FTSE 100 sets aside £31.3bn as legal bills continue to soar

FTSE 100 companies have set aside £31.3 billion in the last 12 months to meet legal claims – a 22 per cent increase from the £25.6bn set aside the previous year, according to the legal business of Thomson Reuters.

This provision represents expected legal costs, regulatory fines and compensation ordered by the courts, for example, for PPI misselling and Deepwater Horizon.

The financial services sector’s anticipation of a further hike in lawsuits, fines and compensation are behind much of the sharp rise, with banks seeing the largest increase in provision for legal liabilities, up 27 per cent to £17.4bn from £13.7bn.

The increase means that the banking sector now accounts for 56 per cent of total provision for legal liabilities among FTSE 100 companies (up from 53.6 per cent in 2014).

The natural resources sector (oil & gas and mining companies) accounts for the next biggest slice of anticipated legal liabilities: 25.1 per cent 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,” explained Raichel Hopkinson, head of the practical law dispute resolution service at Thomson Reuters.

“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.

“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,” she added.