Litigation funders no longer exempt from the Australian Financial Services Licensing regime

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Commencing on 22 August 2020, litigation funders will no longer be exempt from the requirement to hold an Australian Financial Services Licence (AFSL) and will have to comply with the relevant financial services and the managed investment scheme regulations.

The removal of the exemption will require litigation
funders to operate in a transparent manner enabling them to be held accountable
in an industry that is regulated by the
Australian Securities and Investments Commission

The new requirement will come in the form of amendments
to the Corporations Regulations 2001 (Cth) removing the exemptions previously inserted regarding
litigation funders.

What does this mean?

Litigation funders currently operating in Australia
will need to obtain an AFSL in order to continue business. Under the AFSL
regime, litigation funders will be required to meet the general obligations of
AFSL holders including but not limited to:

  • Providing financial
    services in an efficient, honest and fair manner
  • Complying with
    financial services laws (including taking steps to ensure representatives are complying
    with financial services laws); and
  • Maintaining the competency
    to provide financial services.

Chapter 7 of the Corporations Act 2001 (Cth) requires an entity carrying on a business involving
the provision of a financial service and/or financial product to be
appropriately licensed. 


At present, litigation funders are exempt from the
requirement to hold an AFSL and more specifically exempt from being categorised
as a Managed Investment Scheme meaning they are not bound by financial services

The exemptions are covered
through two classes of exemptions in the Corporations

  1. Regulation 7.06.01 of the Corporations Regulations specifically excludes certain litigation funders from the requirement to
    hold an AFSL (“upstream” funding); and
  2. Regulation
    5C.11.01 of the Corporations Regulations
    specifically excludes litigation funding arrangements from being
    considered a managed investment scheme for the purposes of the Corporations
    (“downstream” funding).

The change in requirements relating to litigation
funders comes in conjunction with the current inquiry into litigation funding and
the regulation of the class action industry
by the Parliamentary Joint Committee on Corporations
and Financial Services.

Further Reading

Sophie Grace can assist you in obtaining an AFSL for your litigation
funding business. Please contact
to discuss how we can assist you further.

About The Author

Victoria Lombardo

Victoria Lombardo

Victoria provides support to our compliance and legal teams and assists our clients with the preparation and collation of documentation required for AFS and credit licence applications. She also supports senior staff by providing assistance to clients with the maintenance of their licences through the preparation of compliance policy documents and ongoing compliance support.