In dual releases published on January 25, 2017, the Financial Stability Board (FSB) expressed concern that re-use of collateral and re-hypothecation of client assets may pose financial stability issues. The financial crisis demonstrated that collateral re-use and re-hypothecation can transmit and amplify shocks to financial markets. While regulators have responded and prime brokers and clients have improved their risk management and practices since the crisis, the FSB has formulated recommendations to address residual financial stability risks associated with collateral re-use. In these releases, the FSB finalizes its data collection plans, and also explores whether uniform implementation of its recommendations is truly necessary, or whether a more flexible principles-base approach might be more effective. 

Some optimisation techniques are still taking shape due to a lack of clarity around new regulations. However, some elements must naturally precede others before it is possible to reach the next level.

Post crisis regulatory changes have had dramatic effects on the landscape of collateral management, and amplified greatly its importance from a risk management, funding cost, and operational standpoint. As a result, financial institutions across the globe are overhauling their collateral management processes to deal more effectively with the new market for collateral. Traditionally, the concept of "collateral optimization" was limited to examining what is cheapest to deliver, assigning costs to collateral assets, mapping eligibility criteria, and centralizing collateral across business lines. But as a new white paper from 4sight Financial Software points out, in the new regulatory climate and collateral marketplace, effective optimization now requires a much more dynamic and custom-made approach. According to the report entitled, 'Collateral Optimisation: Beyond Cheapest to Deliver and the Big Red Button,' authored by Martin Seagroatt, head of global marketing for 4sight Financial Software, a ‘one size fits all approach’ to collateral optimization is doomed in this environment, and effective optimisation must now be tailored to the unique strategy and business model of each firm.  The 4sight paperpaper gives an overview of the latest techniques used to optimize collateral and discusses some of the limitations of collateral optimization. It also provides a list of questions financial firms should ask when implementing a collateral optimization project.