European Securities and Markets Authority (esma), the financial market regulator and supervisor of the European Union, in accordance with the European Market Infrastructure Regulation (Rich) withdrew recognition from six Indian central clearing houses on 31 October.
The decision essentially bars all European banks from doing business with Indian clearing houses after April 30 next year.
A senior Indian official familiar with discussions between Indian regulators and ESMA said neither side wanted the disagreement to undermine financial ties.
“No one wants to walk on a rock. Neither Europe nor India,” the official said.
“While ESMA has extended it to April, they will probably extend it even more. So it could go on for a few years, but they don’t want to give a few years just now because that will take the pressure off everyone,” he said.
EMIR, a framework for authorization and supervision of central counterparties to mitigate risks, requires cooperation from foreign entities that articulate and organize securities market trading.
Under some of the recent European amendments to practices that India has not signed, ESMA is seeking rights to independently inspect clearing houses in India.
Another Indian source directly aware of the matter said that information sharing was not an issue but the Reserve Bank of India (RBI).reserve Bank of India) and the Securities and Exchange Board of India were not comfortable with ESMA seeking independent access to regulated entities in India.
“They can take whatever decision they want in terms of their jurisdiction, but when their institutions are operating under our jurisdiction and they want equal powers here, it is strange, unfair and unacceptable,” the source said.
The RBI, the finance ministry, ESMA and the Securities and Exchange Board did not immediately respond to requests for comment.
Deutsche Bank, Societe Generale, BNP Paribas And Swiss Credit Banks are likely to be affected if there is no resolution by April.
Sources said banks will continue to do business but will face an increase in capital cost as they will be able to do only bilateral trade and will not go through clearing houses.
“This is now being discussed at the ministerial level and will be resolved only at the government-to-government level, but I don’t see it as a hindrance,” the first source said.