Brown: Three regulatory gaps
A think tank has called for “urgent regulation” to improve transparency in the litigation funding market and identify the ultimate sources of money.
Civitas argued that “courts, claimants and defendants do not know who actually owns or controls the capital behind funded claims”.
While third-party litigation funding assets have grown from £198m in 2011 to £2.2bn by 2022 – and projected to exceed £3.7bn by 2028 – there was a “transparency blind spot” at the moment.
The Civil Justice Council (CJC), in its June 2025 report recommending “light-touch regulation” of litigation funding, said the ultimate source of the funding should be disclosed but did not detail what this might entail.
In its report Litigation Nation: The Growth of a Class Action Claims Culture, Civitas argued that the individuals with ultimate ownership or control – rather than the corporate entity – should be identified, saying legislation “must specify the tracing standard in terms equivalent to the beneficial ownership register standard.
“A general obligation to identify the ’ultimate source of the funding’, unaccompanied by that specification, will be interpreted in the manner most convenient to the market and least demanding of disclosure.
“This should include a rule requiring litigation funders to disclose their own upstream investors.”
Such disclosure would provide the “institutional legitimacy on which the rule of law depends”.
Last December, the government announced it would legislate to reverse the Supreme Court’s 2023 PACCAR ruling and then in January the then-justice minister Baroness Levitt confirmed that it would introduce a new regulatory framework for litigation funding, without saying if this would be the model recommended by the CJC. Nothing has happened since.
The report said it backed the “broad direction” of the CJC recommendations and more recent government changes to the collective action regime, but said disclosure was one of three gaps in the envisaged scheme.
The CJC decided against recommending Financial Conduct Authority (FCA) regulation at this stage but Civitas said this left the risk of funder insolvency during proceedings “unaddressed”.
The FCA’s supervisory architecture covered “investment management conduct, capital adequacy assessment and conflict-of-interest management in markets of comparable complexity and scale. It is the appropriate regulatory authority for the third-party litigation funding sector”.
The third gap was sanctions screening. Neither the CJC nor government has mentioned any mechanism for verifying that “no funder or beneficial owner of funder capital is a designated person under the UK sanctions regime”, or was owned or controlled by a designated person.
A check by the Office of Financial Sanctions Implementation, which administered the UK’s financial sanctions regime, should be a prerequisite to funded proceedings, the report said.
“The absence of any verification mechanism in the current reform agenda leaves the most precisely documented structural risk in this report unaddressed.”
Civitas went on: “The reform process remains, at the time of writing, a statement of legislative intent: the accountability framework it will produce cannot be assessed until the legislation specifies the tracing standard, the regulatory authority and the verification mechanism that the three gaps require.
“That legislation will determine whether the government’s competitiveness framing has displaced the Civil Justice Council’s transparency recommendations or whether those recommendations have been absorbed into the bill’s substantive content.
“On that determination rests the practical value of the most rigorous public examination of third-party litigation funding regulation that England and Wales have undertaken.”
The report was authored by Civitas researcher Danna Brown, a former senior associate in the private funds group of Clifford Chance and then of US law firm Cleary Gottlieb Steen & Hamilton in London.
Seema Kennedy, the former Conservative MP who is executive director of Fair Civil Justice – a pro-business group that campaigns for greater control of class actions and litigation funding – wrote a foreword to the report.
She said: “Defendants, courts and sometimes even claimants may be unable to identify the ultimate source of the capital financing a claim.
“Naming the fund is treated as the end of the inquiry, when it is barely the beginning. Justice may be blind to status and power; it should not be blind to who is financing litigation.”
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