The Financial Services Sector: Past Changes and Future Prospects

The financial services industry has been undergoing significant change in recent years. This paper analyzes some key developments affecting the industry and examines some important issues facing the industry and its regulators. Changes discussed include the way services are provided, the instruments used to provide services, and the nature of the financial service providers. Factors driving these changes include technological developments, the changing role of competition, and demographically led changes in household portfolios. These changes raise challenges for the financial services industry. Among the most important are determining what services and products to offer as well as the best size for providers. With the evolution in the financial services industry, policymakers and regulators also face challenges: the relative use of disclosure and market discipline versus direct supervision; the potential role of functional regulation; the role of non-regulated financial service providers; changes in the current supervisory process; cross-border transactions; and the impact of new developments on the legislative framework governing financial service providers.