The government should listen to the Financial Conduct Authority on third-party litigation funding. This week, administrators of Woodville Consultants said they expect 'significant shortfall' in money that can be recovered from law firms funded by the collapsed business. Not so long ago, Mrs. Justice Cockerill noted that 'there is reasonable cause to suspect' that funding for a High Court case she was adjudicating originated from Russia, in breach of sanctions law.

Meanwhile, 18 months ago, thousands of vulnerable housing tenants found themselves on the hook for tens of thousands in unexpected legal bills in a case concerning defective cavity wall insulation. Signed up through aggressive cold-calling campaigns and uninformed of the financial risk, many now face severe financial hardship after the litigation funders pulled out and the law firm, SSB Law, went bust.

This is the regrettable reality of the unregulated third-party litigation funding market. The FCA has raised the alarm repeatedly through the year, writing to the Treasury in June about 'our wider concerns about market conduct… This includes how overseas investors and complex offshore financing chains intermediated through wholesale and sometimes unregulated funding markets, drive high-volume consumer claims' that have resulted in 'serious and unacceptable harm.'

Sentiments that were echoed by the Solicitors Regulation Authority which this summer launched a consultation on strengthening requirements for solicitors using third-party litigation funding in consumer claims. Aileen Armstrong, Executive director of strategy and policy, said 'We have seen clear evidence that third-party litigation funding can create risks to firm stability and lead to poor outcomes for consumers.'

The UK is rare among advanced legal jurisdictions in requiring no regulation. Funders are under no obligation to disclose the source of their funds and are not constrained in the multiples of investment they can seek from claimants in the event of settlement or success at trial. The SRA’s investigation into the mass claims market found that only around half of firms provide any advice to clients about litigation funding agreements meaning many claimants have little idea what they have signed up to. A tour d’horizon of comparable jurisdictions reveals UK consumers receive the lowest overall returns from litigation (hovering at an average of 30% of the total) compared to Australia, Canada and the Netherlands (where regulation is tighter) where they typically take well over half.

This distorts behaviour and incentives and undermines 'access to justice' arguments. Take motor finance claims: in its letter the FCA lamented the involvement of claimant law firms signing up unsuspecting clients when a perfectly good compensation scheme already existed: 'Many in the claims management and legal industry, driven by the prospect of a share of the payouts, have been engaged in wide-ranging misconduct themselves, extending and amplifying the harm caused to millions of consumers.'

So far, the government has committed to 'proportionate regulation' of the sector, in line with recommendations made by the Civil Justice Council in June 2025. But it is entirely unclear what form this regulation will eventually take given that no justice minister has articulated how, if at all, it considers the industry to be falling short or when they intend to legislate. And in any event, it was not this government that commissioned the CJC’s review. But the lack of urgency is now acute. As the Liberal Democrat Baroness Bowles pointed out in a  debate on the Financial Services and Markets Bill in theLords: 'We do not allow this level of opacity for consumer loans or mortgages… comparable safeguards should exist.'

The bill is back in the Lords this week and offers a golden opportunity to establish a regulatory framework under the auspices of the FCA, at least where anti-money laundering, sanctions law and financial crime are concerned. In evidence before the Treasury Select Committee on 15 July, Nikhil Rathi, chief executive of the FCA said the bill offered “an opportunity” to address that 'at least when it comes to high-volume consumer claims, money laundering and the regulation of the claims management ecosystem…. I am talking about this narrow area of high-value consumer claims where we have seen really significant misconduct.' The Treasury should heed this advice and seize the moment to act.

Laura Farris is a barrister and partner at FGS Global in London. She served as justice minister in the last Conservative government. 

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