China Bans New Offshore Brokerage Accounts in Capital Control Move
China Takes Steps to Restrict Offshore Trading
China has issued a notice prohibiting domestic brokerages and their overseas units from accepting new mainland clients for offshore trading. The move aims to prevent investors from bypassing China’s foreign exchange controls. Existing mainland clients’ new investments will also be closely monitored. The restrictions come as China tries to curb capital outflows and stabilize the yuan amid slowing economic growth. The yuan has weakened 5.5% this year, prompting authorities to implement measures to halt its decline.
Brokers Ordered to Stop Offering Securities Trading
The China Securities Regulatory Commission (CSRC) has instructed brokerages to halt the offering of securities trading to new mainland investors through offshore accounts, such as those in Hong Kong. The new directive also deems activities like cross-border securities broking, fund sales, securities lending, and investment consulting as illegal. While the effective date of the directive remains unclear, sources suggest that it is intended to be implemented immediately.
Deadline Set for Removal of Apps and Websites
The CSRC’s notice also includes an end-October deadline for the removal of apps and websites soliciting mainland clients. Offline channels for opening accounts should also be shut down. The new policy is primarily aimed at curbing capital outflows and addressing yuan depreciation pressure. Brokerage firms with larger offshore retail business will likely be more significantly impacted.
Offshore Investments via Domestic Brokers Banned
The ban on offshore investments via domestic brokers follows previous actions taken against online brokerages Futu Holdings Ltd and UP Fintech Holding Ltd. The China Securities Regulatory Commission had accused these brokerages of operating cross-border securities businesses involving domestic investors without regulatory consent. Shanghai brokerage Guotai Junan also received similar informal instruction. Some Hong Kong units of Chinese brokerages had already ceased opening accounts for mainland clients, following informal guidance from the CSRC.
Regulations Aimed at Curbing Illegal Money Outflows
The use of offshore brokerage accounts in Hong Kong involves converting yuan to other currencies. However, Chinese individuals can still invest offshore through the Stock Connect with Hong Kong, the qualified domestic institutional investor program, and the qualified domestic limited partnership program. The recent regulations are part of China’s efforts to discourage illegal money outflows and ensure better control over its financial system.
Conclusion
The new measures implemented by China to restrict offshore trading and curb capital outflows have significant implications for domestic brokerages and their overseas units. By prohibiting new mainland clients from engaging in offshore trading and closely monitoring existing clients’ investments, China aims to stabilize the yuan and maintain control over its financial system. The impact of these regulations will be particularly felt by brokerages with substantial offshore retail business. As China continues to navigate economic challenges, these restrictions are crucial in safeguarding its financial stability and addressing currency depreciation pressure.
