Some securities companies have begun to clean up non-compliant overseas stock trading by mainland Chinese investors following a regulatory crackdown that started months ago with fines on Tiger Brokers and Futu Securities International.

Orient Securities’ mainland-based clients that have trading accounts in its Hong Kong unit will be banned from buying stocks and transferring in funds starting on Wednesday, according to a notice to customers seen by the South China Morning Post. Guotai Junan International Holdings, the overseas unit of Shanghai-based Guotai Haitong Securities, issued a similar notice earlier, saying that onshore investors could no longer add stock holdings through their overseas accounts starting this week.

Chinese regulators issued informal “window guidance” over the weekend, instructing offshore units of domestic brokerages to enforce bans on buy orders and fund transfers for existing mainland clients, according to people familiar with the matter. Onshore investors seeking to execute buy orders were even required to confirm by phone that they were physically located outside mainland China, one source said.

The actions highlight Beijing’s widening campaign to clamp down on trading of overseas stocks outside official channels, as top regulators tighten oversight of capital outflows that they see as adding to China’s financial vulnerability. The China Securities Regulatory Commission penalised Tiger, Futu and Long Bridge Securities for offering access to foreign securities without government licenses in May.

The crackdown seeks to close a decades-old loophole that some investors took advantage of to bypass a regulatory hurdle on investing overseas.

So far, China has not fully liberalised its capital account, meaning outbound investments by domestic investors are restricted. Onshore investors can get official access to overseas securities only through the Stock Connect programme with the Hong Kong stock exchange and the qualified domestic institutional investor (QDII) scheme.

But both of these are subject to quotas that fall short of rising demand for asset diversification by local investors. Some QDII funds targeting US stocks persistently trade at substantial premiums to net asset values because of the supply-demand imbalance.

Orient Securities’ Hong Kong unit said in its notice that the move was intended to comply with the latest regulatory requirements and promote the development of relevant business in a standardised way. After the designated date, mainland-based clients would only be allowed to close out trading and transfer money out of their accounts, it said. Investors with overseas identities would be required to update related information in their trading accounts to keep normal operational functions in service, it added.

Guotai Junan International sent out a preliminary notice on September 14 that it would adjust some services for existing accounts owned by mainland investors and would notify affected clients by In addition to the crackdown on overseas trading, Beijing took a slew of additional measures in recent months to scrutinise the pool of offshore assets owned by mainland residents, including a new tax on overseas trusts.

These developments are seen as one of the hurdles holding back Hong Kong stocks this year, with the Hang Seng Index underperforming most of its global equity peers. Shares of hotpot chain restaurant operator Haidilao International Holding tumbled earlier this month on speculation that its founder was selling shares to raise funds to pay the new tax.

Orient Securities is a Shanghai-based brokerage that started business in 1998, with total assets of 550 billion yuan (US$82 billion) and more than 8,000 staff. The company is listed in both Shanghai and Hong Kong.

Guotai Junan International, which was established in 1993, was the first Chinese brokerage to list in Hong Kong. Last month, its controlling shareholder proposed to take the company private to end its 16-year listing status. By Zhang Shidong, Zoe SL Chan, Themis Qi