Mainland Chinese investors are reportedly moving to unwind their offshore stock positions amid concerns over a broader regulatory probe into unlicensed cross-border trading, according to Bloomberg.

An estimated US$1 trillion reportedly flowed out of China last year, marking the largest annual capital outflow since 2006, Bloomberg reports.

In a move to stem the capital flight, regulators have stated that “illegal” existing accounts must be rectified or liquidated within two years.

CSRC details broker fines

The specific regulatory actions were outlined in a separate report by CNA.

The China Securities Regulatory Commission (CSRC) has reportedly joined forces with the central bank and the public security ministry to launch a two-year campaign targeting illegal overseas securities operations.

Under this joint probe, authorities have proposed a 1.85 billion yuan fine against Hong Kong-registered brokerage Futu.

UP Fintech, which operates Tiger Brokers, faces a 308.1 million yuan penalty and the confiscation of 103.1 million yuan in alleged illegal income, CNA says.

Both Futu and UP Fintech stated they have ceased opening new accounts for mainland identity holders and are complying with rectification demands.

Mainland Chinese clients account for roughly 13% of Futu’s total customer base, according to CNA.

Analysts warn of liquidity impact

Analysts have warned of a potential liquidity impact on Hong Kong’s financial markets.

Citic Securities estimates that the enforcement could affect up to HK$250 billion in assets held in the city, according to Bloomberg.

Futu alone holds an estimated HK$150 billion to HK$180 billion of those funds. The brokerage has been a major driver of local market activity, having underwrote 30 initial public offerings in Hong Kong this year, Bloomberg said.

Some investors are reportedly transferring their offshore assets to traditional institutions like HSBC and Bank of China, Bloomberg notes.

These banking institutions remain permitted to facilitate cross-border trading through official custodian transfers.

Retail investor sentiment reflects the growing market uncertainty.

“China is concerned of more capital outflows so it is shutting the cross-border trading channel and forcing the funds back to domestic markets,”

said Richard Wang, a US-based investor who Bloomberg reports liquidated his holdings following the announcement.

CNA said that regulators view the enforcement as necessary to gain full control of capital outflows and block loopholes, according to Kelvin Lam, a China-focused economist at Pantheon Macroeconomics.

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