US banking giant Citigroup Inc. reportedly faces delays with establishing its wholly-owned investment bank in China, citing challenges in meeting the country’s data laws.
People familiar with the matter said the company now expects the earliest it will be able to launch its Chinese securities business to be around the end of next year.
New York-based Citigroup has yet to provide a specific schedule for when it would have the business ready, although it had initially anticipated a mid-2023 obtention of the bank’s license, according to one of the people.
Citigroup has turned down a request for a comment on the matter.
The major financial services provider applied to run brokerage and futures trading operations in China in 2021 when Beijing also took the step to strengthen its data security by introducing new rules that required companies to create new infrastructure before receiving the green light for licenses.
Citigroup’s planned securities business already has a chief executive officer (CEO), a chief financial officer (CFO), and a chief compliance officer (CCO) in place per the application’s conditions.
The firm, however, has reportedly paused certain recruitments due to uncertainty over when the technology system will be completed.
Citigroup must have a staff comprising over 30 people and a stand-alone infrastructure set before it can request on-site examination and pursue approval to operate its Chinese investment bank.
Global Banks Keeping China Information Separate
The extended process came amid a real estate crisis and subdued business sentiment in China. The country’s trade conflict with the US has also weakened some global banks’ interest in quickly broadening their reach on the mainland.
International banks have exerted efforts to localize technology and segregate China’s information from elsewhere. Since 2021, President Xi Jinping’s administration has introduced additional restrictions on data movement across the country’s borders.
Several banks and asset management companies have built onshore centers to ensure that their China information remains only within the country, increasing costs and reinforcing management barriers.
Citigroup has cut back on some areas in China, including ceasing its consumer banking arm operations and selling its $3.6 billion Chinese retail wealth management portfolio to London-based HSBC Holdings plc.
Furthermore, Rival Morgan Stanley has reportedly moved its 200 tech developers out of the mainland this year and has begun setting up a stand-alone system in the country to meet regulations.
Goldman Sachs Group Inc. has also been overseeing a system for its onshore operations in China. Switzerland’s UBS Group AG has specific servers for its onshore data while keeping its operations abroad separate.
