Working On Alternate Arrangements For Entities Likely To Impacted By EU Oversight Rule: RBI

On October 31, ESMA, the European Union’s financial markets regulator and supervisor, derecognised six Indian clearing houses, including the Clearing Corporation of India

The Reserve Bank of India (RBI) said that it is working on alternate arrangements for banks that will likely be impacted by Europe’s markets regulator's withdrawal of recognition to Indian central counterparties. The RBI is its Financial Stability Report (FSR) published on Thursday also said that European Securities and Markets Authority’s (ESMA) move is regulator 'extra-territorial reach'. 

On October 31, ESMA, the European Union’s financial markets regulator and supervisor, derecognised six Indian clearing houses, including the Clearing Corporation of India, which hosts the trading platform for government bonds and overnight indexed swaps. Subsequently, the Bank of England announced similar measures.

In the FSR report, the RBI said, "It is also seen that the legislations governing financial market infrastructures (FMIs), like CCPs, enacted in some advanced jurisdictions have incorporated provisions that give them an extra-territorial reach." 

“Such regulations, if implemented by all jurisdictions, can create a parallel maze of laws with overlapping requirements or restrictions and show a lack of trust in the capabilities and quality of oversight exercised by the host regulators,” the central bank added.

The RBI said that to prevent the possible implications and resolve the logjam, there has been continuous engagement and positive dialogue between the relevant stakeholders (including the ESMA and the European Commission). The discussions still continue, so as to arrive at a mutually acceptable arrangement, which duly recognises the territorial independence of the host regulator. 

“In the undesirable event of a possible market disruption, however, remedial measures by way of possible alternate arrangements are under deliberation with the entities likely to be impacted,” the central bank said. 

Foreign Banks with branches in India such as BNP Paribas SA, Deutsche Bank AG, and many others will need to unwind billions of rupees of trade or spend higher capital to trade in India. ESMA’s decision comes into effect on May 1, 2023.