Informist, Thursday, Sep 26, 2024

By Krity Ambey and Sagar Sen

NEW DELHI – The Reserve Bank of India and the European market regulators will ensure market operations are not disrupted ahead of the deadline for foreign lenders to stop dealing with Clearing Corp of India, Department of Economic Affairs Secretary Ajay Seth said today. Both the regulators are still discussing the matter and may soon reach an agreement, he added.

"There will not be any disruption in the market. The concerned regulators are in touch to ensure that there is no disruption in operation until the matter is resolved," Seth told Informist. "The discussions continue to resolve the matter on a permanent basis," he added.

In October 2022, the European Securities and Markets Authority had said it planned to de-recognise six Indian clearing houses, including Clearing Corp of India, from Apr 30, 2023. It confirmed this de-recognition on May 2, 2023. However, national regulators for France and Germany allowed their banks--namely Credit Agricole, Societe Generale, BNP Paribas, and Deutsche Bank--to trade on the Clearing Corp of India platform until October 2024 without paying any penal charges.

In Europe, third-party central counterparties must be supervised by the markets regulator directly. This includes allowing audits and penalties on the counterparty or through "comparable compliance" in other jurisdictions. Since the RBI did not agree with this 'extra-territorial' supervision, recognition for the counterparties was withdrawn.

In July, Seth told Informist that the RBI and the European Securities and Markets Authority could break the deadlock by signing a pact similar to the one between the Indian central bank and the Bank of England. In December, the two central banks had signed a memorandum of understanding that established a framework under which the Bank of England relied on the RBI's regulatory and supervisory activities to safeguard UK's financial stability.

"These MoUs or agreements with respect to market infrastructure agencies like CCIL should be underpinned by the word that is used in their regulations – cooperation," RBI Deputy Governor T. Rabi Sankar had noted after signing the MoU. "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." End

Edited by Akul Nishant Akhoury

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