22 May 2020

Litigation funders to be regulated under the Corporations Act

The Morrison Government is ensuring that litigation funders are subject to greater regulatory oversight by requiring them to hold an Australian Financial Services Licence (AFSL) and comply with the managed investment scheme regime.

Litigation funders are currently exempt from holding an AFSL and being categorised as a managed investment scheme. As a result, litigation funders do not face the same regulatory scrutiny and accountability as other financial services and products under the Corporations Act.

The removal of these exemptions will require litigation funders to obtain an AFSL from the Australian Securities and Investments Commission. AFSL holders are obligated to:

  • act honestly, efficiently and fairly;
  • maintain an appropriate level of competence to provide financial services; and
  • have adequate organisational resources to provide the financial services covered by the licence.

Removal of these exemptions will also require greater transparency around the operations of litigation funders in Australia.

These changes complement the inquiry being undertaken by the Parliamentary Joint Committee on Corporations and Financial Services into litigation funding and the regulation of the class action industry which is due to report by 7 December 2020.

The amendments to the regulations will take effect from three months from the date of this announcement.

The Morrison Government is committed to ensuring that litigation funders in Australia operate transparently, are appropriately regulated and accountable.