IIFL Securities to appeal at SAT against SEBI order that barred it from onboarding new clients

IIFL Securities is in the process of appealing against a June 19 order of the Securities and Exchange Board of India (SEBI) at the Securities Appellate Tribunal (SAT) that barred the company from onboarding new clients for a period of two years in terms of its stock broking services.

The company said that the order pertains to inspections carried out for different periods from April 2011 to January 2017, which was before the issuance of SEBI’s Enhanced Supervision Circular dated September 26, 2016, made effective from July 1, 2017.

“The SEBI Order applies the said Circular retrospectively even while confirming that after the Circular becoming effective there has been no non-compliance with the same. The said Order records “I find no instance of misuse of clients funds by the Noticee placed before me which has occurred subsequent to implementation of Enhanced Supervision Circular dated September 26, 2016”,” stated IIFL in a filing.

It also said that current businesses with existing clients would not be impacted by the order. IIFL also said that it has always met its obligations towards the exchanges and clients on time and followed a compliance first approach.

The SEBI order that IIFL is appealing against at SAT, pertains to inspections carried out by the regulator to ascertain if the company complied with the norms on segregation of funds and securities of clients. The regulator found out that IIFL’s actions were not in compliance with the provisions of SEBI.

The regulator stated in the order that IIFL was found to have failed to segregate its own funds from clients’ funds, misuse of credit balances in clients’ funds for the benefit of clients having debit balance, and inappropriate designation of client bank accounts.

SEBI, following the inspections, initiated two separate enquiry proceedings, the order highlighted. SEBI found that IIFL violated its provisions by mixing clients’ funds with proprietary funds by routing transactions through common control accounts, utilising funds of credit balance clients for settlement obligation of debit balance clients, and utilizing funds of credit balance clients for settlement obligation of proprietary trades.

The regulator issued two show cause notices to IIFL – in May 2017 and October 2021. SEBI eventually found IIFL Securities guilty, following which it barred the broker from adding new clients.

Also read: 'Can't wait for a default to happen': SEBI bars IIFL Securities from taking new clients for 2 yrs