destroy the company financially, there are more doubts about the growth scenario.
| What the market disliked | Why is it heavy |
|---|---|
| Risk of being certified as illegal in sales to the mainland | Some of the sources of past growth will be denied |
| Illegal income confiscation and fines | Not only one-time costs but also reputational risks |
| Two-year intensive restructuring policy | Possibility of industry-wide restructuring continuing |
| Treatment of existing customers | Risk of leakage of customer assets and transaction volume |
| Timing before Q1 earnings | Investors can easily factor in bad news first |
Furthermore, around the same time, investors were wary of U.S. interest rates and geopolitical risks, making it easy for investors to withdraw funds from growth-oriented fintech stocks. It is natural to see that profit-taking and risk aversion suddenly overlapped with the regulatory news.
Points emphasized by the company
In its announcement, FUTU explained that it has already implemented corrective measures for its mainland China operations, and that as of the end of the first quarter of 2026, approximately 13% of its accounts were deposited from mainland China.
This is a fairly important number.
If the majority of deposits are made in mainland China, the damage caused by the regulations is likely to be fatal. On the other hand, if it falls to 13%, there is still a possibility that it can be absorbed by growth in overseas markets.
However, there are some caveats.
Even if the number of deposit accounts is 13%, it does not necessarily mean that the revenue contribution, customer assets, trading volume, and margin transaction balance are the same. If wealthy individuals or high-turnover traders are included, the impact on profits may be greater than the number of accounts.
What investors should look at is not just the number of accounts, but customer assets and trading volume by region.
FUTU's business model
FUTU is not just a securities app.
It is a digital financial platform that brings together trading, data, community, wealth management, and corporate services.
| Source of revenue | Contents |
|---|---|
| Commission income | Trading fees for stocks, options, futures, etc. |
| Interest income | Income from margin trading, securities lending, bank deposits, etc. |
| Wealth Management | Investment trusts, bonds, fund sales, etc. |
| Corporate services | IPO allocation, IR, ESOP management, etc. |
| Data Community | Customer retention through in-app investment information and SNS-like functions |
Looking at the revenue structure in 2025, fee income and interest income will be the two main pillars.
| Full year 2025 | Amount |
|---|---|
| Sales | HK$22.847 billion |
| Commission/handling fee income | HK$10.573 billion |
| Interest income | HK$10.442 billion |
| Other income | HK$1.833 billion |
| Net profit | HK$11.302 billion |
| Non-GAAP net profit | HK$11.645 billion |
This structure is strong. As customer assets increase, trading volume increases, and margin trading and securities lending balances increase, multiple revenue sources grow simultaneously.
However, at the same time, it is weak against regulations. Restrictions on account opening, deposits, orders, margin trading, and fund sales will impact fees, interest, and wealth management.
Performance in 2025 was quite strong
FUTU in 2025 was a high-growth company in terms of numbers alone.
| Indicators | 2025 results | Year-on-year comparison |
|---|---|---|
| Sales | HK$22.847 billion | +68.1% |
| Gross profit | HK$19.905 billion | +78.6% |
| Net profit | HK$11.302 billion | +108.0% |
| Non-GAAP net profit | HK$11.645 billion | +101.9% |
| Annual trading volume | HK$14.68 trillion | +89.4% |
| End of period customer assets | HK$1.23 trillion | +65.9% |
Of particular note is that the gross profit margin has increased to 87.1%, the operating profit margin to 61.6%, and the net profit margin to 49.5%.
This is a typical platform-type profit structure where profits grow more than additional costs as the customer base expands.
That's why the market is confused. Performance is strong. However, regulatory uncertainty is too great.
Scenario for the second half of 2026
The second half of 2026 for FUTU is likely to be quite polarizing.
Bullish scenario
In the bullish scenario, the final disposal amount will be within market expectations and the liquidation of existing customers will proceed in stages.
At the same time, deposit accounts, customer assets, and trading volumes continue to grow in overseas markets such as Hong Kong, Singapore, the United States, Japan, and Malaysia. If growth outside of mainland China can be confirmed in numbers in the 2026 1Q financial results and conference calls, the market will be more likely to reevaluate the company as a "global securities company that is separating itself from China risks" rather than a "company that has ended due to regulations."
In this case, low valuations are a source of repulsion.
Neutral scenario
In the neutral scenario, performance is solid, but investors remain cautious.
Although overseas growth will continue, the final impact of Chinese regulations is difficult to predict, and the P/E ratio will remain low for some time. Even if the financial results are good, the stock price will not recover easily.
For stocks like FUTU, this period of ``this is a good company, but the stock price will not recover'' can be long.
Bearish scenario
In the bearish scenario, the decline in client assets and trading volume originating from mainland China will be larger than the 13% account count appears to be.
Furthermore, the amount of fines and forfeitures will ultimately increase, and the costs of dealing with authorities and system outages will also increase. If there is a slowdown in the number of depositing customers, trading volume, and margin trading balances in the financial results after Q1, the market may interpret this as ``profits peaking out'' rather than ``undervalued due to low P/E ratio.''
KPIs that investors should check
When looking at FUTU, the following KPIs cannot be ignored.
| KPI | Reasons to watch |
|---|---|
| Deposit account ratio in mainland China | See the magnitude of regulatory impact |
| Customer assets by region | Can China risks be absorbed by overseas growth |
| Trading volume | Leading indicator of fee income |
| Margin trading/securities lending balance | Source of interest income |
| Wealth management assets | Progress in revenue diversification |
| Final disposal amount | One-off costs and impact on capital |
| 2026 1Q financial results | Check your basic strength just before regulations |
Of particular importance is the extent to which the company will explain regulatory impacts and overseas growth in its 2026 1Q financial results scheduled for May 28, 2026.
Summary
The sharp decline in FUTU is due to a regulatory shock rather than a deterioration in business performance.
In 2025, FUTU had very strong numbers, with sales increasing by 68.1%, net profit increasing by 108.0%, and customer assets reaching HK$1.23 trillion. The platform, including moomoo, is highly complete, and the revenue model that combines fees, interest, wealth management, and corporate services is attractive.
However, the CSRC's proposed punishment is serious. Not only the proposed disposal of approximately 1.85 billion yuan, but also the unauthorized cross-border operations in mainland China were viewed as problematic.
The focus in the second half of 2026 will be on whether FUTU can truly transition from a ``high-growth security dependent on mainland China'' to a ``global fintech that makes money in overseas markets.''
There is room for a backlash. However, this is not a simple buy-in. This is a stock that should be viewed carefully, including regulatory risks, while checking the final decision on disposal, Q1 financial results, and regional KPIs.
Source
This article was created based on Futu Holdings' company announcements, financial results materials, reports on Chinese authorities' announcements, and market data.
- Futu Holdings “Announcement regarding investigation notice and pre-notification letter from the CSRC”
- Futu Holdings “2025 Full Year/Fourth Quarter Financial Results”
- China News News "China News 2026 Full-scale Retirement of External Machinery Non-legal Cross-Border Confirmation Term Cost Fund Activation"
- 2026/05-22/10626776.
- Confirmation date: 2026-05-23