India, EU Close To Resolving Clearing House Oversight Dispute
Talks between the Reserve Bank of India and ESMA may result in the latter restoring recognition to the Clearing Corp. of India.
India is close to resolving its long-running dispute with the European Securities and Markets Authority over regulatory oversight of local clearing agencies, according to a person familiar with the matter.
Talks between the Reserve Bank of India and ESMA may result in the latter restoring recognition to the Clearing Corp. of India, allowing it to once again act as the counterparty for European banks trading local bonds and interest-rate derivatives, said the person, who did not wish to be identified discussing private information.
The dispute, which risked disrupting billions of rupees in government debt and derivatives trading, began in October 2022 when ESMA sought direct supervisory access to Indian clearing firms. The RBI pushed back, calling the move an “extra-territorial reach,” and asked foreign banks such as Deutsche Bank AG, BNP Paribas SA, Credit Agricole SA and Societe Generale SA to resolve the matter with their home regulators.
ESMA responded by withdrawing recognition of six Indian counterparties, including CCIL, effective May 2023. Although European banks could keep working with CCIL, doing so would attract higher capital charges, ESMA warned. Those would raise costs for European banks, which are key market-makers in India’s bonds and derivatives.
The RBI has since signed agreements with regulators in Germany, France, and England to ease operations for their banks, but without ESMA’s formal approval, traders cleared via CCIL continue to face penal charges.
A RBI spokesperson did not respond to an email seeking comment, while ESMA declined to comment.
Meanwhile, ESMA Chair Verena Ross told Bloomberg News last month that both sides are working toward a “joint approach” to how Indian clearing houses provide services to Europe’s financial system.
