Major companies throughout Europe are increasingly worried about the threat from regulators - so much so that 40% believe they will be investigated within the next 12 months.

Major companies throughout Europe are increasingly worried about the threat from regulators - so much so that 40% believe they will be investigated within the next 12 months.

The findings, from a survey of 250 leading European firms for the legal services organisation DLA Piper, show that companies consider regulatory risk management important to their business strategy, but are failing to manage the risk effectively, according to a survey published today.

The survey also shows that a large number are failing to put adequate measures in place to protect themselves.

Companies also have a huge blind spot when it comes to putting in place mechanisms to protect their reputations in the event of investigation.

The survey also revealed that:

  • 75% of the companies surveyed believe that company directors' personal exposure to the punitive consequences of regulatory breaches is likely to grow over the next five years

  • 76% of respondents believe that the risk of criminal penalties for regulatory breaches will continue to grow over the next five years

  • 25% of the major European companies surveyed do not have any procedures at all in place to deal with a regulatory investigation.

    Contrary to companies' beliefs that they are managing their risk, the survey also reveals substantial gaps in European companies' understanding of the powers of regulators.

    For example:

  • 67% of respondents are not aware that their competition regulator has the power to enter by force

  • 63% of respondents do not know that their competition regulator can suspend or cease their company trading at will.

    Neil Gerrard, global head of the Regulatory and Government Affairs Group at DLA Piper, said: "Regulation is on the increase and the consequences are more real than ever before. Companies are facing huge fines. Directors are facing extradition, imprisonment and/or fines. Companies need to be aware of and manage this risk. They owe it to themselves and their shareholders.

    "It is clear that businesses are starting to take the threat they face from regulators more seriously. However, they are still largely unprepared for the consequences of serious regulatory breaches.

    "Companies need to be able to manage and respond to domestic and EU regulation and, increasingly, the long-arm of the US authorities. However, our survey clearly shows that they are failing to put in place a comprehensive response to managing these risks. They are putting themselves in grave danger by failing to address these problems."

    The survey shows that 51% of the companies surveyed have no crisis management plan at all and 47% of respondents with crisis management plans in place do not include procedures to deal with a Competition Authority investigation.

    Neil Gerrard added: "The statistics on the lack of crisis management plans are shocking. An investigation by a competition authority, for example, can result in fines worth 10% of a company's turnover. The company can also be forced to sell off parts of its business. Such events can, without careful handling, irreparably damage a company's reputation and financial position.

    "Firms across Europe need to address all potential areas of risk in order to manage that risk as effectively as possible.

    "Breaches are inevitable. The best run companies will, from time to time, get it wrong. What is important is having good compliance programmes and managing the breaches as and when they occur.

    "Our survey reveals that European businesses must work harder to ensure they have the key elements in place to ensure effective regulatory risk management: dedicated teams, compliance programmes, investigation procedures and crisis management plans that are regularly tested."

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