Foreign regulators must respect our credibility: RBI governor on ESMA row

On Oct 31, ESMA de-recognised CCIL apparently over RBI's refusal to grant audit and inspection rights; Move has potential to hamper bond and derivative trading operations of European banks in India

Commenting publicly for the first time on the decision of certain European regulators to de-recognise domestic clearing houses, Reserve Bank of India Governor Shaktikanta Das said that it is necessary for overseas regulators to appreciate the credibility of Indian rules.

“We comply with all international standards. Our market infrastructure is very robust, I think it is also necessary for regulators on the other side to appreciate our credibility. They must trust the credibility and the strength of Indian regulations. That is what we are trying to impress upon them,” Das said at a press conference following the announcement of the RBI’s monetary policy statement.

On October 31, the European Securities and Markets Authority de-recognised six Indian clearing houses, including the CCIL, which hosts the trading platform for government bonds and overnight indexed swaps. The decision is said to have been taken after RBI’s refusal to grant the foreign body the right to audit and inspect CCIL. ESMA’s decision comes into effect on May 1, 2023. The Bank of England took a similar step following the ESMA’s move.

If implemented, CCIL's de-recognition would severely hamper the bond and derivative trading operations of European banks in India, leading to potential market disruptions.

“Let me also say that I think India is different today from what it was--I don’t want to mention when: 10 years ago, 20 years ago, 30 years ago--our regulations today are very robust. In fact, we are fully compliant with CPMI (Committee on Payments and Market Infrastructures) guidelines under the aegis of the Basel framework,” Das said.

RBI Deputy Governor T Rabi Sankar clarified again on Wednesday that the key bone of contention with overseas regulators was the fact that an Indian entity that does not operate in the EU was being subjected to regulation by a regulator from the EU.

Sankar said once an agreement was reached on this fundamental point of divergence, the issue could be resolved.

He pointed out that India had chalked out an agreement with Japan on matters pertaining to clearing houses.

“Like Japan, for example. Japan -– we have an agreement with them -- they simply went ahead, they made an assessment and you know, it’s good enough, it is equivalent. So similar things can be done, (with the other regulators). We are working towards that,” Sankar said.

On November 30, RBI and the Financial Services Agency of Japan exchanged letters of cooperation in the field of Central Counterparties with the aim of improving mutual cooperation.

The Deputy Governor had recently said in a speech that similar extra-jurisdictional overreach also hangs over the Financial Benchmarks of India Limited, the agency that makes several key financial benchmarks including the Mumbai Interbank Outright Rate (MIBOR).

Sankar said last week the issue with FBIL was about the recognition of its financial infrastructure by overseas regulators. He had warned that the overreach on FBIL could have a severe impact on the Indian foreign exchange market.