Markets regulator Securities and Exchange Board of India (Sebi) has slapped a penalty of Rs 7 lakh on Reliance Securities for failing to comply with established stock brokers’ regulations. The company has been directed to pay the fine within 45 days of the order, Sebi announced on Monday.
Why penalty on Reliance Securities
The penalty follows a Sebi inspection of Reliance Securities, a registered stockbroker, conducted between December 22, 2022, and January 24, 2023. The inspection aimed to verify the brokerage firm’s adherence to stock broking activities and regulatory guidelines.
Sebi’s investigation revealed several instances of non-compliance. The regulator found that Reliance Securities reported incorrect details in daily margin statements sent to clients on three separate occasions. Additionally, an instance of wrongly reported ledger balance was also identified.
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Furthermore, Sebi noted that Reliance Securities failed to adhere to risk-based supervision (RBS) guidelines. Specifically, data concerning cash collateral was not accurately captured while reporting RBS information to the exchange. Sebi highlighted a significant discrepancy in the reported funds available with clearing corporations/members, stating that Reliance Securities declared Rs 16.13 crore, whereas verification showed the actual amount to be Rs 312.57 crore.
The regulator also found that the broking firm had passed upfront penalties to certain clients in numerous instances, a practice explicitly prohibited under Sebi rules, which state that members shall not pass on penalties for short collection of upfront margin to clients under any circumstances.
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Concerns were also raised regarding Reliance Securities’ cyber security practices. Sebi noted adverse audit findings in cybersecurity audits for three separate periods (April 2021 to September 2021, October 2021 to March 2022, and April 2022 to September 2022). The regulator pointed out the company’s failure to provide confirmation of product testing before use and the non-designation of a dedicated officer for cybersecurity, as mandated by Sebi.
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