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‘The worst is over’: S&P report predicts end for mega regulatory fines for banks

As the UK bank reporting season gets into full swing, a new study says the era of fines, compensation and other legal expenses on the banking industry could be drawing to a close.

Earlier this week, Standard & Poor’s (S&P) said 2016 ‘will likely be the last year for mega conduct and litigation issues’ among the UK’s four biggest banks Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland.

The banking quartet has so far paid a collective £55.8bn between 2011 and 2015 which has represented a ‘significant drag on earnings.’ The figure constitutes 9% of the banks’ revenues over the period and 90% of all conduct and litigation charges for the UK banking system.

S&P also predicted the four banks will face additional charges of £19.5bn over the next two years. That figure stood at £14.6bn in 2015 alone. The costs relate to allegations of traders at the leading banks rigging the Libor and £3 trillion-a-day foreign exchange market.

In a statement S&P said: ‘While new conduct issues may emerge, we expect total conduct and litigation charges to gradually subside from 2017, though we acknowledge the timing of such charges is uncertain given the complex nature of legal settlements.’

The agency did warn however that timing of any fines or compensation payments was difficult to predict and drawn out legal action could result in banks continuing to pay fines into the last few years of the decade.

Herbert Smith Freehills disputes partner Damien Byrne Hill (pictured) told Legal Business he expects the amount banks will pay will go on a ‘downward spiral’ by 2017.

He added: ‘However, the problem is that other issues will arise as the regulatory landscape toughens and what that will entail is unknown. You can count on the Financial Conduct Authority continuing to scrutinize the banks’ conduct and compliance agendas. However, I take the optimistic view that the worst is over and that legal fees won’t be as high as they have been recently.’

In the first quarter of this year many banks including Lloyds, HSBC, Standard Chartered and RBS upped their provisions for settlements and legal claims.

Read more about financial regulation in the insight piece: ‘The end of the tunnel – litigation and regulatory challenges in financial services’