India’s RBI considers softening stance on market infrastructure deal: According to reports, India’s central bank is likely to soften its stance on signing a market infrastructure agreement with European authorities if the latter abandon their demand to scrutinise and penalise Indian intermediaries such as the Clearing Corporation of India (CCIL). The RBI and European banks held a meeting in March, which marked the beginning of lengthy discussions about the de-recognition of CCIL by foreign regulators. Credit Suisse, BNP Paribas, Societe Generale, and Deutsche Bank, which operate in India, will be the most affected by the outcome of the negotiations.
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RBI more receptive to signing new MoU with overseas regulators
In recent meetings, the RBI officials were more willing to sign a new memorandum of understanding (MoU) with overseas regulators if their demand to inspect and audit the CCIL’s books and potentially levy penalties is softened or circumvented in a way that preserves sovereign regulatory rights. A source familiar with the matter said that the RBI was more receptive to the MoU than in previous meetings, where it had categorically refused to consider any such agreement. The RBI is open to exploring potential solutions.
De-recognition of CCIL would hamper European banks’ trading operations
If the CCIL loses its recognition, it will affect the trading operations of several continental European banks that conduct their operations in India. These banks act as custodians of foreign investment flows. Some new regulations are expected to be introduced in Europe, such as the latest version of the European Market Infrastructure Regulation (EMIR), which could lead to a diluted version of the demand for CCIL’s inspection and audit. While continuing to do business with Indian clearinghouses, European banks would be obliged to pay a hefty capital penalty.
European regulations may change before October 2024 extension deadline
In February, German and French financial supervisory authorities granted an extension until October 2024 to their banks, who had earlier been given an April 30, 2023 deadline by the European Securities and Markets Authority (ESMA). Reports suggest that while European banks can continue doing business with Indian clearing houses, such as the CCIL, they may face a penal capital charge. The ESMA had de-recognized six Indian clearinghouses, including CCIL, in October 2022, which triggered the current impasse. The RBI has not yet responded to an email seeking comment on this matter.