The European Union’s financial markets regulator European Securities and Markets Authority (ESMA) has allowed its banks to continue trading with India’s Central Clearing Corporation (CCP) even after April 30. But the European regulator has also talked about imposing fines for doing so.
In response to an email sent by BLiTZ, an ESMA spokesperson said, “The decision will come into effect from April 30.” Penalty will be imposed for doing business with Indian CCP working without ESMA recognition. But the spokesperson did not clarify how much and what kind of penalty would be imposed on European financial institutions doing business with Indian CCPs.
On February 17, the financial regulators of Germany and France issued separate statements giving their financial institutions 18 months, i.e. till October 31, 2024, to delist their membership with the Indian CCP and assign their positions to an authorized clearing member. given time.
Following the statement from the German and French regulators, ESMA also issued a statement on the same day saying that enforcement action would not be taken for the time being, given the potential for wider impact on European market participants and the position of the German and French regulators.
An ESMA spokesperson said, ‘ESMA issued the statement on 17 February in response to statements from financial regulators in Germany and France that the deadline would not be extended beyond 30 April.’
“Statements from regulators in ESMA, Germany and France indicate that priority will not be given to enforcement action against EU banks doing business with India’s CCPs. There is no question of extending or postponing the deadline.
The spokesperson further said, ‘The Supervisory Board of ESMA had decided on October 31, 2022 to withdraw recognition of 6 CCPs of India with effect from April 30, 2023. This means that the decision stands.
ESMA had decided to withdraw recognition of CCPs after the Reserve Bank of India refused to allow foreign bodies to audit and investigate India’s financial infrastructure entities such as the Clearing Corporation of India. Clearing Corporation of India provides trading platform facility for Government Bonds and Overnight Index Swap rates.
EU banks such as HSBC, BNP Paribas, Credit Suisse, Deutsche Bank and Societe Generale will be relieved by ESMA not insisting on enforcement action. These banks are active in India and deal in local currency, commodity and stock markets.
Reserve Bank Deputy Governor T Ravi Shankar had said in November last year that the de-recognition of Indian CCPs by the European regulator was an unfortunate intervention as these Indian entities meet the best global standards. He had said, ‘This could lead to disruption in the foreign exchange market, which could be serious.’
RBI governor Shaktikanta Das had also said in December last year that it was important for foreign regulators to appreciate the credibility of India’s regulations. He had said, ‘We follow all international standards. Our market infrastructure is very advanced. They must rely on the credibility and robustness of Indian regulation.
