Banks’ global legal spending tops £200bn since 2010
Global banks spent more than £200 billion on legal outgoings between 2010 and 2014, according to a new study from the CCP Research Foundation.
The figures – which include everything from litigation costs and fines, to settlements and provisions – reveal that the 16 banks surveyed have generally upped their legal expenditure since the global economic downturn and recent scandals.
The overall total of £205.56 billion represents an increase of 17.65 per cent on the £173.22 billion spent in the five years to 2013, driven by a 66 per cent rise in fines, litigation and settlements in 2014. However, provisions – which refer to the future exposure risks faced by banks – dropped by £19 billion to £46 billion.
Although the majority of costs recorded by the study were tied to activity that occurred before the financial crisis, not all could be traced back to historic behaviour. For instance, outgoings connected to the Libor and forex manipulation scandals – both of which took place after the crash – illustrate that banks cannot merely blame their high legal costs on legacy issues.
Other factors leading to an upturn in legal costs over the study period included product misselling, sanction violations and failures associated with anti-money laundering policies.
The legal costs of individual banks
Looking at the legal expenditure of individual banks, it is easy to see where these significant increases have stemmed from. For instance, Deutsche Bank last year announced it spent around £283 million on legal fees in 2013 as a result of cases arising from the financial crisis. Finance chief Stefan Krause said the bank was involved in more than 6,000 cases.
Separately, three senior analysts told the Financial Times in March 2014 that five of Europe’s biggest banks – Barclays, Deutsche Bank, UBS, RBS and HSBC – were facing up to €10 billion (£7 billion) in litigation costs by the end of 2015 for alleged manipulation of foreign exchange rates and other legal issues.
The role of lawyers in helping banks avoid risk
Law firms have a vital part to play in helping banks steer clear of a wide range of risks, according to CCP’s research director Chris Stears.
“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 told the Law Gazette.
As such, it seems unlikely that banks’ current level of expenditure on legal services is going to decrease any time soon. Indeed, Kelvin Chapman – banking and financial dispute specialist at Manchester-based law firm Berg – said these “eye-watering” costs are set to remain for at least the next three years. https://www.berg.co.uk/
“This has to be considered against the backdrop of the continual findings by government bodies and multinational regulators, the imposition of ever-greater fines and the resulting claims brought against the banks,” Chapman noted.
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