India, EU regulators in negotiations as October deadline on oversight looms

By Subhadip Sircar, Ruchi Bhatia and Anup Roy

Indian and European regulators are engaged in intense discussions to resolve oversight issues regarding local clearing houses, with banks asked to make alternate arrangements with an end-October deadline approaching, according to people familiar with the matter.
 

Financial regulators of Germany and France have asked banks under their jurisdiction to make provisions with Indian custodians if a resolution is not reached by the date, said the people, who requested anonymity discussing private matters.

The Reserve Bank of India denied European Securities and Markets Authority’s request to co-supervise Indian transactions, citing concerns over “extra-territorial reach”. In response, ESMA withdrew recognition from six Indian central counterparties, effective May 2023. 

The French regulator Autorité des Marchés Financiers and the German regulator BaFin had given their banks time until October to resolve the dispute, which risks disrupting billions of rupees of trading in government bonds and interest-rate derivatives that trade on the Clearing Corp. of India’s platform. 

European banks like Deutsche Bank AG to BNP Paribas SA are important market makers and their withdrawal may impact trading volumes, especially in interest-rate derivatives and currency forwards.   

“ESMA is currently actively engaged in negotiations with the Indian authorities regarding a potential EMIR-compliant MoU,” a spokesperson said by email, but didn’t provide details of the ongoing negotiations. 

The talks are ongoing in a constructive and amicable atmosphere, one of the people said. Emails to AMF, BaFin and the RBI were unaswered.

Changes in European Market Infrastructure Regulation demanded that ESMA must establish cooperation arrangements with countries that have their own central counterparties. This allows ESMA full access of third country counterparty books and enables it to specify the structure of derivatives that European banks can take exposure to. 

A similar resolution between the RBI and the Bank of England could serve as a model, the people said.

In December, the two monetary authorities signed an agreement under which the BOE would rely on the RBI’s regulatory and supervisory activities while ensuring the stability of the UK’s financial system. Subsequently, CCIL was approved as a non-UK central counterparty by the BOE, effective Dec. 15, 2023.

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