Informist, Wednesday, Jul 24, 2024

--Econ secy: See commonality in views of RBI, Europe mkt regulator

--Econ secy: RBI, Europe mkt regulator likely to sign pact after Aug
--RBI to ink pact with ESMA similar to one signed with BoE

By Sagar Sen and Krity Ambey

NEW DELHI – The Reserve Bank of India and the European Securities and Markets Authority are on the verge of breaking the deadlock over the latter's de-recognition of Indian clearing houses by signing a pact similar to the one between the RBI and the Bank of England, Department of Economic Affairs Secretary Ajay Seth said today. The matter is likely to be resolved by September, around a month before the deadline given by the European regulator, Seth said.

"I was given the impression that they are in a position to sort it out. August is not the right month, meaning they (European authorities) have a vacation period, but I do expect solution to be found after that," Seth told Informist.

The agreement with the European Securities and Markets Authority is likely to draw heavily from the recently signed pact between the RBI and BoE. The RBI and the BoE in December had signed a memorandum of understanding concerning cooperation and exchange of information in relation to Clearing Corp of India. "On similar lines it was being discussed with European Securities and Markets Authority, it is following the same principles," Seth said.

The agreement covers central counterparties that are not potentially systemic to the UK. The BoE will consider whether the RBI and its regulated entities deserve recognition under the European securities market law, which mandates that European regulators have direct oversight over the central counterparties.

Seth said, "Except one or two issues, there is commonality of views between RBI and European Securities and Markets Authority. As far as government is concerned, with my counterparts from France and Germany, we have touched base and we decided in April that our regulators are discussing this issue and they are at an advanced stage and we took stock that do we need to be closely involved."

"Then three of us said no, it is moving at the right pace and the right set of people are talking to each other or the relevant people are talking to each other. So there's nothing for governments to get into that discussion. Because from the Europe, it is the French and the German banks who are the primary providers here," he added.

In October 2022, the European Securities and Markets Authority had said that it planned to de-recognise six Indian clearing houses, including Clearing Corp of India, from Apr 30, 2023, and confirmed their de-recognition on May 2, 2023. However, few national regulators in parts of Europe allowed banks to trade on the Clearing Corp of India platform without paying any penal charges to European Securities and Markets Authority until October.

In European markets, third-party central counterparties require to be supervised by the European markets regulator directly, which includes functions like allowing audits and penalties on the counterparty, or through "comparable compliance" in other jurisdictions. Since Indian regulators did not agree with this extra-territorial supervision by the European Securities and Markets Authority, recognition for counterparties were withdrawn. The RBI and the Securities and Exchange Board of India are uncomfortable with such instances setting a precedence for other countries to follow suit.

Under the law, there may be no relaxation for Indian central counterparties at the regulator level until India gets a waiver from the European Union itself. The recognised list of central counterparties consists of those entities that let the European market regulator audit them, or those that are in countries with a bilateral governmental agreement with an exemption on the level of scrutiny. End

Edited by Aditya Sakorkar

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