Convergence in the Financial Services Industry

Abstract

The ®nancial services industry is undergoing drastic changes. One of the main challenges for managers of ®nancial institutions as well as for regulators and supervisors is the growing convergence between different sectors within the ®nancial services industry. In this paper, we present some general observations and recommendations. We hope that these recommendations help in fostering innovation and prosperity, without neglecting the important conditions of a stable and reliable ®nancial sector. This is an important message to both supervisors and regulators in the ®nancial services industry. An optimal regulation and supervision can only be guaranteed if there is a good balance between the measures to guarantee a stable and reliable ®nancial sector on the one hand and the need for safeguarding suf®cient competition and innovation on the other hand. This is not a simple task, especially because there is no single answer to this complex equilibrium. However, adequate regulation and supervision is only possible if there is a clear understanding of the market reality. There, regulators and supervisors will have to accept that they will always ` lag behind'' the business innovations, and that market forces will always try to ®nd ways to circumvent (restrictive) legislation. The ®nancial convergence is, as we will show later, a perfect example in this respect.