Corporate compliance functions can be expected to receive yet further investment with the news that FTSE100 companies have set aside an incredible £31.3bn to meet legal claims in the last 12 months – a 22% increase from the £25.6bn set aside in the previous year.
Research from the legal business of Thomson Reuters reveals that this provision represents expected legal costs, regulatory fines and compensation ordered by the courts, for example, for PPI mis-selling and Deepwater Horizon.
The financial services sector’s anticipation of a further hike in law-suits, fines and compensation is behind much of the sharp rise, with banks seeing the largest increase in provision for legal liabilities, up 27% to £17.4bn from £13.7bn.
The natural resources sector (oil & gas and mining companies) accounts for the next biggest slice of anticipated legal liabilities: 25.1% of the £31.3bn total, with legal provisions of £7.9bn.
“In the last twelve months regulators have continued to come under pressure from the government to promote and enforce a culture of compliance and accountability. Imposing punitive fines on non-compliant banks is a big part of this,” explains Raichel Hopkinson, Head of the Practical Law Dispute Resolution Service at Thomson Reuters.
She added: “Increasing pains are being taken to improve internal compliance functions and to put compliance front and centre of the business.”
The steepest percentage increase in provision for legal liabilities was among construction and construction materials companies and tourism companies hit by investigations into anti-competitive behaviour.