Chinese regulators have made it illegal for brokerages to hire social media influencers to attract new customers, thus shutting down one of the most common methods of gaining clients in the highly competitive industry.
According to a notice seen by Bloomberg News dated Oct. 29, the China Securities Regulatory Commission warned securities firms on Monday that they would no longer be able to attract consumers by working with major influencers who are not licenced, brokers. Investment advice given via live broadcasting is likewise prohibited, according to the notification.
The CSRC advised brokerage employees to maintain objectivity and professionalism when commenting on the economy and markets via webcasts, and to avoid using “sensational phrasing” or “quirky clothes” to draw attention.
Beijing officials have launched an initiative to create a “beneficial” internet environment to help the economy and society expand “sustainably and healthily.” To reduce financial risks, China has tightened restrictions over large swaths of its economy, cracking down on everything from fintech companies to property developers.
With China’s $54 trillion financial industry completely open to the world’s biggest players, the country’s more than 130 brokerages have been under increasing pressure to maintain market share and acquire new business. To obtain more clients, prominent firms such as Huatai Securities Co. and East Money Information Co., as well as smaller brokerages with fewer outlets, have paid influencers fees for traffic flow across social media platforms.
“The latest step may have a considerably higher impact on securities firms with strong internet capabilities or ambitious client expansion tactics,” said Shanghai Securities Co. analyst Liu Yiqian. “Many of the influencers lack working skills and use exaggerated language to gain customers’ attention, which may lead to illogical investment behaviour.”