Futu founder ‘Brother Leaf’ humbled by China broker crackdown

[HONG KONG] Long before China cracked down on his flourishing brokerage business, billionaire Leaf Li would often be found deep inside the message boards of his own app, chatting with everyday investors.

The founder of Futu Holdings – known to users as “Brother Leaf” – swapped feedback on minor software upgrades or requests for a digital wallpaper of the company’s cartoon bull mascot. He even wrote a 2,000-word apology to clients following a software glitch in 2021. That attention to detail helped turn the former engineer into one of China’s wealth-tech pioneers.

But such relentless focus on building the product first often creates a political blind spot for Chinese tech whizzes like Li. He belongs to a generation of entrepreneurs who pioneer products and platforms, often before regulation catches up.

Late last month, Chinese regulators suddenly slapped a 1.85 billion yuan (S$351 million) penalty on Futu for operating unlicenced trading services for mainland residents as part of a wider crackdown. It blindsided investors in the Nasdaq-listed firm, whose shares sank by more than a quarter. Li, who was also fined, lost US$1.7 billion of his personal fortune in one day.

Caught off guard, Futu is now being forced to re-evaluate not only its tech, but how to deal with an encroaching state.

Beijing’s latest enforcement goes well beyond past efforts at taxing offshore profits. It creates a domino effect as regulators seek to stem capital outflows from residents who used firms like Futu and Tiger Brokers to trade offshore. The shift impacts everything from Hong Kong’s stock market – historically sustained by mainland demand – to the law firms, financial advisers, and investment funds catering to mainland capital overseas.

“The recent capital outflow crackdown may prompt Chinese Internet broker companies to place greater emphasis” on compliance and internal controls when operating across multiple regions, said Gordon Tsang, a partner specialising in corporate finance at Stevenson, Wong & Co.

Li worked directly with Tencent Holdings billionaire Pony Ma during his formative years, absorbing his obsession for detail. One former employee said that before any new feature is coded at Futu, Li requires his product teams to present hand-drawn sketches for his personal review.

Futu wrote in an emailed statement that this is “not always the situation”. Still, Li, along with the product teams, remain highly active to listen to user feedback and continuously iterate on products and features, the company said. Futu has been conducting its business in Hong Kong in strict compliance with the local laws and regulations since inception, it said.

Li’s low-key, geeky style stems from the Tencent school of management, where leaders are at their core product managers who take immense pride in designing clean tools that solve immediate consumer problems, people familiar with his management said.

That single-minded focus helped Li build an empire that now commands over 30 million global users. After achieving financial independence in his 20s as Tencent’s 18th employee – where he wrote code for the QQ messaging platform – Li took a brief sojourn to open a wedding photography studio with his wife, according to local media.

True passion

But his true passion pulled him back: fixing the clunky trading software that frequently cost him money as a retail investor. When traditional venture capital dried up in 2012, Li sold Tencent shares and poured HK$40 million (S$6.6 million) of his own savings into Futu.

Former employees recall how he kept his core engineering team motivated over cheap mutton hotpot meals in Shenzhen, ignoring neighbouring diners who mocked them as delusional as they drew up plans to manage billions, according to local media.

Li built a lasting reputation as a smart, hardworking, and pragmatic innovator, with many colleagues continuing to speak highly of him long after leaving the company, a former staffer said.

This shifting environment now marks a fresh challenge for Li, whose corporate signature on the investor forum quotes a line from The Art of War by military guru Sun Tzu about making oneself invincible while waiting for an opponent’s vulnerability.

Li has channelled his personal fortune into funding the Yuwa Population Institute alongside Trip.com Group co-founder James Liang. Li serves as the council chair of the private think tank, which develops macroeconomic data to address China’s crashing birth rates. He also helped organise the first-ever global fertility crisis forum in Hong Kong, which included guests like Elon Musk’s mother, Maye Musk.

The crackdown has taken its toll on Li’s personal wealth. Futu’s shares have plunged about 50 per cent from their high late last year in New York. That has reduced Li’s fortune by half to about US$4.9 billion, from more than US$10 billion, according to the Bloomberg Billionaires Index.

Banks have rushed to trim their estimates for Futu. Citigroup slashed its target price for the stock by 29 per cent to US$154 and its 2026 earnings estimate by 24 per cent. The cuts reflect potential client asset outflows after China’s tightening, and higher client acquisition costs to defend its market share in offshore markets. Morgan Stanley lowered its target for Futu to US$177.

In response, Li is accelerating a global push away from China, which could help him bounce back. Chinese mainland clients contributed roughly 20 per cent of the firm’s revenue in the first quarter, showing how the majority of its business already comes from further afield.

“We have already fully ceased account opening for mainland Chinese identity holders,” Li told investors on Futu’s recent earnings conference call.

Income from Hong Kong, its largest market, and overseas brand Moomoo, which operates in countries including Singapore, the US and Australia, should more than offset pressure from China’s cross-border ban, Bloomberg Intelligence analyst Sharnie Wong said in a note.

Futu increased its global client assets by 47 per cent to HK$1.22 trillion in the first quarter, while assuaging anxious investors with a share buyback programme worth as much as US$800 million. Futu has also secured a Futures Commission Merchant licence in the US to launch retail prediction market trading.

What’s more, this regulatory move by Beijing is narrower this time, rather than a repeat of the broader 2020 tech crackdowns, said Angela Zhang, a law professor at the University of Southern California.

“The earlier crackdown was aimed at curbing the unruly expansion of capital in the tech sector,” she said. “By contrast, the Chinese government has strong incentives to grow the tech sector, both to boost economic development and to remain competitive with the US.” BLOOMBERG