Long Anticipated Litigation Funding Reforms Come Into Effect

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In May of this year, Treasurer Josh Frydenberg announced that litigation funders would no longer be exempted from laws relating to managed investment schemes nor the requirement to hold an Australian financial services licence. Many litigation funders and firms planning to run class actions on a contingency fee basis (following the passage of contingency fee legislation in Victoria in June) have anxiously awaited detail from the federal government about how these changes would be effected and to whom they would apply.

Yesterday Treasurer Frydenberg made the Corporations Amendment (Litigation Funding) Regulations 2020 which implement the reforms foreshadowed by the Treasurer in May. The regulations require those funding class action proceedings to comply with the laws relating to managed investment schemes and require those funders to obtain an Australian financial services licence. The new requirements apply in relation to funders that enter into class action funding agreements on or after 22 August 2020 and do not affect funded class action proceedings that are on foot at that date.

Importantly, the regulatory position for those funders that do not fund class action proceedings has not changed. In relation to their funding activities, those funders remain exempted from the laws relating to managed investment schemes and the requirement to hold an Australian financial services licence. Funders wishing to avail themselves of the exemptions must still maintain a legally compliant conflict management policy.

Lexvestor welcomes this regulatory clarity and is pleased that its clients will not bear additional costs as a consequence of additional regulation. For any clients or potential clients wishing to discuss these regulatory changes or how Lexvestor manages potential and actual conflicts, please do not hesitate to contact us.