Top UK-listed companies under intense regulatory scrutiny are setting aside more cash than ever before for anticipated legal bills, according to latest research.
Thomson Reuters says FTSE 100 companies set aside £31.3bn last year - up nearly £6bn on the previous year - for expected legal costs, regulatory fines and court-ordered compensation.
The banking sector accounted for more than half of the provision for legal liabilities, with £17.4bn set aside last year, compared with £13.7bn the year before.
Ongoing legal and regulatory disputes faced by UK-listed banks include claims in relation to alleged LIBOR and FOREX manipulation, and alleged PPI misselling.
Raichel Hopkinson, head of practical law dispute resolution at Thomson Reuters, said regulators have continued to come under pressure from the government to promote and enforce a culture of compliance and accountability.
‘However, the tens of billions of pounds that banks have had to pay in legal bills since 2007 is only one part of the price paid for misconduct,’ she added.
‘The extremely long and thorough public investigations being carried out into suspected transgressors are also incredibly damaging from a reputational point of view. In the long term, the impact of reputational damage may be far greater than any fine or compensation payment.’
The natural resources sector (oil, gas and mining companies) accounted for the next biggest share of predicted legal liabilities, with provisions totalling £7.9bn.
Construction and construction materials sectors had the steepest increase, with legal liability provision jumping from £54.1m in 2014 to £251m last year.
Thomson Reuters says investigations into anti-competitive behaviour were behind the increase in provision for leisure and tourism companies – from £115.7m in 2014 to £288.7m last year.
Meanwhile, 16 FTSE 100 companies reported having provisions of at least £250m.
Hopkinson said: ‘While worries remain that regulation could be becoming too burdensome, we are seeing listed companies change their behaviour as a result of stricter rules.
‘Increasing pains are being taken to improve internal compliance functions and to put compliance front and centre of the business. Companies continue to invest heavily in their in-house legal teams – and compliance teams are seen as wielding as much authority within corporates as they ever have.’