Forex brokers operating in China are continuing to face new headwinds (although this one is an old one too). Chinese authorities have once again focused on leveraged forex trading, directing the attention of the country’s search engine giant Baidu towards the industry.
For several months brokers have been cutting their exposure to the search engine’s ad service due to worries about the government’s crackdown on OTC forex trading. Despite the warning signs, many firms have been continuing to buy keywords from Baidu.
Several weeks ago Baidu began showing to its users a disclaimer warning about forex trading. The text was urging consumers to trade leveraged forex through a “proper channel”. The changes must have been mandated by the Chinese government which has recently stepped up its efforts to cut transfers to retail brokers that are operating from overseas.
In a letter from China Search (Baidu HK), clients of the company have been informed that existing campaigns related to forex will be suspended from midnight tonight. The document also warns about websites that are related to foreign exchange transactions. The document appears to be referring to intermediary services provided by brokers, trading service providers, and firms outside of the country that are offering access to trading financial derivatives.
A Widely Reaching Search Ban?
The actions taken by Baidu are not something new. The Chinese search engine giant has stepped on the brakes when it comes to forex advertisement in the past on several occasions. The difference this time is the ban’s timing, which comes only weeks after an official warning from the National Internet Finance Association of China in November.
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Commenting to Finance Magnates, the CEO of APAC Management Consultancy, Eugenio Accongiagioco, said: “Over the last few months, many of our clients have gradually reduced their investment in Baidu PPC campaigns. Last week, we noticed that Baidu would show a warning when someone would search for FX related keywords.”
Qian Bao, TenPay and Alipay Fined for Facilitating Payments
Another aspect of the industry which has been the focus of Chinese authorities are payment providers. Located as intermediaries between the brokers and their clients, several firms from the industry were fined by Chinese authorities.
Chongqing Qibao Technology Services, Alipay and TenPay have all been awarded fines for cross-border payments. The Chinese state runs a closely monitored foreign exchange regime that enforces capital controls on the transfer of money outside of the country.
The payment processors have been accused of ignoring their responsibility of collecting information about the counterparts to the transactions. They received strongly-worded warnings about KYC procedures and fines reaching $100,000.
Short and Long-Term Repercussions
The changes mandated by Chinese authorities and distributed by Chinese search engines are most likely to reinforce the need for introducing brokers on the local market. While some brokers have been actively attempting to advertise in the area, the main channel for on-boarding clients in China remains IBs.
The offering of cryptocurrencies could have played a role in the recent refocusing of Chinese authorities on the forex brokerage industry. Firms that have been actively promoting crypto-offerings in recent months might have come under the radar of Chinese regulators that are seeking to limit the exposure of Chinese residents to the Bitcoin bonanza.
The latest actions on the part of the Chinese state have left only miners as the active players in the cryptocurrency market, and many industry insiders fear that this might not be for long either.