UK Financial Services Disputes Up

by Robin Pilgrim, LawAndTax-News.com, London

01 June 2011

In the post-crisis period, the number of financial services disputes handled by law firms have increased, and, as economies continue to recover, the continuation of this trend seems inevitable, according to new research carried out by KPMG.

KPMG questioned over 70 significant law firms in 16 countries, on their views on the litigation landscape within the financial services industry, pre and post the 2007 crisis.

Among the key findings were:

• The UK is broadly in line with global trends for the types of disputes which appear to be on the increase, including the proportion of financial services disputes that relate to mis-selling and contentious valuations which have both increased by at least 50%.
• However, the expected large-scale growth of disputes has yet to happen both in the UK and across the world, which may reflect the slower than expected economic recovery in the UK and many other parts of the world.
• While globally, fraud cases dropped by 35%, in the UK, they saw a proportional 25% rise, from 15% to 19%.
• Breach of contract disputes as a proportion of total disputes handled fell from 47% to 36%, with the disputes landscape becoming increasingly more challenging.
• The proportion of hedge fund related disputes rose from 9% in the pre-crisis period to 15% in the UK, and globally from 4% to 7%. KPMG notes that hedge fund managers in the wake of the crisis are under increasing attack from parties seeking the recovery of losses.
• Comparing the three year periods on each side of the credit crunch, the survey shows that disputes with a value of more than GBP10m (or the currency equivalent), had risen by 6%, to 35%.
• In the three-year post-crunch period, the proportion of law firms engaged in more than 50 financial services disputes rose from 28% to 44%.
• There has been a swing away from the courts towards arbitration as a means of settlement, with a 7% increase in arbitration procedures in the UK, compared with 4% globally. This, KPMG says, reflects the increasingly international nature of disputes.
• The biggest increase in disputes was seen in countries where the financial crisis was felt the least, and recovery was fastest.
• As economies continue to recover, the rise in the volume of disputes will inevitably continue, especially around complex financial instruments, claims brought by financial regulators, actions to recover losses from fraud/misconduct, and disputes over smaller entities or individuals.

Commenting on the findings, Kathryn Britten, UK Chairman, KPMG Forensic, said: “While the increase in disputes in the financial services sector in the UK and globally has been on a steady increase, there is no doubt that the predicted high volume growth has yet to materialise. However, as our research has shown, claimants are choosing their battles carefully – fighting where the values at stake are highest – particularly when this may mitigate against reputational risk.”

Britten added: “As the world’s economies continue to recover, and with greater focus on regulation, the increase in financial services disputes seem set to continue to for quite some time.With so much to consider in terms of both potential losses and risk to reputation, the stakes are higher than ever and parties will increasingly opt for more private and cost effective methods of resolution, such as arbitration or mediation. The values associated with these disputes are increasingly material to all of the parties involved as they seek to regain financial stability.”

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