• SEBI Fines Axis Securities ₹10 Lakh for Regulatory Violations
• Major Lapses in Collateral Reporting, Client Fund Handling, and Compliance
• Market Regulator Stresses Need for Transparency and Investor Protection
Unmesh Gujarathi
Sprouts News Exclusive
The Securities and Exchange Board of India (SEBI) has levied a ₹10 lakh fine on Axis Securities Ltd for multiple regulatory infractions, including discrepancies in collateral reporting, mishandling of client funds, and inadequate grievance redressal mechanisms. The 82-page order, authored by N Hariharan, SEBI’s Chief General Manager, underscores the importance of strict adherence to regulatory norms to maintain market integrity and protect investor interests.
• Key Findings from SEBI’s Inspection
1. Collateral Reporting Discrepancies: Axis Securities inaccurately reported collateral amounts, including a ₹50 lakh deposit towards base minimum capital (BMC) in NCDEX and a duplicated ₹1 crore bank guarantee in October 2022. These errors led to a total discrepancy of approximately ₹66.48 crore.
2. Failure to Settle Client Balances: The firm did not settle balances for 19 clients with credit balances across 33 instances and failed to record settlement dates in its back-office system. Despite claims of quarterly settlements, Axis Securities could not provide supporting evidence.
3. Improper Penalty Collection Practices: Contrary to a September 2022 NSE circular mandating the refund of penalties for short or non-collection of upfront margins post-October 2021, Axis Securities passed these penalties onto clients without timely refunds.
4. Misuse of Client Securities: Client securities with credit balances were inappropriately transferred to the Client Unpaid Securities Account (CUSA), violating SEBI’s risk management requirements.
5. Inadequate Complaint Handling: The reopening of 516 complaints from 219 clients indicated potential improper closure of grievances. The firm’s explanations citing technical issues lacked sufficient evidence.
6. Inconsistent Reporting of Politically Exposed Persons (PEPs): Discrepancies were found between the 11 PEPs reported under the Risk-Based Supervision (RBS) system and the 237 clients listed as PEPs in the Unique Client Code (UCC) system, reflecting a failure in due diligence.
7. Exceeding Margin Trading Exposure Limits: In six instances, Axis Securities provided an additional ₹17.41 crore in exposure without proper documentation, breaching SEBI and NSE circulars related to margin trading.
SEBI’s order emphasizes that these violations are not mere technical lapses but indicate a significant lack of adequate systems and supervision within Axis Securities. The firm has been directed to remit the ₹10 lakh penalty within 45 days.
This enforcement action serves as a stern reminder to all brokerage firms about the critical importance of robust compliance frameworks to uphold market integrity and safeguard investor interests.
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• Past Controversies of Axis Bank
Axis Bank has faced multiple controversies in the past, raising concerns about its operational practices. In 2016, during the government’s demonetization drive, Axis Bank was under scrutiny after several cases of money laundering were reported. Authorities found that bank officials were involved in illegally exchanging old currency notes for new ones, bypassing banking regulations. Several employees were suspended, and the Enforcement Directorate (ED) launched an investigation into the matter.
In 2017, the bank was again in the spotlight when its name appeared in multiple income tax raids linked to large-scale financial irregularities. Reports suggested that certain accounts at Axis Bank were used for facilitating illicit transactions, leading to regulatory warnings.
Another controversy emerged in 2020 when a whistleblower alleged governance lapses and unethical practices within the bank. The accusations pointed towards favoritism in loan approvals and possible violations of banking norms. Axis Bank denied these allegations, but the matter raised concerns about internal oversight mechanisms.
Now, with the recent SEBI action against Axis Securities, a subsidiary of Axis Bank, the financial institution once again finds itself in the middle of a regulatory storm. Sprouts News has consistently reported on financial sector developments, and this latest action by SEBI reinforces the importance of strict compliance in India’s banking and securities markets.
As the financial industry grapples with increasing regulatory scrutiny, Axis Securities’ lapses highlight the critical need for transparency, accurate reporting, and investor protection. Sprouts News Team will continue to track this case and provide updates on further regulatory actions or responses from Axis Securities and Axis Bank.