China’s Market Watchdog Orders Hithink RoyalFlush to Suspend Investment Advisory Service
China’s market watchdog, the China Securities Regulatory Commission (CSRC), has ordered Hithink RoyalFlush Information Network to suspend its investment advisory service unit from adding new clients for three months.
Non-Compliance with Securities Rules
The Hangzhou-based financial data and software company was penalized partly because some influencers on its platform were offering investment advice without the required licences, the company said in an exchange filing. Those influencers also gave implicit recommendation of individual stocks during live streaming.
Insufficient Compliance Control
The regulator also criticized the company’s insufficient compliance control when collaborating with securities companies to provide investment consulting services.
Company’s Response
Hithink RoyalFlush pledged to “reflect deeply and make timely corrections” in order to resume taking new customers as soon as possible. The company added that the investment advisory service only accounted for 199 million yuan (S$37 million), or 5.6 per cent, of its consolidated operating income in its 2023 financial year. It does not expect the CSRC’s disciplinary action to impact its 2024 earnings.
Stock Performance
Shares of the company tanked 14.3 per cent on the Shenzhen exchange on Friday (Nov 15), the most in more than a month.
Background
Chinese regulators have been clamping down on influencers and livestreaming platforms for offering investment advice to retail investors without holding the appropriate licences, local media China Securities Journal reported earlier this week.
Previous Scrutiny
This isn’t the first time Hithink RoyalFlush has been under scrutiny. CSRC investigated the firm for potential violations of securities and futures law in 2015.
Company Profile
Hithink RoyalFlush was founded in 2001 and has more than 5,000 staff in China. Its clients include brokers, mutual and private funds, banks, insurance companies and retail investors. The firm’s net income fell 7.5 per cent year on year to 288 million yuan on revenue of 945 million yuan in the third quarter.
Conclusion
The suspension of Hithink RoyalFlush’s investment advisory service unit is a significant blow to the company, which has been struggling to comply with securities rules. The company’s failure to ensure that its influencers hold the required licences and its insufficient compliance control have led to the disciplinary action. It remains to be seen how the company will address these issues and resume its investment advisory service.
FAQs
Q: Why was Hithink RoyalFlush’s investment advisory service unit suspended?
A: The unit was suspended because some influencers on its platform were offering investment advice without the required licences, and the company’s insufficient compliance control.
Q: What is the impact of the suspension on Hithink RoyalFlush’s earnings?
A: The company does not expect the suspension to impact its 2024 earnings.
Q: Has Hithink RoyalFlush been under scrutiny before?
A: Yes, the company was investigated by the CSRC for potential violations of securities and futures law in 2015.
Q: What is the company’s response to the suspension?
A: Hithink RoyalFlush has pledged to “reflect deeply and make timely corrections” in order to resume taking new customers as soon as possible.
