The Financial Stability Board (FSB’s) policy recommendations on securities lending and repo at the end of August did not cause the big bang industry participants feared.

Indeed, the chairman of its Workstream on Securities Lending and Repos, David Rule, told Global Investor/ISF that the FSB was treading carefully to avoid unintentionally causing problems in the markets. “We want to get it right rather than move with undue haste.”

Indeed, minimum haircuts was one of the biggest concerns arising from last year’s consultation paper. The FSB has softened the blow and initiated yet another consultation paper on the matter.

The FSB’s calculated approach may appease the industry but it is only delaying the inevitable, perhaps creating additional unnecessary uncertainty.

One might wonder how much time and resources is wasted in analysing different sets of proposed rules only for them to be changed or watered down at a later date. But the updated recommendations raise new questions.

The head of regulatory affairs at an established industry entity said he was surprised the FSB had not taken a “clearly defined, quantitative approach” to minimum haircuts.

The FSB now acknowledges that creating a global repository is not ideal due to the legal obstacles around asking market participants for data. Introducing data warehouses at the national or regional level is more feasible, but this has been met with heavy scepticism – it could easily result in regulatory arbitrage and a lack of convergence would anyway create inefficiencies.

Several leading securities finance market participants have said a trade repository would only work properly if it were introduced at a global level, while others are in doubt that the information would even be useful for regulators.

The US market is anxiously waiting for the FSB work to be finalised as it will have a huge impact on Dodd-Frank article 984(b), which was supposed to enhance transparency in the securities finance markets but has been put to the side by the US regulator pending the recommendations.

One thing that should concern the industry is the shift in the FSB’s focus from haircuts to rehypothecation. This is especially the case as the G20 countries are attempting to take a coordinated approach and a leaked European Commission document revealed that the EU was considering restricting the length of “complex” chains of collateral.

Although the FSB does not propose this in its recommendations, it does want to know what kind of information would be needed to see what is happening in these collateral chains. It is obvious they are thinking about whether these chains could pose systemic risk.

The industry will hope that the words of respected IMF economist Manmohan Singh – who claims shortening collateral chains harms liquidity in the real economy and restricts the creation of credit – will resonate through the corridors of the FSB and beyond.