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2012 vision: Increased regulatory exposure looms

Wednesday 25 January 2012 – by Lista M Cannon and Chris Warren-Smith

Just below 40 per cent of respondents in the financial services sector instructed outside counsel for assistance with a government or regulatory investigation in 2011, consistent with 2010 figures and a continued sustaining the increase from 2009.

The conduct of internal investigations by UK businesses remains a common feature, with 30 per cent of financial services businesses reporting having conducted an internal investigation in 2011. One in five UK companies who conducted an internal investigation with the assistance of outside counsel went on to report the matter to a regulator.

Whistleblowing allegations continue to have a significant impact and lead to serious consequences. Just over one-fifth of businesses in the financial services sector reported having been subject to whistleblower allegations during the last three years.

The trend for increased exposure to whistleblowing continues to rise. In 2011, one fifth of UK respondents reported having been subject to whistleblowing claims in the last three years, up from 13 per cent in 2010 and a threefold increase since the 2009 survey when 6 per cent of UK respondents reported having been on the receiving end of whistleblowing allegations in the previous three years.

The consequences of these allegations are serious: 40 per cent of UK respondents stated that whistleblower allegations led to an internal investigation, 20 per cent reported a regulatory investigation and 33 per cent reported that third party proceedings followed. Over half of all respondents were subjected to third party proceedings as a result of whistleblower allegations, an increase from 46 per cent in 2010.

Further enhanced supervision, pressure on regulators from the public, press and government for tougher regulation, and significant enforcement including increasing penalties seem set to form the prevailing financial regulatory climate in 2012.

Consequently, financial sector businesses, together with their advisers, will need to devote significant time and resources to managing and handling legal and regulatory proceedings as efficiently as possible. Greater cross-border co-operation between regulators suggests that financial sector businesses will need to be ready to handle these matters on an international scale.

Lista M Cannon and Chris Warren-Smith are partners in the global disputes and investigations practice at Fulbright & Jaworski International LLP in London.

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