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Sebi bans IIFL Securities from onboarding any new clients for two years

IIFL had, reportedly, used credit-balance client accounts to settle proprietary-trade obligations between April 2011 and January 2017

IIFL Securities

BS Web Team New Delhi

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Market regulator Securities and Exchange Board of India (Sebi) has banned financial service player, India Infoline Ltd (IIFL) Securities from onboarding any new clients for two years after mixing clients’ funds with proprietary funds according to an order issued by Sebi.

The news comes after IIFL had, reportedly, used credit-balance client accounts to settle proprietary-trade obligations.

In its order on June 19, Sebi stated, “the Noticee has flagrantly violated the provisions of SEBI 1993 Circular in various ways to clearly disregard the basic premise of the said circular both in letter and spirit in complete defiance of Regulatory instructions.”

This disregard and violation of the provisions of SEBI 1993 Circular has further led to the violation of Clauses A(1), A(2) and A(5) of Code of Conduct for Stock Broker as given in Schedule II read with Regulation 9(f) of Stock Brokers Regulations added the order.

In May 2022, Sebi imposed a penalty of Rs 1 crore on IIFL for misusing client securities that had to be paid within 45 days. The order came after Sebi conducted many inspections of the books of accounts of the company between April 2011 to January 2017.

According to Sebi, IIFL had misused client funds in the range of Rs 0.59 crore to Rs 397.02 crore for settlement obligations of debit balance clients. For proprietary purposes, a range of Rs 0.26 crore to Rs 73.28 crore were misused. Additionally, the interest on funds misused by IIFL amounted to Rs 34.87 crore.

Over the course of six inspections, two separate enquiry proceedings were initiated against IIFL. However, the designated authority (DA) recommended cancelling IIFL’s certificate of registration. After this recommendation, two separate post-enquiries were also issued in July 2022, which found the company in violation of the following acts under the provisions of Sebi 1993 Circular:
  1. Mixing clients’ funds with proprietary funds by routing transactions through common control accounts
  2. Utilising funds of credit balance clients for settlement obligation of debit balance clients
  3. Utilising funds of credit balance clients for settlement obligation of proprietary trades

According to the order, IIFL was able to show that it had not conducted any wrongdoing since 2017 and had taken steps to ensure no further violations had continued. Therefore, the regulator, S K Mohanty, a whole-time member of Sebi, refrained from cancelling IIFL’s certificate of registration after the latest hearing held in January 2023.

The order noted that this step would be “too disproportionate a punishment for not only the Noticee itself but also to its clients, both retail and institutional, as well as act antagonistic to the development of the securities market at a whole.”

Instead, Mohanty stated, “upon consideration and an overall appreciation of the facts and circumstances as above, I hereby prohibit IIFL Securities Limited from taking up/onboarding any new client for a period of two (2) years in respect of its business as a stockbroker.”

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First Published: Jun 19 2023 | 7:32 PM IST

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