The legal liabilities reported by UK-based companies listed on the FTSE 100 index jumped by 22% in 2012 to £22.1 billion, up from £18.2 billion in the previous year, according to an analysis by Thomson Reuters Sweet & Maxwell business.

The increase in legal liabilities has been driven by businesses facing far more aggressive fines and compensation orders from UK government agencies rather than an increase in litigation between businesses.

Teri Hawksworth, managing director of Thomson Reuters Sweet & Maxwell, says that the sheer scale of FTSE 100 companies’ legal liabilities explains why businesses have been so keen to build up their investment in in-house legal counsel and compliance teams.

“With individual fines against FTSE 100 companies now breaching the US $1billion mark, having a strong compliance culture and a highly capable in-house legal team is increasingly seen as an asset and not a cost,” explains Teri Hawksworth.

The largest portion of disclosed legal liabilities came in the oil & gas sector, which made up 37% of the 2012 total. The amount set aside for probable legal and regulatory action in this sector fell from £8.6 billion in 2011 to £8.1 billion in 2012.

The banking sector also showed a sharp rise in legal liabilities last year, with a more than sixfold increase – jumping from £991 million in 2011 to £6.3 billion in 2012. The sector made up 29% of the total legal liabilities for FTSE 100 companies in 2012, compared with only 5% in 2011.

“One way that businesses are responding to the rise in legal liabilities is to broaden the role of in-house legal teams. In-house counsel is moving from a role of just managing the costs of external law firms to clear up after a problem to taking a bigger role in ensuring that legal problems do not arise in the first place,” adds Hawksworth.

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