The Reserve Bank of India is working on alternative arrangements for banks whose local business would be hit if European market regulators withdrew their recognition of Indian central counterparties.

The RBI and the European Securities and Markets Authority are clashing over ESMA’s request to join the RBI in its oversight of Indian transactions.

The RBI said in its semi-annual financial stability report published on Thursday that the move would give foreign regulators “extraterritorial leverage”. “If all jurisdictions implemented such regulations, it could create a maze of parallel laws, with overlapping requirements or restrictions, and demonstrate a lack of trust in the ability and quality of oversight exercised by host regulators.”

The central bank said the RBI is in constant engagement with ESMA and other regulators to reach a mutually acceptable arrangement that recognises the geographical independence of host country regulators. “Remedial measures through possible alternative arrangements are being discussed with potentially affected entities,” it added.

European regulators have threatened to revoke the accreditation of six Indian clearing houses from May 2023. Following ESMA, the Bank of England has also warned that it will withdraw its accreditation of India’s Clearing Corporation from July 2023.

The impasse means BNP Paribas, Deutsche Bank and many other banks will need to unwind deals worth billions of rupees or pay higher capital to trade in India.