Banks and building societies are exploring new opportunities afforded by advances in financial technologies as the sector suffered a further dip in confidence.
Research by CBI/PWC found optimism levels within the financial services sector deteriorated in the final quarter of 2016.
The downturn was the sharpest since December 2008 and marked a full-year in which confidence levels have continually fallen.
The survey of 103 firms found the pessimistic mood was particularly prevalent among the banks, with general insurers and finance houses also impacted.
The downbeat tone came despite signs of improvement in business conditions in a number of sectors.
Overall, business volumes and profits in the final quarter were flat, but the report’s authors said they expected both to improve in the coming months.
Banks flagged the impact of Brexit as their main concern for the months ahead while building societies said macroeconomic uncertainties were playing on their collective minds.
Companies are also now exploring opportunities within the emerging FinTech (financial technology) market.
“As we head into the New Year, a mixed picture emerges from financial services firms about their hopes and fears,” Rain Newton-Smith, CBI chief econonomist, said.
“Whilst Brexit is a particular challenge for banks, and broader economic uncertainty is also a concern for many, firms are also looking to future opportunities, with the promise of FinTech offering an exciting chance for the sector to lead the way in adopting new technology and boosting productivity.
“Ruling out membership of the Single Market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU.
“Businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU.”