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Ernst & Young's report said 72% of the 29 UK financial services firms polled saw regulatory action or sanctions as the biggest danger from data loss, ahead of damage to reputation and brand (66%).
Ken Allan, partner in Ernst & Young's technology and security risk services department, said, "The sizeable penalties imposed by the Financial Services Authority on a number of financial institutions have clearly hit home. Financial institutions are acutely aware of the impact that sanctions and regulatory action can have on their business and in turn their reputation."
Regulatory compliance has caused almost 25% of the UK financial institutions polled to report a significant increase in information security costs this year. More than 33% reported a significant rise in costs over the past three years.
The survey shows that 38% have spent between 20% and 50% of their annual information security budget in the last financial year complying with regulation. Most UK financial institutions are set to maintain or increase their investment in the next financial year.