The European Securities and Markets Authority may be able to resume recognizing Indian central counterparties like the Clearing Corporation of India Ltd. thanks to the Memorandum of Understanding.
RBI–ESMA MoU Opens Door for EU Recognition of Indian CCPs
In order to facilitate regulatory collaboration and possibly for Indian clearing houses to apply for EU recognition, the Reserve Bank of India (RBI) and the European Securities and Markets Authority (ESMA) signed a Memorandum of Understanding on January 27.
This may eliminate some major barriers to European companies’ access to Indian financial markets. The European Securities and Markets Authority may be able to resume recognizing Indian central counterparties like the Clearing Corporation of India Ltd. thanks to the Memorandum of Understanding.
🏦 RBI–ESMA Regulatory Cooperation
- Agreement: Memorandum of Understanding (MoU)
- Date Signed: January 27
- Authorities: RBI and ESMA
- Purpose: Regulatory cooperation framework
- Impact: EU recognition for Indian CCPs
- Key Beneficiary: Clearing Corporation of India Ltd.
Impact on European Banks and Indian Markets
In the absence of this recognition, trading Indian bonds becomes more expensive for European banks, which discourages involvement.
According to a statement from ESMA, “this agreement follows two years of ongoing interaction between ESMA and RBI and constitutes a significant step towards restoring access for EU clearing members to Indian central counterparties.”
EMIR Recognition and Regulatory Requirements
According to Article 25 of the European Market Infrastructure Regulation (EMIR), the MoU is a crucial prerequisite for ESMA to recognize third-country CCPs. It permits the Clearing Corporation of India Ltd (CCIL), an Indian CCP under RBI supervision, to reapply for EMIR recognition.
In order to reach comparable cooperation agreements, ESMA is also still in talks with the International Financial Services Centers Authority (IFSCA) and the Securities and Exchange Board of India (SEBI).
⚖️ EMIR and Indian CCP Recognition
- Regulation: European Market Infrastructure Regulation (EMIR)
- Requirement: Regulatory cooperation agreements
- 2022 Decision: Recognition withdrawn for six Indian CCPs
- Effective Date: April 30, 2023
- Current Status: Reapplication enabled via MoU
- Market Effect: Reduced costs for EU clearing members
Background of Derecognition Decision
To provide clearing services to financial firms and trading venues in the EU, a central counterparty (CCP) located outside the EU must be approved by the European Securities and Markets Authority (ESMA) under the European Market Infrastructure Regulation (EMIR).
After determining that the regulatory cooperation mechanisms necessary under EU regulations were not in place, the European Securities and Markets Authority decided on October 31, 2022, to revoke the recognition of six Indian central counterparties, including the Clearing Corporation of India Ltd.
The European Market Infrastructure Regulation prohibited these firms from offering clearing services to EU clearing members after the withdrawal took effect on April 30, 2023, as part of the decision’s transition period.
Frequently asked questions
1. What is the purpose of the RBI-ESMA MoU?
The Reserve Bank of India (RBI) and the European Securities and Markets Authority (ESMA) have entered into a Memorandum of Understanding on January 27 that permits regulatory cooperation and permits Indian clearing firms to pursue EU recognition.
2. What makes EU recognition crucial for clearing houses in India?
EU recognition lowers costs for EU banks dealing Indian bonds and promotes more market participation by enabling Indian central counterparties (CCPs) to offer clearing services to European financial businesses.
3. What Indian clearing house may profit from this arrangement?
Under the European Market Infrastructure Regulation (EMIR), the RBI-supervised Clearing Corporation of India Ltd (CCIL) may reapply for recognition.
4. What problem caused the 2022 loss of recognition?
Due to the lack of necessary regulatory cooperation agreements under EU regulations, ESMA withdrew recognition of six Indian CCPs in October 2022.
5. Do other Indian regulators participate in comparable conversations?
Indeed, in order to create comparable frameworks for collaboration, ESMA is also in talks with the International Financial Services Centers Authority (IFSCA) and the Securities and Exchange Board of India (SEBI).
Conclusion
An important step toward giving European clearing members access to Indian financial markets again is the RBI–ESMA agreement.
The deal might facilitate the recognition of Indian clearing houses, reduce trading costs for EU companies, and improve cross-border financial market integration between India and the EU by filling regulatory loopholes under EMIR.
Disclaimer:
This article is for informational purposes only and does not constitute financial, legal, or investment advice.
