SRA aims to tackle funding concerns
The regulatory body for solicitors in England and Wales has put forward proposals to address concerns about third-party funding of litigation.
Third-party funding occurs when an entity that is otherwise unconnected to a party in a legal dispute finances the cost of settling that dispute.
The England-and-Wales Gazette says that the proposed new requirements are part of the Solicitors Regulation Authority’s programme to address concerns about how solicitors and firms are handling high-volume consumer claims.
It follows the failures of SSB Law in 2024 and PM Law Group earlier this year.
‘Poor outcomes’
“We have seen clear evidence that third-party litigation funding can create risks to firm stability and lead to poor outcomes for consumers,” the Gazette quoted Aileen Armstrong (SRA executive director of strategy and policy) as saying.
According to the consultation document, “some solicitors' are not carrying out due diligence to ensure that funds received are not criminal property or were transmitted in breach of the sanctions regime”.
Among five new requirements proposed are new standards for professional conduct that specify the need to maintain independence from a funder, to act in clients' best interests and disclose confidential information only with clients' consent, and to inform clients that funders are not SRA-regulated.
These 'fundamental' obligations would apply to all solicitors and firms involved with third-party funding, rather than being limited to the consumer claims sector.
Risk assessment
Firms handling funded consumer claims would also have to:
- Provide clients with a 'prominent funding information document', which would explain the availability of other options – including redress schemes and claiming on legal-expenses insurance,
- Notify the SRA when using or arranging litigation funding for consumer claims,
- Prepare and make available on request to the SRA, a “third-party litigation funding risk assessment”, and
- Make available to the SRA on request a plan setting out how the firm would make an orderly closure if necessary.
The SRA also said that it would welcome regulation of third-party funding by the British government.
“Without decisive action in this area, some of the fundamental risks driving adverse incentives in this market will remain unaddressed,” it stated.
Restrictions in Ireland
Current restrictions on third-party litigation funding in Ireland have been cited by some commentators as a potential barrier to representative actions on behalf of consumers.
In 2023, the Law Reform Commission (LRC) published a consultation paper setting out the arguments for and against a liberalisation of the rules governing the third-party funding of litigation.
Minister for Justice Jim O’Callaghan, however, told an event last year that he had concerns about the introduction of third-party litigation funding in Ireland.