EU moves to tweak rules on foreign central counterparties amid tussle between RBI and European regulators

Mumbai: European Union authorities have proposed amending norms on exposure to third-country clearing houses, a move that comes amid a protracted tussle between the Reserve Bank of India (RBI) and regulators from the continent on treating the primary domestic sovereign bond platform.

ET has seen a document dated February 13 that showed the General Secretariat of the Council of the European Union has sent two proposals to the Permanent Representatives Committee of the council concerning treatment of central counterparties. This has been a bone of contention between the RBI and the EU authorities since October 2022.

“Proposal for a Regulation of the European parliament and of the Council amending Regulations… as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets,” the document read.

The other proposal is for a directive of the European parliament to amend directives regarding the treatment of concentration risk towards central counterparties and counterparty risk on centrally cleared derivative transactions.

In October 2022, the European Securities and Markets Authority (ESMA) had de-recognised six Indian clearing houses, including the Clearing Corporation of India (CCIL), which houses the trading platform for domestic government bonds and interest rate derivatives.

The CCIL, which plays the role of a central counterparty, is supervised by the RBI.The ESMA’s decision came after the RBI’s refusal to permit rights of audit and inspection over the CCIL. Since then, the RBI has on multiple occasions called upon foreign authorities to recognise the resilience of Indian regulations.The Indian central bank has noted that a probable unintended consequence of a drive towards de-risking derivatives markets after the Global Financial Crisis has been the tendency of developed economies to attempt maintaining control of regulation in third countries.

The European banks affected by the matter are Deutsche Bank, BNP Paribas, Societe Generale and Credit Agricole. While French and German regulators have provided an extended timeline of October 2024 for the banks to be able to transact with the CCIL, the lapse of the deadline poses serious operational challenges for their billions of dollars’ worth of bond trade in India.

Sources tracking the developments said the European Markets Infrastructure Regulation 3 – which may be implemented in 2025 – could potentially be more amenable resolving disagreements such as the one between the RBI and the ESMA.

According to the EU Council document, the latest proposals aim to “encourage clearing in the EU, improve the attractiveness and resilience of EU central counterparties (CCPs), draw lessons from recent developments in energy markets and strengthen EU open strategic autonomy as well as safeguard financial stability.”


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