Only if the Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) are able to negotiate new terms with the European Securities and Markets Authority (ESMA) on oversight of counter-party institutions, European banks operating in India might soon find it difficult to operate profitably.
With the European Union Financial Markets Authority and the Bank of England decertifying some of the key institutions, such as the Clearing Corporation of India (CCIL), NSE Clearing Limited (NSCCL), and Indian Clearing Corp (ICCL), by which heavy volume on foreign exchange, derivatives, government bonds, and securities are executed, all European banks operating in India have been placed in an awkward situation and are now knocking on the doors of regulators.
The Clearing Corporation of India (CCIL), which is under the control of the RBI, the Indian Clearing Corporation (ICCL), the Multi Commodity Exchange Clearing (MCXCCL), and the NSE Clearing (NSCCL), which is under the control of Sebi, are among the six institutions list for EU’s financial markets regulator and supervisor.
The NSE IFSC Clearing Corporation (NICCL) and the India International Clearing Corporation (IICC) are under the control of the International Financial Services Centre Authority (IFSCA).
However, the issue is unlikely to escalate to the point where business operations are completely disrupted, according to regulatory experts who believe the RBI and Sebi are dissatisfied with foreign regulators’ requests for oversight of Indian counter-party institutions. According to a financial services expert, “They view this as overstepping the line and will try to persuade ESMA to soften its stance.”
According to a different expert, RBI and Sebi see this as a jurisdictional issue and may seek mutual recognition powers.
A legal expert noted that ESMA might introduce some sort of partial reporting structure where it would not have full control.
Because India would like to see the European banks continue to do business there, there would likely be some discussions at the government level, the expert predicted.
Certain products on the currency markets and the custody services provided by European banks could be affected.