RBI–ESMA pact opens door for easier EU recognition of Indian clearing houses

The MoU could pave the way for the European Securities and Markets Authority to restart the process of recognising Indian central counterparties such as the Clearing Corporation of India Ltd.

The Reserve Bank of India (RBI) and the European Securities and Markets Authority (ESMA) signed a Memorandum of Understanding on January 27 to enable regulatory cooperation, potentially allowing Indian clearing houses to apply for EU recognition.

This possibly removes certain key impediments for European firms to access Indian financial markets.

The MoU could pave the way for the European Securities and Markets Authority to restart the process of recognising Indian central counterparties such as the Clearing Corporation of India Ltd.

Without such recognition, European banks face higher costs when trading Indian bonds, discouraging participation.

“This agreement marks a significant step towards restoring access for EU clearing members to Indian central counterparties and follows two years of sustained engagement between ESMA and RBI,” ESMA said in a release.

The MoU is a key requirement under Article 25 of the European Market Infrastructure Regulation (EMIR) for the recognition by ESMA of third-country CCPs. It allows the Clearing Corporation of India Ltd (CCIL), a CCP established in India and supervised by RBI, to re-apply for recognition under EMIR.

ESMA is also continuing discussions with the Securities and Exchange Board of India (SEBI) and the International Financial Services Centres Authority (IFSCA) to conclude similar cooperation arrangements.

Under the European Market Infrastructure Regulation (EMIR), a central counterparty (CCP) based outside the European Union must be recognised by the European Securities and Markets Authority (ESMA) to offer clearing services to financial firms and trading venues in the EU.

On October 31, 2022, the European Securities and Markets Authority decided to withdraw the recognition of six Indian central counterparties, including the Clearing Corporation of India Ltd, after concluding that the regulatory cooperation arrangements required under EU rules were not in place.

The decision came with a transition period, with the withdrawal taking effect on April 30, 2023, after which these entities could no longer provide clearing services to EU clearing members under the European Market Infrastructure Regulation.