European regulators need to trust India
Speaking to reporters at the post monetary policy conference on Wednesday, Das said India has changed, and it is currently very different from what it was earlier.
The Reserve Bank of India is trying to convince European regulators to “trust the credibility and strength” of Indian regulations amid the ongoing dispute over the disqualification of Indian clearing houses, said governor Shaktikanta Das.
Speaking to reporters at the post monetary policy conference on Wednesday, Das said India has changed, and it is currently very different from what it was earlier.
“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,” he 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,” he said. The governor’s comments follow the European Securities and Markets Authority’s (ESMA) announcement that it will derecognize six Indian clearing houses effective 1 May, as Indian regulators have not signed revised cooperation agreements. These clearing houses are Clearing Corporation of India, Indian Clearing Corporation Ltd, NSE Clearing Ltd, Multi Commodity Exchange Clearing, India International Clearing Corporation (IFSC) Ltd, and NSE IFSC Clearing Corporation Ltd.
According to bankers, this move will impact European banks’ ability to settle trades and conduct treasury operations in India as they will have to set aside higher capital to route the transactions outside of the clearing houses. Among the banks impacted by the ESMA directive include Deutsche Bank, Credit Agricole, BNP Paribas and Credit Suisse.
According to T. Rabi Sankar, RBI’s deputy governor, the fundamental point of divergence remains the fact that an Indian entity that doesn’t operate in the European Union and operates entirely in India is being subjected to regulations by the EU regulator.
“But this holds good for others as well. Like Japan for example, we have an agreement with them. They made an assessment and it’s equivalent. Similar things can be done. 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,” he said.
In a speech on 30 November, Sankar termed the derecognition of Indian clearing houses by the UK and European regulators as “unfortunate interference”, particularly when such Indian entities meet the global best standards.
“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,” he said.
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First Published:7 Dec 2022, 10:43 PM IST
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