The MoU between RBI and ESMA
The Reserve Bank of India (RBI) and the European Securities and Markets Authority (ESMA) have signed a memorandum of understanding (MoU) to facilitate the exchange of information for the recognition of central counterparties (CCPs).
Purpose and Impact
- The MoU aims to resolve disputes between India and ESMA regarding the supervision of domestic CCPs, including the Clearing Corporation of India Ltd (CCIL).
- This agreement coincides with the conclusion of negotiations on the India-EU Free Trade Agreement (FTA).
- European banks, such as Societe Generale, Deutsche Bank, and BNP Paribas, can now clear and settle transactions more comfortably on the CCIL.
Functions of Central Counterparties
- Central counterparties serve as intermediaries in market transactions, performing the functions of clearing and settlement.
- They guarantee the terms of a trade.
Framework and Cooperation
- The MoU establishes a framework for ESMA to rely on RBI's regulatory and supervisory activities.
- It safeguards the European Union’s financial stability.
- Replaces an earlier MoU between RBI and ESMA dated February 28, 2017.
Significance of the MoU
- The agreement marks a significant step in restoring EU clearing members' access to Indian central counterparties.
- Reflects ESMA's commitment to international supervisory cooperation and mutual support for safe and resilient financial markets.
- Required under Article 25 of the European Market Infrastructure Regulation (EMIR) for CCP recognition.
Background
- In October 2022, ESMA withdrew recognition of six Indian third-country central counterparties (TC-CCPs) due to a lack of cooperation arrangements.
- Entities affected included CCIL, ICCL, NSCCL, MCXCCL, IICC, and NICCL.
- Ongoing discussions with SEBI and IFSCA to conclude similar cooperation arrangements.
