Third Party Litigation Funding growth raises need for Regulation, clarity on costs and sources of funds

Temple Legal ProtectionTemple launches comprehensive funding litigation guide to increase solicitors’ understanding of funding market

Specialist legal and professional fees expenses insurer Temple Legal Protection, has urged litigators to undertake more detailed research when selecting third party funders, and joined calls for the sector to be properly regulated by the Financial Conduct Authority (FCA) as it continues to grow. It has also launched a guide to funding litigation to help law firms in understanding the market better, and advising clients on many of the funding options available.

The introduction of the Jackson reforms on civil litigation costs has led to key changes in funding and After The Event insurance. In turn, this has seen third party funding assume a more prominent role. The reforms, combined with low interest rate returns, has led to a number of new entrants in the market.

In a rapidly growing litigation funding sector, Temple broadly agrees with Lord Faulks, QC’s recent comments calling for the third party funding industry to be properly regulated to ensure protection for consumers and confidence that access to justice is preserved.

As it currently stands, the litigation funding market is not compelled to be authorised or regulated by the FCA and the government has previously indicated it does not see a case for moving away from this approach.

Temple Legal Protection, whose own funding company, Temple Funding, is fully authorised and regulated by the FCA, believes that an unregulated market, together with the costs of lending and a lack of clarity on where funds are coming from, impacts on a firm’s ability to meet client care best practice. 

Speaking on the launch of the guide, Joanne Lane, Managing Director of Temple Funding, said: “From talking to law firms, we see some common themes emerging around third party funding. These include funders only looking to fund cases where potential damages are in excess of £1million; legal costs are likely to be substantially more than damages (in some cases this was ten times more) and the use of success fees with multipliers as high as six times the amount being funded. The multipliers are commonly based on the sums earmarked, not on the sums actually used – and a very slow application process.”

She continued: “With the vast majority of litigation in the UK being for claims of under £1million, these kinds of issues mean that most claimants would either simply not be able to obtain third party funding or the cost of such funding would be extremely high.

“From a regulatory perspective, in this rapidly growing market, we believe that all funders should go through the FCA authorisation process to give effective protection to solicitors and their clients who choose funding. For this reason solicitors should only use FCA authorised funders.” 

On Lord Faulk’s comments, Joanne Lane said “The only point of disagreement we have is the Lord’s views on control of the claim; as with minority shareholders there must be rights for the funder and ATE insurer to enable them to have their say. It would be part of the litigant/lawyer contract that the litigant concedes some control to those putting up the money to fund the action.”

To help law firms in understanding the market, the Temple Guide to Funding Litigation aims to help litigators, insurance brokers and others involved in legal services provision to understand the range of funding options, how they work and the pros and cons for firms and their clients. It also provides up-to-date information on the key issues relating to litigation funding.

Joanne Lane commented: “Solicitors want to ensure their clients are making informed decisions and are aware of the different types of funding options available. However, this cannot be satisfied simply by an obscure reference in a letter of engagement. Solicitors need to be open with clients about all the options but, in a constantly changing litigation market, it can be difficult to keep pace with what is available.

“A primary focus behind launching the guide is to help firms improve on client care and their compliance responsibilities. But, we also want to encourage firms to share their experiences of sourcing and using different funding options so we can develop the guide further and help identify good practice as well as areas which can be improved.”

To download a copy of the Temple Guide to Funding Litigation, please visit 

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