China has uncovered over 1 trillion yuan (120.35 billion pounds) worth of illegal transactions by underground banks this year, the official Financial News reported on Thursday, citing a senior official at the foreign exchange regulator.

The State Administration of Foreign Exchange (SAFE) will step up investigations into capital outflows and intensify a crackdown on underground banks to foster healthy development of the country's foreign exchange market, Zhang Shenghui, a senior director at SAFE told the newspaper.

So far this year, SAFE has uncovered illegal capital outflows worth $8.43 billion, and with the help of police has busted 56 cases of illegal transactions via underground banks, he said.

SAFE has also punished three banks for inadequate compliance measures, which lead to several companies using fake trades to buy foreign currencies, the newspaper, which is affiliated with the People's Bank of China, said.

Earlier this month, state-run Xinhua news agency reported police in China's southern Guangdong province had busted underground banks that handled around $35 billion in illegal money transfers this year.

China's yuan has sharply weakened against the U.S. dollar this month, having breached a psychological key support level of 6.7 on Oct. 10 and hitting a six-year low.