RBI’s Agreement with Bank of England for CCIL Matter
- December 11, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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RBI’s Agreement with Bank of England for CCIL Matter
Subject : Economy
Section: Monetary Policy
- Recognition of RBI’s Regulatory Role:
- RBI Governor Shaktikanta Das highlighted the agreement with the Bank of England during the recent monetary policy statement.
- The agreement recognizes the RBI as the principal regulator of Clearing Corporation of India (CCIL).
- It affirms mutual respect for each jurisdiction’s current regulatory regime and supervisory practices.
- Resolution of Regulatory Ambivalence:
- The agreement aims to bring an end to regulatory ambivalence regarding CCIL.
- It addresses doubts raised on India’s regulatory capabilities by affirming the regulatory role of the RBI.
- Assessment of UK Banks’ Use of CCIL:
- The agreement facilitates the Bank of England in assessing whether UK-based banks can utilize CCIL for settling transactions in Indian government bonds, foreign exchange, and derivative markets.
- Guidance for Other Regulators:
- The agreement sets an example for other regulators, including the European Securities Markets Association (ESMA), on resolving contentious issues related to the external supervision of Indian clearing corporations.
- Resolution of External Supervision Dispute:
- Over the past year, ESMA and Bank of England had set a deadline for derecognizing Indian clearing corporations regulated by RBI, SEBI, and IFSCA.
- The agreement signifies a resolution to the dispute, emphasizing the regulatory competence of Indian clearing corporations.
- Superiority of Indian Clearing Corporations:
- The agreement reinforces that Indian clearing corporations are superior to their European counterparts in terms of risk management and investor protection.
- Indian clearing corporations operate as independent entities with robust settlement guarantee funds.
- Concerns About Data Access:
- Indian regulators have expressed concerns about data access provided by external rules, emphasizing the need to safeguard data privacy.
- Global Implications:
- The agreement has global implications, signaling that jurisdictions may not be willing to adhere to external regulatory demands.
- European banks facing restrictions may lead to a shift in business to banks in the US or Asia.
- RBI’s Assertive Response:
- The RBI’s assertive stance in calling out the aspersions on Indian regulators and securing the agreement with the Bank of England is commendable.
- The agreement serves as a model for similar agreements with other regulators.
- Model for Future Agreements:
- The agreement with the Bank of England is expected to serve as a model for future agreements with other regulators, providing a framework for addressing regulatory issues.
Clearing Corporations (CC):
- Definition:
- Clearing Corporations (CC) are organizations associated with financial exchanges that facilitate the confirmation, settlement, and delivery of financial transactions. They play a crucial role in ensuring the smooth functioning of financial markets.
- Functions of Clearing Corporations:
- Confirmation: Verifying the details of a trade or transaction.
- Settlement: Ensuring the actual exchange of assets and funds between parties.
- Delivery: Facilitating the transfer of financial instruments or commodities.
- Examples of Clearing Corporations in India:
- In the context of Indian financial markets, some examples of Clearing Corporations include:
- The Clearing Corporation of India Limited (CCIL): Handles clearing and settlement for various financial instruments.
- Indian Clearing Corporation Ltd (ICCL): Associated with the BSE (Bombay Stock Exchange).
- In the context of Indian financial markets, some examples of Clearing Corporations include: