Mumbai: The European Securities and Markets Authority (ESMA) is currently deliberating with India’s central bank on resolving disagreements over the treatment of the domestic bond trading platform, with the foreign regulator saying that it has not imposed penal charges on French and German banks for trading here.
“ESMA is currently in negotiations with RBI regarding a potential EMIR (European Market Infrastructure Regulation)-compliant MoU (Memorandum of Understanding),” an ESMA spokesperson said in an email to ET.
The matter pertains to the Clearing Corporation of India – the Reserve Bank of India (RBI)-supervised body that hosts the platform for trading domestic government bonds. In October 2022, the ESMA had de-recognised the CCIL because the RBI did not permit rights of audit and inspection over the local clearing house, which acts as the official counterparty to billions of dollars of government bond trade.
“There are no penal charges (on European banks trading in India) but rather higher capital requirements. Please note that ESMA is not the prudential supervisor of European banks,” the ESMA spokesperson said.
The European banks affected by the decision are Deutsche Bank, BNP Paribas, Societe Generale and Credit Agricole. All of these banks are involved in trading Indian government bonds as well as interest rate derivatives which require counterparty services by the CCIL. Foreign banks also act as custodians for overseas investment flows into India.
While ESMA’s de-recognition was effective from May 1, 2023, French and German national regulators took a more relaxed view and provided their banks with an extended deadline till October 2024. However, the affected banks have now had to put aside more capital for transacting with the CCIL.
Need for Urgency
For the affected banks, the need for a resolution to the matter becomes all the pressing because of the higher capital charges, with Deutsche Bank shelling out more than a billion Euros in capital for central counterparty exposures in Jul-Sep, its regulatory reporting documents showed.
Deutsche Bank saw its RWA for risk exposure to an unnamed central counterparty clearing house increase due to higher risk-weighted assets for a central counterparty whose qualifying status is no longer applicable, the German bank’s documents read.
