India–EU Financial Cooperation: RBI And ESMA Strengthen Oversight Of Central Counterparties
SDG 16: Peace, Justice and Strong Institutions | SDG 17: Partnerships for the Goals
Reserve Bank of India (RBI) | European Securities and Markets Authority (ESMA)
The Reserve Bank of India (RBI) and the European Securities and Markets Authority (ESMA) have signed a comprehensive Memorandum of Understanding (MoU) focused on cooperation and information exchange regarding Central Counterparties (CCPs). This agreement formally replaces the previous MoU established in February 2017, marking a significant update in the regulatory dialogue between Indian and European financial authorities.
Regulatory Reliance and Financial Stability The MoU establishes a structured framework that allows ESMA to place greater reliance on the RBI’s domestic regulatory and supervisory activities. Key objectives of the agreement include:
Information Exchange: Facilitating the seamless flow of data related to CCPs regulated and supervised by the RBI to ensure transparent cross-border operations.
Mutual Safeguards: Enabling both authorities to fulfill their respective legal mandates while specifically safeguarding the financial stability of the European Union.
Operational Continuity: Demonstrating a shared commitment to international clearing activities, which are essential for maintaining liquidity and reducing systemic risk in global financial markets.
High-Level Institutional Commitment The agreement was signed by RBI Executive Director Vivek Deep and ESMA Chair Verena Ross. By fostering closer ties between the two regulators, the MoU ensures that Indian CCPs can continue to serve European market participants under a recognized and stable supervisory framework.
What is a “Central Counterparty” (CCP) in financial regulation? A Central Counterparty is a financial institution that acts as an intermediary between the buyer and the seller in a transaction, becoming the buyer to every seller and the seller to every buyer. By guaranteeing the performance of the contract, a CCP significantly reduces the risk of counterparty default, thereby enhancing the overall stability and efficiency of the financial system.
Policy Relevance
The updated MoU with ESMA is a vital step in maintaining India’s integration into the global financial architecture.
Market Access for Indian CCPs: The agreement is critical for ensuring that Indian CCPs (such as CCIL) maintain their status as “recognized” entities in the EU, allowing European banks to continue clearing trades in India without facing prohibitive capital charges.
Supervisory Sovereignty: By establishing a framework for “regulatory reliance,” the MoU acknowledges the strength of the RBI’s oversight, reducing the need for intrusive direct supervision by foreign regulators on Indian soil.
Global Financial Diplomacy: This cooperation aligns with India’s broader strategy of establishing high-standard bilateral regulatory frameworks with major economic blocs, reinforcing India’s reputation as a stable and well-regulated investment destination.
Relevant Question for Policy Stakeholders: How can the RBI utilize the “regulatory reliance” model established in this MoU as a template for negotiations with other major global financial regulators to further simplify cross-border capital flows?
Follow the full news here: A Framework for Cross-Border Clearing Supervision