Today, the litigation finance market is predominantly a “grey zone”. There is no universal regulatory framework governing litigation funding.
As a result, the way regulators have opted to tackle the matter, varies greatly from one jurisdiction to another. Some states have legislated on the matter, while others have left it up to the courts to decide on the limitations to impose on litigation funding agreements. In some jurisdictions, there are merely industry best practice guidelines in place.
The extent to which litigation funding is permissible and its applicable framework therefore varies greatly around the globe. It even varies widely within countries. The United States, for example, which is currently the biggest market for litigation funding, has no federal regulation that applies to litigation funding and has left it up to the states to deal with this matter.
Two of the main concerns that regulators and courts have had to address when it comes to litigation funding are: ethical concerns and disclosure issues.
These concerns relate to the potential implication of funders in litigation. Since funders will have a financial interest in the outcome of the case, regulators want to make sure that the legal team that is required to act in the best interest of the client will not let itself be influenced by the funder’s agenda. This can be an issue particularly since the funder is usually paying for the legal team’s fees.
To avoid such conflict of interest, some regulators or judicial bodies have decided to impose disclosure of funding agreements at the time of filing of the legal proceedings. This enables them to review the funding agreements for fairness and avoid potential conflicts of interest. Such requirements are not a standardized approach, however, and vary across jurisdictions.
The prevailing observation is that as the litigation funding market continues to grow, there is an increase in oversight from regulators around the world. Clearer guidelines and more detailed regulation are welcome as they will offer more clarity on how funders should operate and will result in greater transparency and predictability. This evolution is essential for shaping the future of litigation funding.
Interested in litigation funds? Do not hesitate to contact us at Blue Lakes Advisors
17.10.2024