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The RBI is in discussions with foreign regulators regarding de-recognition of Indian clearing houses, and is hopeful of some resolution, but it is important that they trust the credibility of India’s robust regulations, said Governor Shaktikanta Das.
“Our regulations today are very robust. Our market infrastructure is very robust. It is also necessary for regulators on the other side to appreciate our credibility. They must trust the credibility and the strength of Indian regulations. That is what we are trying to impress upon them,” said Das.
He added that India is fully compliant with all CPMI (Committee on Payments and Markets Infrastructures) guidelines under the aegis of the Basel framework and other international standards.
The comments come after ESMA (European Securities and Markets Authority) on October 31, de-recognised six Indian clearing houses, including CCIL, effective May 2023. Later, UK regulators were also reported to take a similar stance.
This was owing to Indian regulators’ reluctance to sign a revised agreement with ESMA which gave the overseas regulatory body the right to audit, scrutinise and inspect the activities or operations of Indian clearing houses--something that the RBI and SEBI were uncomfortable with.
Market disruptions
De-recognition of Indian clearing houses is seen impacting European banks’ ability to settle trades and conduct treasury operations in India without first setting aside higher capital, thus leading to possible market disruptions.
Deputy Governor T Rabi Sankar said that there is no disturbance in market operations at the moment, and should it come to that, the RBI will be well-prepared to handle it.
The fundamental point of divergence remains the fact that an Indian entity that operates entirely in India and not in the EU or any other geography, is being subjected to regulations by a foreign regulator.
“For example Japan, we have an agreement with them, they simply went ahead. They made an assessment and it’s good enough, it’s equivalent. Similar things can be done [with other regulators], we are working towards that,” said Sankar.
He added that once regulators can reach some sort of agreement or this fundamental point of divergence is resolved, RBI will be able to sort out the remaining details.
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