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Informist, Friday, Oct. 4, 2024

 

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--Govt source: European banks can deal with CCIL post Oct without penalties
--Govt source: French, German regulators OK with bks' CCIL dealings post Oct
--Govt source: French regulator asked bks to find alternative to CCIL ops 
--Govt source: German regulator asked bks to find alternative to CCIL ops 
--Govt source: Continuing talks with ESMA to resolve CCIL supervision issue
 

 

By Krity Ambey

 

NEW DELHI - German and French authorities have agreed to extend the deadline for their respective banks to continue dealings with Clearing Corp of India Ltd, a senior finance ministry official said. This allows these banks to continue their operations as usual beyond Oct. 31 without incurring any penalties.

 

"The deadline of end-October is no longer relevant," the official told Informist. "The country regulators have agreed to extend the timeline." A new timeline is yet to be finalised.

 

A stand-off between the Reserve Bank of India and the European Securities and Markets Authority has seemingly left foreign banks trading in bonds and swaps in India in a lurch after the European supervisory authority derecognised six Indian clearing houses, including CCIL, in May 2023. Under the European Market Infrastructure Regulation, third-country clearing houses--such as the CCIL--that deal with European banks must have ESMA's approval. However, following a review, ESMA de-recognised CCIL and five other Indian central counterparties as it had no co-operation pact in place with any of the Indian authorities in charge of the clearing houses.

 

Of the three regulators--the Reserve Bank of India, the Securities and Exchange Board of India and the International Financial Services Centre Authority--the RBI has refused to sign an agreement that permits ESMA to effectively have the power to audit and inspect these clearing houses. In December, Deputy Governor T. Rabi Sankar had said any such -operation agreement must be based on co-operation.

 

"We believe that they should follow the principle of mutual respect and the principle of mutual trust. They should also be characterised by the principle of deference to local regulations. In other words, we are not comfortable with the regulations anywhere which are characterised by extraterritorial jurisdiction," Rabi Sankar had said.

 

The RBI has been in conversation with ESMA for over a year to resolve the differences. The Indian government has also been coordinating with its counterpart and the market regulators to find a solution. According to the aforementioned government source, Indian authorities "continue to engage with ESMA to arrive at a mutually acceptable MoU (Memorandum of Understanding)".

 

In July, Economic Affairs Secretary Ajay Seth had told Informist that RBI and ESMA could break the deadlock by signing a pact similar to the one signed by the Indian central bank and the Bank of England. The agreement, signed in December, established a framework under which the Bank of England relied on the RBI's regulatory and supervisory activities to safeguard UK's financial stability.

 

The government source also told Informist that while the European banks--Credit Agricole, Societe Generale, BNP Paribas, and Deutsche Bank--have been permitted by their respective regulators to continue dealing with CCIL beyond October without being penalised, they have also been told to find a new system. "The country regulators of Germany and France have also conveyed to their banks to continue to work on alternative arrangements," the official said.

 

Without the approval of France's Autorit des marchs financiers (AMF) and Germany's Federal Financial Supervisory Authority (BaFin)--who had given 18 months, or until this month, to find a solution to the issue--these banks would have to use local Indian banks as intermediaries instead of the CCIL. This would push up their costs.  End

 

Edited by Vandana Hingorani

 

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