September 17, 2019 / 7:09 AM / a month ago

China FX regulator steps up scrutiny of cross-border flows, blacklists some firms: sources

SHANGHAI (Reuters) - China’s foreign exchange regulator recently stepped up scrutiny of cross-border capital flows, blacklisting 43 forex trading firms and singling out two companies suspected of illegal forex activities, according to two sources.

The move comes amid growing pressure on the yuan CNY=CFXS as China's economic slowdown deepens amid an escalating trade war with the United States. There have also been signs of a jump in suspected illegal capital outflows.

The State Administration of Foreign Exchange (SAFE) sent a notice to banks and cross-border payment companies on Aug. 22, urging them to strengthen oversight on leveraged forex trading, as well as on transactions related to individual purchases of overseas properties and stocks.

In the notice, which was seen by Reuters, SAFE published a blacklist of 43 entities suspected of conducting illegal forex trading. The watchdog identified two companies - Airwallet (Hong Kong) Ltd and Easy Transfer - as being suspected of conducting illegal forex activities.

Airwallet could not be reached immediately for comment. Easy Transfer, which facilitates tuition payment for students studying overseas, didn’t respond to emailed questions.

In a statement to Reuters, SAFE said that illegal leveraged forex trading has seriously disturbed financial order. Since 2018, regulators have launched a crackdown on such activities, and has sent blacklists of illegal entities to banks and payment institutions, it said.

SAFE added that it will keep its forex policy consistent, and will continue to meet normal demand for foreign exchange from individuals and companies.

The yuan has depreciated 3% against the U.S. dollar so far this year. Pressure sharply intensified in early August after China let the currency slide through a key support level amid mounting U.S. trade pressure, though it recently pulled off its 2019 lows.

China’s apparently tighter control over capital outflows contrasts with its increasing openness to foreign money inflows.

In the latest step to woo overseas capital, China last week scrapped the limits on two key inbound investment schemes - QFII and RQFII - even though two-thirds of existing quotas under the schemes remained unused.

Despite stiff capital controls, net errors and omissions - or unaccounted capital outflows - surged close to record levels at $87.8 billion in the first quarter. Some economists see that as a sign that money is illegally being moved out of the country in increasingly innovative ways.

Reporting by Samuel Shen, Jindong Zhang and John Ruwitch; Editing by Kim Coghill

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