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Capital market regulator SEBI has prohibited IIFL Securities from onboarding new clients in its stock broking business for two years.
After an inspection in 2014, SEBI found that IIFL Securities had failed to segregate its own funds from clients’ funds, misused credit balances in clients’ funds for the benefit of clients having debit balances, and made inappropriate designations of the client bank accounts. Following this, it issued two show-cause notices in May 2017, October 2021, and last July.
Disposing of the show-cause notices on Monday, SEBI said IIFL Securities has flagrantly violated the provisions of the circular in various ways to disregard the basic premise of it both in letter and spirit in complete defiance of regulatory instructions.
The stock broker did not assign appropriate nomenclature to clients’ monies in “client accounts”. Additionally, it was mixing clients’ funds with its own funds before using them for its own proprietary usage.
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‘Utter disregard’
“This clearly demonstrates an utter disregard to the provisions of SEBI norms, at least between April 2011 and January 2017, it said.
While the stock broking firm has brazenly contended that its misdeeds did not lead to default, SEBI, as a regulator, is required to be proactive in stopping these kinds of mishaps and audacious misconduct from recurring. “SEBI cannot afford to be reactive and wait for a default to happen to take action upon such misdeeds,” it said.
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The brokerage firm has submitted that it has already transferred its proprietary trades to a different stockbroking entity. Therefore, there is no chance of either mixing its own trading funds with clients’ funds or funding such proprietorship trades from the funds available to it from its clients, according to SEBI order.
The IIFL group has already restructured its business by transferring all the investment-related activities to IIFL Holdings, and the stock broking business has been retained with IIFL Securities. It also said that it has been following the provisions of the Enhanced Supervision Circular since July 2017. In support of this, the broking firm has submitted that no finding of any such non-compliance has been noticed by regulators or the stock exchanges in any inspection thereafter, said SEBI.
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