Das stresses on 'trust' factor to resolve clearing house row with European regulators

RBI Governor Shaktikanta Das

The Reserve Bank is trying to convince European securities regulators to "trust the credibility and strength" of Indian regulations amid the ongoing row over clearing houses, Governor Shaktikanta Das has said.

Speaking to reporters at the post-monetary policy press conference on December 7, Das said India had changed and today's India was very different from what it was in previous decades.

"Our regulations today are very robust. In fact, we are fully compliant with the CPMI (Committee on Payments and Market Infrastructures) guidelines under the aegis of the Basel framework. And we comply with all the international standards. Our market infrastructure is very robust," Das said in response to a question.

"I think it is also necessary for regulators on the other side to appreciate the credibility… They must trust the credibility and strength of the Indian regulations. That is what we are trying to impress upon them. It is under discussion and we are hopeful of a resolution."

Das' comments come after the European Securities and Markets Authority (ESMA) – the financial markets regulator for the European Union – on October 31 derecognised six Indian clearing houses with effect from May 1, 2023. The select six are Clearing Corporation of India, Indian Clearing Corporation Limited, NSE Clearing Limited, Multi Commodity Exchange Clearing, India International Clearing Corporation (IFSC) Limited, and NSE IFSC Clearing Corporation Ltd.

A similar decision has been taken by the Bank of England.

Once the derecognition comes into effect, the six clearing houses will not be able to provide services to clearing members and trading venues established in the European Union.

"Thus, for example, European banks may not be able to operate through Indian financial infrastructure entities unless their home regulator accords 'equivalence' treatment to the Indian infrastructure entities or these entities are endorsed or recognised. Such treatment involves the ability to call for information, supervise, inspect and (at least potentially) impose penalty on Indian entities. This amounts to an unfortunate interference in the regulatory architecture in India, especially given the fact that these Indian entities meet relevant global standards," RBI Deputy Governor T Rabi Sankar had said in a speech on November 30, going on to warn that the potential disruption to forex markets can be "rather serious".

Rabi Sankar today struck a more sobre tone, saying the discussions with ESMA were continuing and the RBI hoped to achieve "some sort of an understanding".

"There is no disturbance as of now (to domestic operations of foreign entities). We will see when it comes to that. Should there be a possibility of a disturbance, we will be well prepared to handle that," he said.

According to Rabi Sankar, the fundamental point of divergence between the RBI and the European regulators is the subjection of European regulations to an Indian entity operating entirely in India.

"You cited this (ESMA) case but this holds good for a few others as well, like Japan. We have an agreement with them, they made an assessment and (said) it is good enough, it is equivalent (to Japanese requirements). So similar things can be done (with ESMA)," Rabi Sankar said.

"We are working towards that… But once this fundamental point of divergence reaches some sort of an agreement, we will be able to sort out the details."