SRA proposes regulation of litigation funders

The Finance & Leasing Association (FLA) has welcomed proposals from the Solicitors Regulation Authority (SRA) to strengthen consumer protections around third-party litigation funding, but says the Government must go further by bringing commercial litigation funders within the scope of Financial Conduct Authority (FCA) regulation.

The FLA’s response to the SRA consultation says regulating solicitors is a positive step, but will not address the wider risks in the litigation funding market. A consistent regulatory framework is needed across the market to promote good practice, improve transparency and protect consumers.

The FLA is calling for stronger professional conduct requirements for solicitors involved in litigation funding. It is also recommended that FCA regulate commercial third-party litigation funders, beginning with anti-money laundering supervision. This will lead to greater transparency and disclosure so consumers understand how litigation funding arrangements work.

The FLA also calls for closer coordination between the SRA, FCA, Information Commissioner’s Office and Ministry of Justice to ensure a consistent approach across the wider claims ecosystem.

Meanwhile the Law Society of England and Wales is urging the SRA to ensure that any new regulation for third-party litigation funding addresses genuine risks while safeguarding consumers’ access to justice.

Whilst funded claims can help consumers hold businesses to account, the SRA should not assume that all consumer claims require additional regulatory involvement.

The Law Society has urged the SRA to make better use of existing regulatory powers and guidance, before imposing additional requirements on solicitors.

Law Society president, Mark Evans, said “We support the SRA’s efforts to improve transparency and consumer protection, but any new requirements must target genuine risks rather than create unnecessary burden.

“Litigation funding can be a vital route to justice for consumers who could not otherwise afford to pursue a claim, but additional regulation must be in-line with the risks identified.

“Although the collapse of firms, such as SSB Group, highlighted the importance of effective safeguards, a one-size-fits-all approach could ultimately make it more difficult for people to resolve their claims.”