The Reserve Bank of India (RBI) and the Financial Services Agency (FSA) of Japan exchanged letters of cooperation in the area of central counterparties (CCPs) on Wednesday with the stated goal of improving mutual cooperation.
“With this exchange of letters, the RBI and the FSA are committed to deepening relations between the two countries and strengthening the exchange of information,” the Indian central bank said on Wednesday.
The move comes at a time when European and UK regulators have delisted various Indian clearinghouses, including the Clearing Corporation of India (CCIL), which hosts the government bond and overnight indexed swaps (OIS) trading platform.
According to reports earlier this month, Japanese authorities had also applied for the right to see CCIL’s data – the main point of contention with European regulators.
“RBI and FSA have also expressed their willingness to engage in dialogue or exchange views on matters of common interest and concern, as appropriate. The letters confirm the interest of both jurisdictions in increased cooperation in accordance with their respective laws and regulations.
“The letters will also provide a strong basis for promoting mutual understanding and cooperation regarding CCP activities in a cross-border context. The cooperation will be mutually beneficial and ensure the soundness of financial markets in both jurisdictions,” the central bank said.
The European Securities and Markets Authority (ESMA) de-registered six Indian clearing houses, including CCIL, which is regulated by RBI, at the end of October.
The decision is said to have been made after RBI refused to grant the foreign body audit and inspection rights over CCIL.
ESMA’s decision will come into effect on May 1, 2023.
The Bank of England took a similar step following the ESMA decision.
In early November, the RBI and the CCIL were reportedly seeking a solution to a similar dispute with the Japanese tax authorities, who wanted to retain control rights over the CCIL.
European banks with branches in India include BNP Paribas, Crédit Agricole, Crédit Suisse, Deutsche Bank and Société Générale.
Other UK-based banks and foreign lenders such as Standard Chartered, Barclays and HSBC also play a large role in bond and OIS trading.
The abolition of CCIL means that financial transactions will not be processed through CCIL, leaving only room for bilateral transactions between banks. This would negate advantages and benefits of netting transactions provided by the clearing house and result in much higher capital requirements under the Basel standards. Consequently, trade deals would take a big hit, bankers observed.
