RBI and Bank of England sign MoU to end CCIL deadlock

“The MoU establishes a framework for the BoE to place reliance on RBI’s regulatory and supervisory activities while safeguarding UK financial stability,” RBI said in a statement.

RBI Deputy Governor T Rabi Sankar and BoE Deputy Governor for Financial Stability Sarah Breeden signed the MoU in London today.

In October 2022, the European Securities and Market Authority (ESMA) announced its intention to de-recognize six Indian clearing houses, including the Clearing Corporation of India (CCIL), which operates the trading platform for government bonds and overnight indexed swaps.

This decision was made due to the Reserve Bank of India's (RBI) refusal to grant foreign entities the right to audit and inspect CCIL.

Following ESMA's decision, the Bank of England (BoE) also took a similar step, set to take effect from June 30.

In January, CCIL applied for acknowledgment as a Third Country – Central Counterparty (TC-CCP) from the Bank of England (BoE). Following this, the UK Treasury chose to confer equivalence to central counterparties authorized by the RBI.

The signing of the Memorandum of Understanding (MoU) increases the probability of the BoE granting approval to CCIL's application.

This news has been welcomed by UK-based banks such as Standard Chartered, Barclays, and HSBC. These financial institutions play a significant role in trading government bonds and overnight indexed swaps, as well as overseeing the management of overseas investment flows.

“The MoU also demonstrates the importance of cross-border cooperation to facilitate international clearing activities and the BoE’s commitment to deference to other regulators’ regimes,” RBI said.

As per the RBI, the Memorandum of Understanding (MoU) affirms the shared interests of both authorities in enhancing cooperation in accordance with their respective laws and regulations. The agreement is expected to facilitate the Bank of England (BoE) in evaluating CCIL's application for recognition as a third-country Central Counterparty (CCP), a prerequisite for UK-based banks to conduct transactions through CCIL.

In 2012, the European Union implemented new regulations for market infrastructure to fortify and safeguard systems in the aftermath of the global financial crisis.

These regulations stipulate that third-country central counterparties must receive approval from the European Securities and Market Authority (ESMA).

Notably, US-based banks are currently excluded from certain derivative products in India because the US Commodity Futures Trading Commission has not recognized CCIL as a derivatives clearing organization.