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
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
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
- Regulation 7.06.01 of the Corporations Regulations specifically excludes certain litigation funders from the requirement to
hold an AFSL (“upstream” funding); and
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
Act (“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.
- Media Release by the Treasurer of the Commonwealth of Australia
- AFSL Application Process
- Managed Investment Scheme AFSL Applications
- Managed Investment Scheme regulations.
Sophie Grace can assist you in obtaining an AFSL for your litigation
funding business. Please contact
us to discuss how we can assist you further.