RBI: Holding firm | Photo Credit: SHASHANK PARADE

The extended stand-off between the European Securities Markets Authority (ESMA) and the Reserve Bank of India (RBI) has come to an amicable end — without compromising the stature or autonomy of Indian regulators and institutions. This could lead to a turnaround in investment ties between India and EU. ESMA has recognised Clearing Corporation of India Limited as a Tier 1 third country counterparty under European regulations. This allows clearing corporations, banks and investment companies from the EU region to clear their transactions through CCIL legally. Transaction costs for these entities will fall, paving the way for increased investments into India. Notably, the recognition does not allow the European markets regulator to oversee Indian clearing systems, thereby affirming the latter’s robustness.

The impasse began in 2023. RBI turned down the European regulator’s demand that Indian clearing corporations be monitored, supervised and audited by ESMA, as mandated by the European Markets Infrastructure Regulations. Thereafter, Indian clearing houses were derecognised. Indian regulators naturally took objection to this demand, as it seemed to cast doubts on their supervisory capabilities — besides the prospect of allowing external regulators access to sensitive financial data. Even as the stalemate dragged on till late 2025, it is praiseworthy that RBI stood its ground. Meanwhile, European banks and investment companies witnessed a spike in their clearing cost due to the derecognition. A solution was arrived at during the EU President’s visit to India in January, when RBI and ESMA signed a memorandum of understanding in this regard. The MoU states categorically that ESMA will rely on the regulatory framework of the RBI — thereby recognising that the RBI remains accountable in India for the activities of clearing corporations.

This recognition will go a long way towards improving cross border financial transactions between India and the EU. Institutions in the EU experienced an increase in transaction cost while clearing their deals through CCIL between 2023 and 2025. Dealing with a de-recognised clearing counterparty warrants higher risk buffers under EU regulations. Finding alternative routes for clearing money market, foreign exchange or bond investments turned out to be expensive. CCIL’s recognition will be welcomed by global bond fund managers, who have ploughed money into India despite the rupee’s weakness. Renewed flows will help support the rupee in these unpredictable times.

While FPIs have pulled out ₹2.68 lakh crore out of Indian equity markets so far in 2026, they have net purchased Indian debt securities amounting to ₹72,128 crore. Given the higher yields in India, global investors appear to be viewing Indian debt quite favourably. Along with the recent exemptions provided to FPIs from capital gains tax and tax on interest income from debt investments, enabling the CCIL to clear investments from EU will further promote investment flows.

Published on July 9, 2026