Are we seeing the last days of self-regulation for litigation funders? The coming months will tell all.

The current self-regulatory framework for England and Wales was introduced back in 2011 by the Civil Justice Council and adopted by the nascent Association of Litigation Funders (ALF). However, it was the common conclusion of both the 2009 Jackson Cost Review and a 2010 CJC consultation that, should the funding market sufficiently expand, it would be necessary to revisit the question of regulation.

By 2021, according to law firm RPC, the total assets held by the top litigation funders in the UK had increased ten-fold to over £2bn and by 2022 the litigation, or third-party, funding (TPF) market in England and Wales, per the Third Party Litigation Funding Law Review, had become the second largest such market globally.

It was therefore of little surprise that, at the request of the former Lord Chancellor Alex Chalk in 2024, the CJC began a fresh review of litigation funding, including the question of whether TPF should be regulated.

In October 2024, the CJC released its interim report outlining current and potential regulatory frameworks, and in March of this year concluded its consultation. Respondents, including funders, law firms and legal associations, argued for a range of proposals, from a continuation of the current self-regulatory framework, through to light-touch or “full-fat” statutory regulation.

As we await the outcome and recommendations of the CJC’s final report, due in the summer, heads will turn towards the Government as industry insiders begin to gauge the mood of Keir Starmer’s chief legal team. If the CJC recommends a new regulatory framework, will this Labour government oblige and deliver?

At face value, funders might be optimistic of seeing little to no regulatory change. Starmer has repeatedly sought to streamline regulators and regulatory frameworks in a bid to achieve his growth mission and may be reluctant to regulate the legal services sector, not least given its contribution to the UK economy.

Funders may also be buoyed by the make-up of the government’s top legal team. Notably, Solicitor General Lucy Rigby MP is a former litigator at the firm Hausfeld and specialised in collective actions. Collective actions often rely on TPF as claimants, frequently consumers, would otherwise be unable to fund such cases. The most prominent example of this is the group action brought by Alan Bates and the sub-postmasters against the Post Office, which was funded through TPF, and which won TPF many supporters.

Rigby may give airtime to the argument that regulation of TPF will inhibit the bringing of collective actions, thereby limiting the ability of claimants to seek redress. This in turn challenges the principle of access to justice, which itself undergirds the case for TPF. That legal aid will not have a cat in hell’s chance of enjoying a fiscal renaissance under Labour’s iron chancellor, Rachel Reeves, makes this all the more likely.

Funders will also hope that the human rights backgrounds at the Bar of both the Prime Minister and the Attorney General Lord Hermer KC, together with the Lord Chancellor Shabana Mahmood MP and Justice Minister Sarah Sackman KC MP having had distinguished careers at the Bar, make the Government more amenable to such an argument. Other Labour legal grandees, such as Lord Falconer, a former litigator and Lord Chancellor himself, may also seek to make representations against excessive regulation.

Despite this, the signals, or rather the lack thereof, from government indicate that regulation is very much an option on the table. Ministers have been tight-lipped in public about any potential new framework, and some have stressed that it will be necessary to await the recommendations of the CJC review.

Crucially, the Government has also stated it has no immediate plans to reintroduce the Litigation Funding Bill brought forward, in part in response to Bates and Others v Post Office, under the last Conservative government but which was pushed aside by the General Election. The Bill would have sought, in effect, to reverse the implications of the now infamous ruling from the Supreme Court in PACCAR Inc and Others v Competition Appeal Tribunal and Others, which rendered many litigation funding agreements (LFAs) invalid, and has been a huge thorn in the side of litigation funders. A reintroduction by Labour would have been a huge show of confidence in the funding market.

Indeed, the future viability of LFAs may further be placed in limbo by the Neill v Sony Interactive Entertainment case, now at the Court of Appeal. To evade the effects of PACCAR, funders had been utilising the “multiple approach,” in which the return is based on a multiple of the sum invested, rather than as a percentage of the damages, the approach which had fallen foul of the PACCAR judgment. In a July hearing, the viability of the multiple approach will now be challenged, though experts believe the approach is likely to be upheld.

Compounding this uncertainty are recent developments in the Walter Hugh Merricks CBE v Mastercard Incorporated and Others case. Following a lengthy class action claim, Merricks recently settled with Mastercard, only for his funder, Innsworth Advisors, to oppose the £200m settlement. Mastercard are now backing Merricks in a new legal battle with Innsworth, who are set to claim significantly reduced returns from what was a £14bn claim. Such a disagreement between class representative and funder comes at a time when the funding market can hardly afford bad press.

The Government may also yet be swayed by the arguments of well-resourced TPF critics and those consumer groups in favour of increased regulation. Fair Civil Justice, a group backed by Big Tech through its affiliation to the US Chamber of Commerce, and its executive director Seema Kennedy, a former Tory minister, have been particularly critical of litigation and TPF. According to Fair Civil Justice and Kennedy, TPF has helped “predatory litigation” to proliferate, which in turn has put off investors and damages “UK plc.” Concurrently, large corporations will likely be lobbying the government against what they see as this growing climate of vexatious litigation in the UK. Given the Government’s efforts to attract foreign investment, such arguments may gain increased traction. Trump’s tariff blackmail policies may add further weight to this argument.

Litigation funding thus sits in a precarious position. No news may in fact not be good news and the longer the Government remains quiet, the more litigation funders will feel their time under the regulatory microscope is upon them. Avoiding this spectre of regulation will require funders working hard to ensure their arguments are heard and understood by the government, all in good time for the release of the CJC’s recommendations.