RBI sealed a deal with Bank of England (BoE)

In a substantial financial move, the Reserve Bank of India (RBI) sealed a deal with the Bank of England (BoE) to share crucial information for settling bond trades through the Clearing Corporation of India Ltd (CCIL).

This memorandum of understanding (MoU) introduces CCIL as a recognized counterparty for clearing and settling bonds and overnight indexed swap trades by banks and investors in England, as assessed and acknowledged by BoE.

CCIL, under the watchful eye of the RBI, operates as the central counterparty hosting the trading platform for Indian government bonds and overnight indexed swaps.

The agreement emphasizes the mutual recognition of the RBI's authority in supervising Covered CCPs (Clearing Counterparts) and respects the regulatory rules and supervisory practices of both jurisdictions.

This development follows the derecognition of six Indian clearing houses, including CCIL, by the European Securities and Markets Authority (ESMA) in October 2022 due to a disagreement with the RBI over inspection and audit rights.

However, in June this year, the UK Treasury extended equivalence to central counterparties authorized by the RBI, marking the first such decision post-Brexit. Following this, CCIL submitted a fresh application to the BoE for recognition as a third-country central counterparty.

Experts believe that this agreement with the Bank of England might set a precedent for resolving the previous RBI-ESMA standoff. Negotiations between the UK and RBI before enacting a law on this matter and the resulting MoU could lay the groundwork for discussions between RBI and ESMA regarding potential changes to existing regulations.

Notably, UK-based banks like Standard Chartered Bank, Barclays, and HSBC, playing a significant role in Indian bond and derivative markets, conduct transactions worth billions of dollars. They also act as custodians for foreign investment flows into India. Restricted access to CCIL would severely impact such transactions.

Earlier this year, the French financial market regulator granted an 18-month extension to French banks following concerns about the termination of their membership in Indian CCPs after the ESMA order.

This ongoing narrative underscores the dynamic nature of global financial partnerships and we will keep you updated about it all.

Until then...

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