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“What both (the RBI and the government) are concerned about is the extra-territorial nature of the arrangement, which is not acceptable. Signing MoUs (Memorandum of Understanding) on their (ESMA’s) terms is unacceptable as the CCIL cannot be subject to their regulatory jurisdiction. The RBI and the government want a change in their regulations,” a source said.
In October 2022, the ESMA de-recognised the CCIL, which hosts the platform for trading Indian government bonds and interest rate derivatives. The ESMA’s decision was taken after the RBI refused to permit European authorities rights of audit and inspection over the CCIL, which is supervised by the Indian central bank.
The parties most affected by the regulatory impasse are French and German banks with trading operations here. These are Credit Agricole, BNP Paribas, Societe Generale of France and Deutsche Bank of Germany. These banks carry out billions of dollars’ worth of trade in Indian bonds and swaps while some also play a key custodian role.
While the ESMA’s decision came into effect at the end of April 2023, national regulators in France and Germany provided their banks with time until October 31, 2024, to continue transacting with the CCIL.
“National regulators in Europe have removed the October deadline. The RBI and the government are looking at alternative arrangements, including using certain banks or even setting up a designated PD (primary dealer) for these transactions. The whole process is, however, going to take time, and a solution can’t be reached in a short duration,” the source said.ET had reported on October 9 that French and German banks had been granted more time by their home regulators to transact with the CCIL. Subsequently, Germany’s Federal Financial Supervisory Authority said in response to an ET query that it was confident that the ESMA remains committed to reaching an MoU with the RBI.
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