Markets regulator Securities and Exchange Board of India (SEBI) has banned brokerage IIFL Securities Ltd from onboarding new clients for two years in respect of its business as a stockbroker, an order issued today said.
The market regulator in its order said the noticee (IIFL) "flagrantly violated" the provisions of the 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.
The SEBI order disposes of the two inquiry proceedings initiated against the company after six inspections into its affairs, SEBI whole-time member S.K. Mohanty said in his order.
The company, it said, firstly didn’t assign its accounts appropriate nomenclature wherein it was keeping clients’ monies so as to clearly label them as ‘client accounts’. Additionally, it was mixing clients’ funds with its own funds before using those mixed funds for its own proprietary usage, said the order.
"In the end, it was using funds of its credit balance clients to not only fund trades of its debit balance clients but also to fund its own trades. This clearly demonstrates an utter disregard to the provisions of SEBI 1993 Circular by the Noticee at least during the period of April 01, 2011, to January 31, 2017."
The said disregard and violation of provisions of SEBI rules has, as a consequence, led to the violation of various clauses of the Code of Conduct for stockbrokers as given in Schedule II, the regulator added.
The order said IIFL claims itself to be a large broker having thousands of retail clients and a number of institutional clients, to whom it provided services. "In such a case, responsibility to follow the provisions of Securities Laws falls all the more on its shoulders as the final consequences of misuse of funds of its clients by a large broker like the Noticee would have been far graver as compared to the violations committed by some small level brokers."
The company in its response assured the regulator to have taken certain corrective steps to stop wrongdoings from happening in the maintenance of its books of accounts so as to avoid such breaches in the future.
The case pertains to SEBI's thematic inspection of the books of accounts of IIFL during the period of January 30 to February 03, 2014. In this, the records and the processes of IIFL during the period of April 01, 2011, to December 31, 2013, were inspected. The inspection was carried out to examine whether IIFL was working in compliance with the provisions of the SEBI 1993 Circular as well as SEBI circular ref. MRD/DoP/SE/Cir- 11/2008 dated April 17, 2008, on the segregation of funds and securities of clients.
