Regulatory investigations up 17% year-on-year

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Regulation and litigation proceedings are sending costs soaring for UK and US businesses with many facing legal bills of more than $20m (€15m).

Increasing regulatory investigations shows no sign of abating, according to new research from law firm Fulbright & Jaworski International. The number of UK respondents reporting an increase in regulatory enquiries and investigations brought against their company over the past three years has risen to 44% from 27% in 2011. 

In the US, the figure remains constant, with 41% of US respondents again reporting an increase.  While 34% of UK respondents reported facing regulatory proceedings in the past 12 months (similar to last year’s figure of 35%), most expect the number of regulatory proceedings their company faces in the next 12 months to either increase (33%) or stay the same (50%).

Also up year-on-year, 86% of UK respondents had at least one claim brought against them this year compared to 47% to the previous year. Forty-five per cent of UK respondents had also faced legal proceedings worth in excess of $20m.

Fulbright & Jaworski partner Lista M Cannon said: “The financial crisis has meant that businesses of all sizes are confronted by a complex and widening landscape of increased regulatory activity.

“Pressure from regulators combined with the growing threat of whistle-blower allegations continues to concern respondents of the litigation trends survey. Unfortunately for them, this regulatory pressure is here to stay,” Cannon added.

Industry sectors most frequently facing investigations are healthcare (80%), manufacturing (73%) and energy (71%).  Only 48% of respondents in the financial services sector reported having retained outside counsel for assistance in government/regulatory investigations in the last year.

Larger companies (gross revenue of $1bn or more) appear to be particularly susceptible, with 52% reporting an increase in regulatory inquiries or investigations against their company in the last three years.

The regulators most frequently named by UK businesses facing regulatory proceedings included:

  • Financial Services Authority (38% - an increase from 15% in 2011)
  • Competition Commission (13% - down from 15% in 2011)
  • Office of Fair Trading (13%)
  • Serious Fraud Office (13% - up from 8% in 2011)
  • Bank of England (13%).  Eight out of ten (80%)

Incidents of whistleblowing have also risen dramatically over the past few years. Thirty-seven per cent of UK respondents (and 26% of US respondents) have been subject to allegations by a whistleblower, up from 21% in 2011, 13% in 2010 and 6% in 2009. 

Fulbright’s global litigation practice group partner Chris Warren-Smith said: “The UK is catching up with the US in its exposure to regulatory issues and the involvement of regulators as a result of whistleblowers, which is interesting given that there is no general ‘bounty’ regime in the UK. 

“Indications are that whistleblowing is now the most significant identifiable driver of the increased incidence of regulatory and internal investigations. The way in which businesses handle allegations of whistleblowing and the issues that then arise is more important than ever before.”