The Securities and Exchange Board of India (SEBI) has barred IIFL Securities from onboarding new clients for two years for breach of the code of conduct regulations of stock brokers.
The market regulator carried out several investigations against IIFL Securities between 2001 and 2017 to check if the brokerage adhered to the rules on the segregation of funds and securities of clients. It examined the books of accounts of IIFL during the period of 30 January to 3 February 2014, wherein the records and the processes of the brokerage during the period of 1 April 2011 to 31 December 2012 were checked.
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It was found that the actions of IIFL were not in compliance with some provisions of a circular issued by the SEBI.
SEBI in its order said, "(IIFL) has flagrantly violated the provisions of SEBI 1993 Circular in various ways to disregard the basic premise of the said circular both in letter and spirit in complete defiance of Regulatory instructions."
During the investigation, the market watchdog found that IIFL Securities did not segregate its funds from clients’ funds, and misused credit balances in clients’ funds to benefit the clients having debit balances.
After this, SEBI conducted several inspections, followed by two separate inquiries against the stockbroker.
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SEBI found that funds were regularly being transferred from client bank accounts and clients’ dividend accounts to the pool of accounts of IIFL, which were controlled by IIFL as its own accounts.
“Upon finding evidences of mixing of funds and usage of money from such mixed funds for proprietary use of the Noticee, a need was felt to examine if clients’ funds were being misused after such mixing,” Wholetime Member SK Mohanty said in the final order.
SEBI issued two show-cause notices to IIFL Securities, first in May 2017, and the other in October 2021.
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