What is the financial services industry?

Lorna Stephen is a senior solicitor at Burness Paull, specialising in financial regulation. 

Whether you’re looking for a career in financial services, or simply want to know more about what it is, we’ve put together a quick overview of financial services and how it impacts everyone’s lives.

If you’re starting this article thinking that you don’t know anything about financial services; you’re wrong.  All of us have a number of financial services products and use financial services on a day to day basis.  Every time you make a payment, this generates a financial services transaction – whether that is a contactless payment on your phone, an ASOS haul using buy-now-pay-later services or renewing your car insurance.

But what is financial services?  Simply put, financial services is any service which deals with the exchange or management of money.  This can be through a pension (which many adults will have due auto-enrolment), investment products like ISAs, insurance, and day-to-day banking.  Whilst these are the more traditional aspects of the sector, financial services is an area that is constantly evolving with fintechs coming up with new ways to provide services to customers and disrupt the status quo.

SFE’s members include a variety of different financial services companies, and accountants, law firms and other professional service firms who provide services to these companies, rather than end consumers.  You’ll see the word ‘consumer’ come up often when looking at financial services – this refers to a customer or client of an organisation who ultimately uses the product or service on offer.

The regulators applicable will depend on the sub-sector, but broadly speaking, the Financial Conduct Authority (‘FCA’) and the Prudential Regulation Authority (‘PRA’) are the key regulators for UK financial services.  These separate bodies used to be a single regulator, however, their role was split in the wake of the financial crisis of 2007-8.  The PRA ensures that financial services companies are solvent and run in a way that is financially sound, whilst the FCA ensures that they are run in a way which is fair and achieves good outcomes for consumers.

These regulators want to protect and enhance the integrity of the UK financial system while providing an appropriate degree of protection for consumers with bank accounts, credit card, pensions and any other financial services products and services. Given how important financial transactions are, it is important that all service users are protected, and this is one of the key goals of the regulators in the financial services sector. One way in which they do this is by giving financial services companies permission to undertake specific activities, to allow them to monitor how regulated companies are operating.

So where do you find the rules?  The financial services sector is complex because the products or services being purchased aren’t tangible and a product or service may be designed with a wide range of outcomes in mind.  The large amounts of money involved in some financial products also increases the risk to consumers if things don’t go to plan or if bad actors attempt to defraud the consumer. Regulators need to keep on top of this and ensure the rules continue to evolve in an ever-changing world driven by a high rate of technological change.  You can find the FCA and PRA rules in the Handbooks on their websites, but both organisations are regularly consulting on key industry issues. Paying attention to these topics is an excellent way of keeping up to date on upcoming changes in the financial sector.

Another key part of the financial services industry is the Bank of England (BoE).  The BoE is a key actor in setting monetary policy for the UK.  This means that they may impose measures to promote the sustainable growth of the UK economy.  One of the ways in which it does this, is by amending the base interest rates to ensure that the market is growing at a sustainable rate.

The financial services industry in the UK is diverse, with a number of key stakeholders even beyond those I’ve been able to mention here, but this should hopefully give you a flavour of the sector which we all contribute to whilst simply going about our day-to-day lives.  If you’re keen to learn more about the financial services sector, sign up to our emails to keep up to date with the latest SFE Young Professionals events.

Don’t fall into the trap of thinking the financial services industry is only for Maths and Economics graduates.  The Scottish financial sector is incredibly varied and to compete on an international stage, it needs people from all backgrounds and academic disciplines to work together to support the growth of the industry.  If you want to find out more about the routes each of our committee members took in their careers, you can find out more here