Login
New ASIC rules now in effect for litigation funders
From this week onwards, all new litigation funding vehicles will now be required to hold an Australian Financial Services Licence and the funding industry can now face direct regulation from the ASIC.
Tony Zhang
Under the new rules, litigation funders, which provide the majority of financing and absorb costs for class actions, will be classed as managed investment schemes, hold an Australian financial services (AFS) licence and litigation funding schemes will generally be subject to the managed investment scheme (MIS) regime.
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
To manage the transition, ASIC stated that funders will be given relief from the obligation to give a product disclosure statement to ‘‘passive’’ members of open litigation funding schemes, so long as that information is available on those operators’ websites.
Funders won’t be required to regularly value scheme assets or be held to rules around the statutory withdrawal procedures for members who withdraw from class actions.
Fees and costs and information around labour standards or environmental, social or ethical considerations will not need to be disclosed.
“As was contemplated in the [government’s explanatory statement], ASIC has given some relief for litigation funding schemes to manage the transition to the new regime,” ASIC’s deputy chair Karen Chester said.
“We have concentrated on the relief required for [day] 1 of the new regime. ASIC may provide additional relief or modify the relief we have made today as we and the litigation funding industry experience the new regulatory regime, and as the industry continues to evolve.
“ASIC will work to ensure that the Corporations Act operates effectively for litigation funding schemes.”
Applications for relief must be in writing and should address the requirements set out in regulatory guide 51 applications for relief and any other regulatory guides relevant to the application.
Association of Litigation Funders Australia chief executive John Walker said it was likely that some people would now miss out on being able to run claims “because they can’t be resourced in time” due to the extreme number of applications that would now go before ASIC.
“People have filed applications but ASIC is going to take 12 months to grant them,” he said.
“There will be months if not years of disruption causing detriment to the very people who the regimen is meant to benefit, namely class members.
“No one has the licences ready to file applications for managed investments going forward.”
ASIC has also issued a no-action position in relation to the obligation under chapter 2C of the Corporations Act to set up and maintain a register of members of a registered litigation funding scheme.
They will also consider applications for relief on a case-by-case basis, acknowledging the varying nature of litigation funding schemes in the market that may require a more bespoke regulatory response for some schemes.
The regulator said they will also review its day 1 relief in due course, taking into account the final report of the current parliamentary joint committee inquiry into litigation funding and regulation of the class action industry.
