Chinese regulators banned brokerages from hiring social media influencers to attract new customers, turning off the spigot on one of the most popular ways to gain clients in the intensely competitive sector.
The China Securities Regulatory Commission told securities firms on Monday that they would no longer be allowed to acquire customers by working with big influencers who are not licensed brokers, according to a notice dated October 29 that was seen by Bloomberg News.
Investment recommendations via live streaming are also banned, the notice said.
The CSRC said that brokerages' staff should maintain objectivity and professionalism when commenting on economy and markets via web casts, and refrain from attracting attention by using "sensational wording" or "quirky outfits."
The CSRC also moved to tighten oversight of the nation's 23.9 trillion yuan (HK$29.13 trillion) mutual fund market, banning product recommendations by unlicensed firms and individuals.
Those without an advisory license will be prohibited from giving fund recommendations or publishing performance numbers, according to the notice.
Officials in Beijing have launched an initiative to cultivate a "benign" online environment to facilitate a "sustainable and healthy development" of the economy and society. China has been tightening controls over broad swathes of its economy, cracking down on everything from fintech platforms to property developers to limit financial risks.
As China fully opened its US$54 trillion (HK$420.64 trillion) financial industry to the global giants, the nation's more than 130 brokerages have been under mounting pressure to maintain market share and win new businesses.
To gain more clients, major firms including Huatai Securities and East Money Information as well as smaller brokerages with few outlets have worked with influencers across social media platforms by paying them fees for traffic flow.
"The latest move may have much bigger impact on securities firms with strong internet capabilities or aggressive client expansion strategies," said Liu Yiqian, an analyst at Shanghai Securities.
"Many of the influencers have no working qualifications and use exaggerated words to get the attention of customers and that could lead to irrational investment behavior."
The CSRC has told staff at brokerages to refrain from using 'sensational wording' or 'quirky outfits.' REUTERS
