Litigation funders warn of chaos under new rules
The association representing litigation funders says tough new rules will cause dysfunction as ASIC struggles to respond to demand from the industry.
From this weekend all new litigation funding vehicles will be required to hold an Australian Financial Services Licence and be subject to tougher scrutiny by the corporate regulator.
But litigation funders have warned the new rules — outlined by Treasurer Josh Frydenberg three months ago — would be chaotic for the industry.
Under the rules litigation funders, which provide the bulk of financing and absorb costs for class actions, will be classed as managed investment schemes, which will require class actions to issue product disclosure statements.
Large profits pocketed by funders in some cases have drawn the ire of the business community, amid a surge in class actions over the past decade.
Association of Litigation Funders Australia chief executive John Walker said the scheme was “introduced without sufficient consultation time for ASIC to be able to get a square peg of class actions into the round hole of the MIS regime”.
“There will be months if not years of disruption causing detriment to the very people who the regimen is meant to benefit, namely class members,” he said.
“No one has the licences ready to file applications for managed investments going forward.”
Mr Walker said it was likely that some people would now miss out on being able to run claims “because they can’t be resourced in time” due to the extreme number of applications that would now go before ASIC.
“People have filed applications but ASIC is going to take 12 months to grant them,” he said.
“You have ended up with something that’s going to take a whole lot of chaos to work through and dysfunction and potentially applications to court.”
Under the scheme litigation funders will be given relief from the obligation to give a Product Disclosure Statement to ‘‘passive’’ members of open litigation funding schemes, so long as that information is available on those operators’ websites.
Nor will litigation funders be required to regularly value scheme assets or held to rules around the statutory withdrawal procedures for members who withdraw from class actions.
Fees and costs and information around labour standards or environmental, social or ethical considerations will not need to be disclosed.
ASIC will review these relief measures, taking them into account for the final report of the current Parliamentary joint committee inquiry.
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