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The financial services sector has seen more than its share of upheaval and regulatory shake up in the UK and overseas over the last few years. Michael Sholem, Special Advisor, European Financial Regulatory Affairs at Slaughter and May, looks at trends for the future in the sector.
What does the future of the financial services sector look like?
In the EU, the increasingly intrusive and complex nature of EU financial services legislation will have a material effect on the business models that will be used in the future.
At a global level, it seems likely that the large universal banks will continue to dominate, although they will have to adjust their structures and business models in order to adjust to regulatory requirements and initiatives designed to reduce systemic risk, and have detailed procedures in place for orderly recovery and resolution.
Smaller financial services firms will have significant challenges and opportunities in the future. In terms of opportunities, some of the activities which have drawn or will draw too much regulatory "heat" may be abandoned by global financial institutions, leaving the field to smaller, more focused firms. That being said, smaller firms are faced with a wall of extra regulation designed to improve transparency and risk management which may well make operating in the EU more expensive.
The perimeter of the regulated sector will also continue to expand as energy, commodity and other non-financial firms will be forced into a closer relationship with financial regulators than has historically been the case.
What business models are likely to be adopted/developed and why? What could the advantages/disadvantages of this be?
Although the UK government has moved to encourage branch activity in London by Chinese banks, the push for ‘subsidiarisation’ in the banking sector looks set to continue.
New regulatory standards mean that business models which can exhibit prudent business practices and transparent behaviour in markets will be rewarded with lighter capital burdens and less risk of enforcement action. In practice this means:
• a larger percentage of operating cos
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