You'll be hearing from my lawyer: Blue chip companies placing more and more money to one side to fight costly litigation, with FTSE 100 legal provisions up by a fifth

Hayley Kirton
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Banks and financial services make up the bulk of legal provisions within the FTSE 100 (Source: Getty)

Firms in the FTSE 100 put aside £31.3bn between them last year in a bid to cover potential legal bills stemming from increasingly costly litigation, a study out today has found.

Legal provisions, which refer to money set aside to cover expenses such as legal costs, fines and compensation, among those in the blue chip index have risen by 22 per cent for 2015, up from the previous year's £25.6bn, according to research by Thomson Reuters legal business division.

Meanwhile, 16 constituents of the FTSE 100 now carry a legal provision of £250m or more on their books.

Read more: How regional law firms are giving City peers a run for their money

"While worries remain that regulation could be becoming too burdensome, we are seeing listed companies change their behaviour as a result of stricter rules," said Raichel Hopkinson, head of the Practical Law Dispute Resolution Service at Thomson Reuters. "Increasing pains are being taken to improve internal compliance functions and to put compliance front and centre of the business.

"Companies continue to invest heavily in their in-house legal teams – and compliance teams are seen as wielding as much authority within corporates as they ever have."

Much to the chagrin of many shareholders, banks and financial services companies make up the bulk of the total provisions figure, accounting for over half (57 per cent) of the money put aside. The sector has been plagued by a stream of scandals in recent years, including Libor rigging and PPI mis-selling, which has continued to drive up legal costs years after the financial crisis hit.

Read more: Watch out, big banks: The claims are coming

"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," Hopkinson added. "Imposing punitive fines on non-compliant banks is a big part of this."

However, the natural resources industry is clearly also predicting a fair few legal costs in the near future, accounting for a quarter (25 per cent) of the FTSE 100 legal provision, particularly as legal costs stemming from 2010's Deepwater Horizon tragedy continue to build for oil giant BP.

Meanwhile, the construction and construction materials sectors saw the biggest increase to its legal provisions, which rose to £251m, a fivefold increase from £54.1m in 2014.

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