The Reserve Bank of India (RBI) signed an agreement with the Bank of England (BoE) on Friday to share information for the settlement of bond trades via the Clearing Corporation of India Ltd (CCIL).
The BoE will examine and recognise CCIL as a counterparty to clear and settle bonds and overnight indexed swap deals executed by England-based banks and investors under the new memorandum of understanding (MoU).
CCIL is the central counterparty supervised by the RBI that provides the trading platform for Indian government bonds and overnight indexed swaps.
The agreement states that “It is the mutual understanding of the RBI and the BoE that the cooperation arrangements specified under this MoU recognise the primacy of the RBI and its mandate in the supervision of Covered CCPs; they are also based on mutual respect for each jurisdiction’s current regulatory regime and each authority’s supervisory practices.” CCP is short for clearing counterparty
The European Securities and Markets Authority (ESMA) decertified six Indian clearing houses, including the CCIL, in October 2022 after the RBI refused to grant the overseas body inspection and audit privileges over the domestic clearing house.
However, in June of this year, the UK Treasury granted equivalence to RBI-authorized central counterparties, the first such decision since Brexit. Following that, CCIL reapplied to the BoE for recognition as a third-country central counterparty with effect from January 31, this year.
“Today’s agreement with the Bank of England could set a precedent for the ESMA-RBI standoff. UK had engaged in negotiations with the RBI before enacting a law on this matter. This MOU could set a backdrop for the negotiation between RBI and ESMA as they explore changes to the existing law,” said a person aware of the matter.
UK-based banks with a substantial presence in Indian bond and derivative markets, such as Standard Chartered Bank, Barclays, and HSBC, handle transactions worth billions of dollars. These banks also serve as guardians of foreign investment into India. Access to the CCIL would significantly limit such commerce.