Litigation funders are required to hold an Australian Financial Services Licence (AFSL) as part of the regulatory regime implemented in August 2020. However, the exemptions which were made available to responsible entities of litigation funding schemes are now subject to a five-year sunset date as set by the Australian Securities and Investments Commission (ASIC).
How will this affect you?
The primary instrument requires litigation funders to hold an Australian Financial Services Licence (AFSL) as of 22 August 2020, to ensure greater regulatory oversight and accountability. Litigation funders are also required to comply with the managed investment scheme regime under the Corporations Act 2001.
The primary instrument provides exemptions to responsible entities of litigation funding schemes in relation to certain provisions in Chapter 5C and 7 of the Corporations Act 2001 including:
- the obligation to give a Product Disclosure Statement (PDS) to ‘passive’ members of open litigation funding schemes on the condition that the PDS is available on the scheme operator’s website and referred to in advertising material;
- the obligation to regularly value scheme property;
- the statutory withdrawal procedures for members who withdraw from a class action under court rules; and
- the requirement to disclose detailed fees and costs information and information about labour standards or environmental, social or ethical considerations.
The original sunset date outlined in the ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 (primary instrument) has been reduced by five years in the ASIC Corporations (Amendment) Instrument 2021/116 (amending instrument) meaning the primary instrument is due to sunset on 22 August 2025.
ASIC has stated it will continue to monitor the instruments and make amendments as necessary to ensure that it is operating in accordance with the legislative framework applicable to litigation funding schemes.
The primary instrument was implemented to support the transition to the regulatory framework for litigation funding schemes. ASIC consulted with the Department of the Treasury in relation to the effect of the primary instrument and considered it was appropriate to amend the term of the sunsetting date outlined in the primary instrument to five years.
The changes to the primary instrument were made in response to:
- concerns with the original term included in the primary instrument raised by the Senate Standing Committee for the Scrutiny of Delegated Legislation; and
- the overlap between the matters addressed by the primary instrument and the recommendations in the final report of the Parliamentary Joint Committee inquiry into litigation funding and the regulation of the class action industry.
The primary instrument was due to sunset on 1 October 2030 in accordance with the default sunsetting arrangements for legislative instruments provided for under the Legislation Act 2003.
- 21-028MR ASIC sets five-year sunset date for litigation funding legislation instrument
- Litigation funders no longer exempt from the Australian Financial Services Licensing Regime
- ASIC Supports Litigation Funders Transitioning to New Regulatory Regime
Please contact us if you require assistance with understanding your obligations under the litigation funding regime.