Mumbai: The Reserve Bank of India and regulators in the UK have made significant progress in creating a new agreement to govern the handling of the Clearing Corporation of India (CCIL), with both sides moving closer to quickly removing an obstacle that threatened to stall. The performance of British banks in Indian government bonds and derivatives.
People aware of the developments said the new Memorandum of Understanding being worked on by the RBI and UK authorities, including the Bank of England, would essentially communicate a “hands-off” approach to the CCIL on potentially contentious issues such as rights of review over. the Indian clearing house.
“The British authorities do not want to get involved beyond one point as long as the local arrangement works well. There is a view that too many regulatory points can cause complications. There is also unlikely to be any provision for inspection by CCIL, which has been the source of the conflict between the RBI and the European Securities and Markets Authority,” said one of the people quoted above.
The CCIL, which houses the trading platforms for Indian government bonds and overnight indexed exchanges, is supervised by the RBI. Emails sent to the RBI remained unanswered till press time on Monday. A Bank of England official declined to comment. UK-based banks with a significant presence in Indian bond and derivatives markets include Standard Chartered Bank, Barclays and HSBC.
These banks handle transactions worth billions of dollars. Foreign banks are also custodians of foreign investment flows into India. Lack of access to the CCIL would severely limit such business.
In October 2022, the CCIL was derecognized by the European Securities and Markets Authority because the RBI refused to allow the overseas body rights of inspection and audit over the domestic clearinghouse. Later, the CCIL was also put on a drain regime in the UK pending a fresh application for recognition to the Bank of England in a post-Brexit UK.
According to British standards, a non-British clearinghouse placed under the temporary recognition regime would receive recognition for up to a year from the day on which the central counterparty – the CCIL in this case – ceases to be recognized. For the CCIL, the exit date was 1 July 2023, according to the BoE website.
QUICK RESOLUTION
Unlike the matter between the ESMA and the RBI, which has not yet shown any significant sign of resolution, the British authorities have moved quickly to enable recognition of the CCIL.
Taking an important step in that direction, the UK Treasury in June granted an equivalent to central counterparties authorized by the RBI, the first such step since Brexit.
The CCIL also said in June that it had applied to the Bank of England for recognition as a third-country central counterparty on January 31, 2023.
“Unlike the ESMA matter, the UK matter was not really about imposing a fresh set of requirements on the CCIL. The CCIL entered the drain mode only as a technicality because fresh applications were to be made after Brexit. Moreover, all parties involved moved quickly to to ensure business operations can continue unhindered,” a second person said.
After the Global Financial Crisis, developed markets took steps to reduce risk in derivatives markets. In attempts to contain those risks, they sought to maintain control over regulation and risk management practices in third countries, RBI deputy governor T Rabi Sankar said last year.
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