Key Takeaways
- Parliament is moving toward regulating third-party litigation funders, signalling major changes in litigation funding regulation for businesses and individuals.
- Currently, litigation funders are not regulated by the FCA. Claimants must conduct rigorous due diligence before entering a litigation funding agreement.
- Relying on unregulated funding exposes claimants to risks, such as being left without protection if a funder becomes insolvent or withdraws support mid-claim.
- Proposed new rules would bring FCA authorisation, transparency requirements, capital adequacy standards, and greater protection for claimants. These changes may still be 12 to 24 months away.
- The voluntary Association of Litigation Funders code does not offer the same protection as statutory regulation and is not mandatory for all funders.
- Our solicitors at Go Legal carry out robust due diligence on funding partners to ensure financial resilience and client security throughout your litigation.
- Seek independent legal advice early to understand your options, the risks, and how litigation funding could affect your case outcome and recovery.
- Acting now allows you to secure the best funding terms before pending regulation changes the commercial litigation funding landscape.
For tailored advice from our expert litigation funding team, book a free consultation or call 0207 459 4037.
Litigation Funding Regulation: What Claimants Need to Know
Parliament is now actively moving toward introducing litigation funding regulation in England and Wales. In September 2026, a House of Lords amendment led by Baroness Bowles called for the Treasury to assess whether third-party funders should fall under FCA regulation, and for a clear timetable to be published. Justice minister Lord Lemos confirmed the government plans for “proportionate regulation when parliamentary time allows”, stating that third-party funding is “crucial for enabling ordinary people to access justice… often the only option people have to bring a claim”.
Third-party funding has enabled major cases, such as the Post Office litigation, which simply could not have been brought without external funding. Yet as commercial litigation funding becomes essential, the sector remains outside financial services regulation. This article explains what is changing, why regulation is likely, and how businesses, company directors, and claimants should approach third-party litigation funding agreements now.
The Current Regulatory Gap
Third-party litigation funding involves an external investor paying some or all of your legal costs in return for a pre-agreed share of any damages or settlement. This model is increasingly used in commercial litigation, group actions, insolvency disputes, and professional negligence claims—particularly where claimants lack the resources to fund high-value or complex cases upfront.
The regulatory gap is stark. Litigation funders are not currently regulated by the Financial Conduct Authority. There is no mandatory conduct code, capital adequacy requirement, or statutory obligation for transparency. If a funder becomes insolvent or withdraws funding mid-case, claimants may have no viable protection or recourse.
A construction company embroiled in a multimillion-pound breach of contract lawsuit secures third-party funding. When the funder experiences financial trouble and withdraws during trial preparation, the business suddenly faces responsibility for its own legal fees and the risk of adverse costs—with little warning or protection.
This lack of oversight can expose claimants to significant risk. Choosing an unregulated funder without robust checks on their financial resilience can undermine a strong legal claim at its most critical stage.
What’s Happening Now
In September 2026, Baroness Bowles proposed an amendment in the House of Lords requiring the Treasury to assess, within six months, whether litigation funders should be regulated by the FCA and to publish a timetable for new rules. The government has signalled agreement in principle, with justice minister Lord Lemos highlighting the role of third-party funding in securing justice for claimants who would otherwise be unable to pursue legitimate claims.
Quoting Lord Lemos: *“Third-party funding is crucial for enabling ordinary people to access justice… often the only option people have to bring a claim.”*
The government’s position is clear: regulation is needed to deliver transparency and consumer protection, but it must not endanger access to justice by discouraging reputable funders or narrowing options for claimants.
This House of Lords amendment does not create regulation immediately. It requires a Treasury-led review and a published timetable before any formal regime takes effect.
Funders’ obligations and your rights could shift rapidly if new regulations are introduced. Proactively review your litigation funding agreement and check for clauses that could change in the future.
Why the Push for Regulation?
Calls for litigation funder regulation are driven by concerns over claimant protection and market stability. Funders currently deploy significant capital into high-value and high-volume claims—yet are not subject to the regulatory oversight applied to solicitors, insurers, or claims management companies.
As Seema Kennedy OBE of Fair Civil Justice noted, funders can deploy significant capital “while sitting outside the direct financial oversight applied to other actors in the claims ecosystem”.
Key concerns behind the drive for regulation include:
- Financial resilience: Unregulated funders may not have the resources to back cases through trial and appeal, potentially pulling support at a critical stage.
- Conflicts of interest: Funders may promote swift settlements to secure returns rather than maximising a claimant’s recovery.
- Transparency: Claimants may not receive clear, upfront terms about how much of their damages they retain, or what protections are in place if disputes arise.
- Capital adequacy: If a funder is involved in multiple losing cases, it could become unable to meet its commitments, impacting all claimants relying on its support.
- Growth in high-volume consumer claims: In areas like motor finance claims, the funder’s business model may not align closely with every individual claimant’s interests.
To address these issues, the Solicitors Regulation Authority introduced new requirements in August 2026 compelling solicitors involved in consumer claims funding to ensure that agreements are fair and transparent.
A technology company entered into a litigation funding agreement for an intellectual property dispute. Partway through the proceedings, the funder withdrew due to financial pressures. Because the funder was unregulated, the company was left to absorb all legal costs, risking the loss of both the claim and the funds already invested.
If third-party funding is part of your litigation strategy, you may also find our guide on No Win No Fee Solicitors: What You Need to Know helpful.
What Would Regulation Look Like?
While regulation details will be shaped by Treasury review and Parliamentary consultation, government statements and current proposals indicate several likely features:
- FCA Authorisation and Supervision: Funders would require approval as regulated financial entities, subject to ongoing compliance checks.
- Capital Adequacy Requirements: Funders must maintain sufficient reserves or insurance to honour funding commitments and adverse costs if the claim fails.
- Mandatory Disclosure and Transparency: Clear, written disclosure about the funder’s fee, circumstances of withdrawal, and claimant rights would become standard.
- Conduct Standards and Conflict Controls: Regulation would impose limits on funder influence over settlement decisions and require robust management of conflicts of interest.
- Protection Upon Insolvency or Withdrawal: Funders could be required to hold specific reserves or take out insurance to protect claimants if funding is withdrawn during a claim.
These elements are broadly similar to the regulation of insurers and claims management companies. The timetable for formal FCA regulation of litigation funding will depend on the outcome of the Treasury’s review and legislative process.
When considering a funding agreement, ask the funder about their current approach to capital adequacy and transparency—even ahead of regulation. Their answers offer insight into how securely they are positioned for potential rule changes.
What This Means for Claimants
Greater Protection, But Stricter Terms
Once regulation takes effect, claimants will benefit from funders being more transparent about key risks and their own financial health. There will be greater recourse if problems arise mid-case. However, funders may apply stricter criteria to which cases they accept, and could require a larger share of damages to offset new compliance costs.
A professional services firm with a strong fraud claim found future funders only willing to back the case if they could take 40 percent of damages, not the 25 percent previously available, reflecting anticipated costs from stronger regulatory oversight.
No Immediate Change
Although activity in Parliament is the clearest sign yet of pending change, the Bowles amendment only requires the Treasury to assess and publish a timetable. Actual FCA regulation could be 12 to 24 months away or more. For now, litigation funding remains an unregulated activity, with the exception of the SRA’s recent conduct requirements for solicitors assisting with consumer claims.
Insist on independent checks on your funder’s financial standing before committing to any agreement. This remains your primary line of defence until regulation arrives.
Existing Agreements Likely Unaffected
Any regulation is expected to have prospective effect only. Agreements entered into before new laws take force will generally remain valid, though long-running cases may be affected if a funder’s ongoing conduct must meet new standards partway through.
Due Diligence More Important Than Ever
As statutory protection is not yet in place, claimants and their advisers must thoroughly vet funders and their agreements.
- Request written proof of a funder’s finances and track record.
- Ask for clarity on how and when a funder might withdraw, and potential costs you would face if that happens.
- Check whether the funder is a member of the Association of Litigation Funders and subject to its voluntary code.
- Compare proposals not just on price, but on quality, security, and transparency.
Sophie, a director at a Midlands manufacturing firm, secured multiple offers to fund a shareholder dispute. She chose the provider able to document insurance cover, ALF membership, and well-defined withdrawal rights—ensuring the business had genuine recourse if circumstances changed.
For practical advice on managing litigation funding risks, our lawyers at Go Legal provide step-by-step guidance.
To understand more about group and company disputes using external funding, read our article on Shareholder Dispute Litigation Funding.
Go Legal’s Approach to Litigation Funding
Our solicitors advise on the full range of commercial litigation funding options for clients throughout England and Wales, helping you balance risks and returns with confidence.
- No-win-no-fee (CFAs): We guide clients through the structure of conditional fee agreements, success fee implications, and how costs are handled in success or defeat.
- Damages-Based Agreements (DBAs): We explain how DBAs may add value, outlining key distinctions and suitability compared to other funding options.
- Third-party funding: For complex, high-value or multi-party claims, we engage only established, reputable funders with a strong track record of honouring commitments and clear, fair terms.
- ATE insurance: Protecting you from adverse legal costs, we integrate after-the-event insurance into your funding and litigation strategy.
- Hybrid models: In complex matters, combining partial funding, CFA and ATE insurance may deliver a fairer deal and lower risk.
Our due diligence on any funder covers their financial position, complaints track record, and any potential conflicts of interest. Each step is explained to you so you have full visibility and control.
We ensure you understand:
- Your net share of damages if you win.
- When and how a funder can withdraw support.
- How the agreement dovetails with ATE insurance and who bears the risk for legal costs.
- Whether other structures might safeguard your outcome and decision-making power.
Litigation funding should empower your pursuit of a meritorious claim but should not place critical decision control in the hands of a third party. To discuss structuring or negotiating a funding agreement that works for you, book a free consultation with our commercial litigation team.
The Bigger Picture: Access to Justice vs. Consumer Protection
Litigation funding regulation sits at the intersection of access to justice and consumer protection. Without third-party funding, landmark cases such as the Post Office group litigation and major insolvency claims might never have been possible—giving smaller claimants a route to justice against larger opponents.
Yet without regulation, there are valid concerns over claimant protection, especially in mass consumer claims where individuals may not appreciate the trade-offs, risks, or the financial resilience of their funder. Cases can be jeopardised if support is withdrawn unexpectedly or if funders’ interests diverge from claimants’.
The goal of pending regulation is to strike a dynamic balance. Proportionate rules would help ensure funders are both financially sound and transparent while keeping funding accessible and affordable for those who need it most.
What Should You Do Now?
If you are considering litigation funding for a commercial dispute, take these steps to protect your interests:
- Seek specialist legal advice early. Our litigation solicitors will assess whether your claim is suitable for funding, identify reputable funders, and outline the pros and cons of each option.
- Insist on full transparency. Never sign a funding agreement until you have clear answers on the funder’s share, withdrawal terms, and your obligations if the claim fails.
- Consider all alternatives. In some cases, a CFA, DBA, or a hybrid deal may preserve more of your damages or deliver a better costs balance.
- Monitor the regulatory landscape. As regulation moves forward, obligations and protections will develop. Stay up to date, and review your decisions as law changes.
By acting now and making informed decisions, you can avoid major pitfalls and ensure the funding solution matches your situation and goals.
Frequently Asked Questions
What is third-party litigation funding?
Third-party litigation funding is when an outside investor pays your legal costs and, typically, takes a share of any damages if you win. If you lose, you usually owe them nothing—though the specific terms depend on your agreement.
Is litigation funding regulated by the FCA in England and Wales?
No. Funders are not currently regulated by the FCA, but Parliament and the government are moving toward introducing regulation. For now, robust due diligence is essential.
What is the Association of Litigation Funders and what does it do?
The Association of Litigation Funders (ALF) is an independent body responsible for self-regulation of litigation funding in England and Wales. It operates a voluntary Code of Conduct that covers issues like capital adequacy, fair dealing, and complaint resolution—but not all funders are members.
Will litigation funding regulation make it harder to get funding for my claim?
Potentially yes. Regulation may increase compliance costs for funders, causing them to back only the strongest claims or demand a higher share of damages. However, it is also designed to increase transparency and claimant protections.
What happens if my funder pulls out of my case before trial?
If your agreement allows a funder to withdraw, you could be left with responsibility for ongoing legal fees and risk having to settle on less favourable terms. Always clarify withdrawal provisions before you sign.
Can I negotiate the funder’s share of my damages?
Yes. The share a funder takes is generally negotiable and should reflect the risk and value of your claim. Our specialist lawyers can advise on what is fair and in line with market practice.
Does regulation apply to DBAs and CFAs as well as third-party funders?
Current regulatory proposals target third-party funders specifically. Conditional Fee Agreements (CFAs) and Damages-Based Agreements (DBAs) are already overseen by solicitor regulation and established legal rules.
How do I tell if a funder is reputable and financially strong?
Ask about ALF membership, require proof of financial stability, and check the funder’s track record. Insist on transparent complaints procedures and clear contractual protections.
What protection exists for claimants if a funder goes insolvent during the claim?
At present, protection is limited. Proposed regulation would likely require capital reserves or insurance cover. Until then, your best safeguard is thorough financial due diligence.
How are conflicts of interest managed between funder and claimant?
ALF members are required to have conflict management policies, but there is no statutory framework yet. Regulation is expected to impose stricter conflict controls.
Who can I speak to for advice on third-party funding?
You can speak to our experienced commercial litigation team for independent guidance before entering any funding agreement.
Speak to an Expert on Litigation Funding Regulation
Understanding the shifting landscape of litigation funding regulation is essential if you are considering third-party funding for a commercial dispute in England and Wales. Parliamentary action means significant change is likely, with the goal of protecting claimants and preserving access to justice. Failing to scrutinise your funder or the terms of a proposed agreement could expose you to hidden risks or lost recoveries if things go wrong.
Our solicitors have proven expertise in navigating litigation funding arrangements, conducting careful due diligence, and negotiating the fairest terms for businesses and individuals. For clear, practical advice and to make sure your interests are protected—both now and as regulation evolves—call us on 0207 459 4037 or book a free consultation. Visit us at 128 City Road, London EC1V 2NX. Practice areas include shareholder disputes, insolvency, professional negligence, breach of contract, and more.
