SEBI conducted an inspection of IIFL Securities between August 18 and August 25, 2022 and looked into various compliance requirements for the period from April 1, 2022 to July 31, 2022 and found alleged violations of the SEBI (Stock Brokers) Regulations, 1992.
The violations related to monthly and quarterly settlement of funds and securities, stock reconciliations, closure of customer collateral accounts and the imposition of penalties for margin deficiency reporting.
It is also alleged that IIFL Securities prepared and sent a false retention statement for customer code “SWATIJNN” as payment of Rs 180 crore on July 7, 2021 was reflected in the retention statement dated July 6, 2021. However, the receipt dated July 7, 2021 was not shown by the company.
The regulator appointed an adjudicator, following which a show cause notice (SCN) was issued to IIFL Securities on April 15, 2024. In its response to the regulator on June 6, 2024, on the issue of account settlement, IIFL stated that the cases recorded in the SCN were “highly negligible and do not constitute a material part of the overall activity as they relate to only 29 clients representing just 0.003% of the total settlements made by the Company during the IP”. The company also denied that it did not carry out reconciliations as alleged in the SCN. The company also denied the allegation of erroneous margin collection and stated that there was no misreporting. Further, in case of non-payment to 338 inactive clients, IIFL argued that the requirement was not valid as 330 clients are exclusively MF clients. As regards 4 clients, payment was not made due to bank account issues and technical reasons.
Following an investigation, the SEBI adjudicator found that IIFL had violated all the allegations levelled against the company in the SCN.
The adjudicators also found that the firm engaged in fund-based activities other than brokerage.
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