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The decision dates back to a 2014 inspection that SEBI undertook of IIFL accounts, the motive of which was to check its regulatory compliance
Market watchdog SEBI has barred stock trading platform IIFL securities, erstwhile known as India Infoline Limited (IIFL) from taking on any new clients for the next two years. The decision dates back to a 2014 inspection that SEBI undertook of IIFL accounts, the motive of which was to check its regulatory compliance. However, the existing clientele will not be affected by this decree.
What were the charges?
During its investigation, SEBI found serious irregularities in the way client funds were used and labeled in IIFL’s own books. As per SEBI, the stock broker maintained no distinction between its own funds and that of its 4.5 lakhs client base. Additionally, it also misapplied credit balances in client funds to benefit those clients, whose account balances ran into debit or negative, alongside using client funds to settle its own trades.
It mistitled 26 out of 45 bank accounts of clients, despite being warned about this by BSE. Apart from this, IIFL also regularly siphoned funds to and from its clients bank and dividend accounts into bank accounts that were controlled and managed by IIFL or its associated companies, like IIFL Realty, wealth management, commodities and more.
In its plea, IIFL noted that it had been wrongly and retrospectively accused of misusing client funds between 2011-13, given that SEBI had introduced the Enhanced supervision circular in 2016, bringing it into force in July, 2017. Two of SEBIs inspections in this regard came at a time when the regulation had not been in existence. As per SEBIs sample assessment, IIFL potentially mis utilized client funds in the range of Rs 26 to Rs 294 crores.
Violating the spirit of SEBI circular
Notably, the company has been subject to over 100 inspections combined by SEBI, NSE and SEBI between 1995 and 2017. IIFL securities has also been subject to 2 show-cause notices issued by SEBI in May 2017 and October 2021, respectively. Today’s order, as delivered by SK Mohanty, does away with 2 inquiries initiated by SEBI against the firm.
According to the verdict, the firm violated a stock broker’s fundamental duty to maintain highest standards of integrity, fairness and skill for a solid 25 years. It began appropriately nomenclating its client accounts only in 2018, more than 20 years after the issuance of relevant regulations.