Esma should follow principle of mutual trust, cooperation: T Rabi Sankar

RBI dy governor says not comfortable extraterritorial jurisdiction regulations

Days after the European Securities and Market Authority (Esma) said it was in active negotiations with the Indian authorities for a potential EMIR (European Market Infrastructure Regulation) compliant agreement to end the deadlock over central counterparties, Reserve Bank of India’s Deputy Governor T Rabi Sankar said such understanding would need trust and cooperation.

Answering a question on whether an EMIR compliant agreement memorandum of understanding would address the Indian regulator’s concern of inspection, audit, and potential penalty by foreign country regulators, Rabi Sankar said: “We believe these MOUs or agreements with respect to market infrastructure agencies like CCIL [Clearing Corporation of India Ltd] should be underpinned by the word that is used in their regulations, cooperation. There should be cooperative documents.”

In October 2022, the Esma said it would de-recognise six Indian central counterparties, including the Clearing Corporation of India (CCIL), which hosts the trading platform for government bonds and overnight indexed swaps. The decision was taken after the RBI’s refusal to permit foreign entities the right of audit and inspection of CCIL. Some foreign banks sought a reprieve after French and German regulators postponed the de-recognition exercise until October 2024.

“We believe they should follow the principle of mutual respect and mutual trust. They should also be characterised by the principle of deference to local regulation,” Rabi Sankar said, adding that the RBI was not comfortable with regulations anywhere characterised by extraterritorial jurisdiction.

Responding to a query from Business Standard earlier this week, an ESMA spokesperson said, “Esma is currently actively engaged in negotiations with the Indian authorities regarding a potential EMIR (European Market Infrastructure Regulation) -compliant MoU.”

Earlier this month, the RBI and the Bank of England signed a memorandum of understanding, which will end the imbroglio over British banks’ participation in the Indian bonds and derivative market. The MoU will enable the BoE to assess the application of Clearing Corporation of India for recognition as a third-country Central Counterparty (CCP), a prerequisite for UK-based banks to clear transactions through the Clearing Corporation of India.

Citing the pact with the BoE, the deputy governor said, “You would have noticed that the emphasis is on deference and cooperation.”