Clearing Corp to apply afresh to Bank of England for recognition

The development comes after the UK regulator was said to have shown flexibility regarding earlier hurdles posed by requirements for inspection and audit of the Indian clearing house.

“Progress is being made on that front (the CCIL’s fresh application to the BoE). A significant point here is that the CCIL is in full adherence to the global requirements under the Committee on Payments and Market Infrastructures as well as Principles for Financial Market Infrastructures,” a source said. “After recent developments, things are moving ahead,” the source said.

Spokespersons from the Bank of England and the CCIL declined to comment on the matter.

In 2023, a bill was moved in the UK to permit the Bank of England to give more time to non-UK clearing houses to enter a new regime. The extension was said to be of at least two years from the original July 1 deadline after which a temporary recognition regime for clearing houses like the CCIL were to come to an end.

The CCIL, which is supervised by the Reserve Bank of India, houses the trading platform for government bonds and derivative products such as Overnight Indexed Swaps.

UK-based banks with significant trading operations in India include Standard Chartered, HSBC and Barclays. Some foreign banks are also custodians of overseas investment flows into India. These banks contribute significantly to volumes in Indian bond and derivatives trading.In the event of CCIL being de-recognised, the foreign banks would face considerable operational difficulties including a potentially massive increase in risk-weights kept aside as capital. Such a development could affect the operational viability of foreign banks trading in Indian debt markets.

The announcement of the end of the recognition regime for the CCIL by the BoE – which came on the heels of a similar step by mainland European regulators – elicited sharp reactions from the RBI. The Indian central bank, which called upon foreign institutions to recognise the robustness of Indian regulations, has steadfastly refused to permit European regulators the right of inspection and audit over the CCIL.

According to a disclosure dated March 2022 on the CCIL’s website, a World Bank team has conducted a detailed assessment of the clearing house’s observance of Principles for Financial Market Infrastructures (PFMI). The CCIL has complied with 22 out of 24 principles, the disclosure said, adding that two of the principles were not applicable.

PFMI refers to international standards for financial market infrastructures such as payment systems, central securities depositories, central counterparties, securities settlement systems and trade repositories.

The roots of the conflict rest in a drive by developed markets after the global financial crisis towards reducing risk in derivatives markets. In attempts to contain risks, developed economies have been looking to maintain control of regulation and risk management practices in third countries, RBI deputy governor T Rabi Sankar had said in November. “Thus, for example, European banks may not be able to operate through Indian financial infrastructure entities unless their home regulator accords ‘equivalence’ treatment to the Indian infrastructure entities,” Sankar said.