Jerome Powell and the Federal Reserve recently announced yet another 75-basis point rate hike, raising the central bank’s fed funds rate between 3.75% and 4%. Powell also signaled potential smaller rate hikes in the future, but that interest rates may ultimately rise higher than initially projected. This fourth consecutive 0.75-point increase by the Fed, shows their continued commitment to taming inflation and restoring price stability.
As the economy’s condition tightens, businesses continue to struggle with rising costs, falling asset prices, and changing consumer behavior. This creates an imperative for investment firms to take the necessary steps to efficiently operate in a “higher-for-longer” environment. Most managers look towards short-term actions such as price adjustments and managing input costs to combat shrinking margins. However, for firms to truly maintain a resilient business model, they must focus on investment into structural changes that drive long-term value.
Financial compliance proves one of the best longer-term investments firms can make. Compliance failure has turned into the costliest risk to financial firms, as demonstrated by a recent fine totaling $1.1 billion being imposed on 15 broker-dealers and one affiliated investment advisor back in September. Financial service industries have the highest liability to data and compliance failures and as a result require larger and more targeted investments into proper compliance. The Risk Management Association found that organizations spend between 6% to 10% of revenue on implementing and maintaining compliance. These costs may seem high but when compared to recent penalties of $125 million endured each by Barclays, Citigroup, Morgan Stanley, and others, the cost is more than justified. Not to mention, these penalties don’t include the money lost to business disruption, productivity loss, and overall reputational damage.
The cost of non-compliance is only exacerbated by rising interest rates and stubborn inflation, making it vital for companies to take the initiative in maintaining their compliance.
Our team at IMP has been delving into customized solutions for our clients to stave off risk and potential damage. We have begun deploying our CLEAR ComplianceTM software to accelerate projects and implement transparent, adaptable solutions. In the meantime, we’ll all be keeping an eye on the Federal Reserve to see how fast they continue to respond to the economy.