Japanese banks get home regulator's nod to settle all trades via CCIL

Japanese banks have received a go-ahead from their country's regulator to deal with the Clearing Corporation of India (CCIL) for settling all transactions, The Economic Times reported on Thursday.

This move by the Japanese regulator may put pressure on a few overseas regulators, including the European Securities and Markets Authority (ESMA), to soften their stand against India. 

ESMA and Bank of England (BoE) have derecognised CCIL.

With this move, Japanese bank branches in India can now use CCIL and experience better operational flexibility and lower capital requirement. For the first time, they will be able to cut interest rate derivative deals with CCIL as the central counterparty (CCP). 

The trades are likely to commence within a week, the report said.

Japanese banks MUFG, Mizuho and Sumitomo Mitsui Banking Corporation are operational in India. 
Until now, these banks used CCIL for foreign currency forwards and government bond trades but could not use it for all kinds of trades. 

In December 2022, the Reserve Bank of India and Financial Services Agency, Japan (JFSA), agreed to improve mutual cooperation on the issue of CCPs.

The RBI and European financial regulators are at loggerheads due to the latter’s demands which the Indian central bank believes is extra-territorial. The RBI is unwilling to accept ESMA’s demand to inspect and penalise key Indian institutions like CCIL, which acts as central counterparty (CCP).

However, bankers feel ESMA may now want to revisit its stand.

European banks have not said what they would do if ESMA and RBI failed to reach an agreement. To end the stalement, the RBI is reportedly inclined to allow European banks to trade in government securities and carrying out custody businesses via their locally incorporated non-banking arms.