RBI working on alternate arrangements for banks hit by EU oversight rule

The Reserve Bank of India is working on alternate arrangements for banks whose local operations will get hit if Europe’s markets regulator withdraws recognition to Indian central counterparties.

The RBI and European Securities and Markets Authority are clashing over ESMA’s demand to join the RBI in overseeing Indian transactions.

The move would give the foreign regulator “extra-territorial reach,” the RBI said in its half yearly Financial Stability Report published Thursday. “Such regulations, if implemented by all jurisdictions, can create a parallel maze of laws with overlapping requirements or restrictions and show a lack of trust in the capabilities and quality of oversight exercised by the host regulators.”

The RBI is continuously engaged with ESMA and other regulators to arrive at a mutually acceptable arrangement, which recognizes the territorial independence of the host regulator, the central bank said. “Remedial measures by way of possible alternate arrangements are under deliberation with the entities likely to be impacted,” it added.

The European regulator has threatened to withdraw recognition of six Indian clearing houses, effective May 2023. Following ESMA, Bank of England also warned of withdrawing recognition of Clearing Corp. of India from July 2023.

The stand-off would mean banks such as BNP Paribas SA, Deutsche Bank AG, and many others will need to unwind billions of rupees of trades or cough up higher capital to trade in India.