Large companies worry most about spiralling litigation

Research by global law firm Fulbright and Jaworski LLP has found that up to 43% of large organisations expect an increase in disputes, with some in the financial services sector expecting a 50% increase.

Although business conditions have changed dramatically since the responses were submitted in July, Chris Warren-Smith, head of international financial services disputes at Fulbright, says the 2008 survey marks an interesting tipping point.

“The warning signs were already out there that the economy was about to shift into bear mode, a concern reflected by in-house lawyers who are bracing themselves for an increase in legal disputes,” he says. “The larger the company, the more concerned it is about the prospects of facing more litigation.”

Warren-Smith says the survey also highlighted concern about the one size fits all approach adopted by the Financial Services Authority (FSA).

“The problems have been most acute within the investment banks, followed by retail banks and building societies,” he says. “The concern the whole industry has is that there will be a backlash and that it won’t be managed in such a way that it allows for the independent financial advisers, wealth managers and stockbrokers to operate efficiently.”

Meanwhile, Tony Brown of Bivonas Solicitors says there is a strong case for outsourcing regulatory work to nonconflicted specialist law firms.

“Within four months of the director of enforcement at the FSA announcing that the body had three insider dealing prosecutions with more in the pipeline, world banking is on its knees,” he says.

Brown adds that one solution would be to outsource enforcement to the private sector, in particular to sub-contract the enforcement to non-conflicted specialist law firms. “This already happens in Australia and is extremely effective,” he adds.

A privatised external agency given an incentive to secure results would, Brown feels, be the best way to bring transgressors to heel and shake off the “civil service culture of regulation”.