Global banks have devoted more than £200bn to legal outgoings since 2010 - an annual spend roughly the size of Luxembourg's GDP - new research has revealed, highlighting a trend of growing spending since the financial crisis and market manipulation scandal.
According to an annual study published by the CCP Research Foundation, the costs of litigation, fines, settlements and provisions for 16 global banks for the five-year period running to the end of 2014 totalled £205.56bn.
This was an 18% rise since the previous five-year period to 2013, when spend totalled £173.22bn.
The rise reflected a 66% jump in fines, litigation and settlements in 2014 compared with the year before. But provisions, which indicate the future exposure risk banks face, fell to £46bn from £65bn.
The majority of the costs related to practices at the banks that existed before and during the financial crash, but costs related to Libor and FX manipulation scandals, which took place many years post-crisis, showed that the high legal costs were not purely ‘legacy’ issues from the crash.
Sanction violations, product miss-selling and failures relating to anti-money laundering policies also contributed to the higher banks’ costs.
Chris Stears, research director at the foundation, said law firms would continue to be ‘indispensible’ in navigating these risks banks face.
‘With the impending senior managers regime [which clarifies the responsibility at the top of banks] to name just one issue, law firms will need to be ready to anticipate tomorrow’s risk and assist their clients in navigating the quagmire of regulatory change before it manifests itself as conducts costs,’ he said.
Banking and financial dispute specialist Kalvin Chapman, of Manchester-based firm Berg, described the increase as ‘eye watering’, but warned that costs are likely to remain high for at least the next three years. ‘This has to be considered against the backdrop of the continual findings by government bodies and multi-national regulators, the imposition of ever-greater fines and the resulting claims brought against the banks.'