China’s securities regulator has banned investment banks in the country it regulates from acting as promoters of blank check companies in Hong Kong, three people with knowledge of the matter said, cutting a potentially lucrative business.

The China Securities and Regulatory Commission (CSRC) decided to take the action, which was communicated to mainland investment banks earlier this year, due to concerns about the risks associated with such vehicles, it said. the sources.

While promoting the offers will be banned, investment bankers will be allowed to work as advisers on a special purpose acquisition company (after-sales service) transactions under Hong Kong’s new rules for such listings, the sources said.

People spoke on condition of anonymity because the directive was not public.

The move comes as China prepares to unveil final and tougher rules for raising offshore capital by domestic firms, under which regulators are also seeking to subject investment banks to greater scrutiny.

Institutions affiliated with mainland China’s commercial banks, regulated by the China Banking and Insurance Regulatory Commission (CBIRC), have been given the green light to be promoters, the sources said, giving them a competitive edge.

Chinese brokerages have been lobbying the CSRC to change the rules to allow them to act as promoters as well, one of the sources said.

CSRC and CBIRC did not immediately respond to requests for comment.

after-sales services are shell companies, or blank check companies, that raise funds in an initial public offering (IPO) with the proceeds held in a trust with the intent of merging with a private company and taking it public.

In Hong Kong, promoters are the same as sponsors in other markets in that they establish the after-sales service and own promoter shares issued by the blank check company.

Promoters pay significantly less for their shares, which are a different class of shares than those issued at the IPO, compared to the price paid by public investors, allowing them to lock in higher profits later .

Investment banks are allowed to be sponsors in the US with some like Goldman Sachs GS.N having created his own after-sales services over the past two years.

In Singapore, the current rules do not prevent investment banks from becoming after-sales service sponsors, but bankers say the scheme requires such vehicles to be backed by experienced, quality sponsors, and is unlikely to please investment banks and brokerage houses.

In Hong Kong, the asset management arms of two commercial banks, Agricultural Bank of China International (ABCI) and China Merchants Bank International (CMBI) acted as after-sales service promoters, according to the exchange documents.

The city authorized the creation of after-sales services from Jan. 1 and eight of those vehicles have filed preliminary filings, according to the Hong Kong Stock Exchange’s website.