When you hear the term “Financial services,” you probably picture banks, brokers and mortgage lenders. But there’s much more to the industry than that. In its broadest sense, the financial sector encompasses everything that has to do with money—not just saving and lending but investing, insurance and redistribution of risk. And it’s not just for individuals: the sector also provides small businesses, large companies and even governments with their necessary financial services.
The financial sector is made up of depository institutions, like savings and checking accounts; credit-granting organizations, such as banks, building societies or mortgage banks; credit unions or credit cooperatives; insurance companies; investment firms; and any other company that engages in financial intermediation or asset management. It also includes brokerage firms that connect buyers and sellers of securities such as shares, bonds, options and mutual funds for a fee called a commission.
In addition to the many professional firms that make up the financial services sector, there are also thousands of nonprofits that provide counseling services and other money management advice. These nonprofits often work in partnership with the larger for-profit companies that are part of the sector.
Because the financial sector is based on trust, it relies heavily on government regulation to ensure fairness and transparency between providers and consumers. These regulations typically include licensing, supervision and oversight, which varies by country. They also often involve laws on antitrust, competition, consumer protection and more. They are meant to ensure that markets operate in a way that benefits the public and encourages competition, efficiency and innovation.