Self-regulation of third-party litigation funders has moved a step closer after a draft code of conduct was submitted to Lord Justice Jackson (pictured), the Gazette has learned.

However, in putting the code to the judge as part of his review of civil litigation costs, the Civil Justice Council (CJC) admitted that the debate over whether formal regulation or self-regulation is the better optionremains unresolved.

‘In terms of a practical solution, a voluntary code is an acceptable place to start, if the objective is to introduce regulation quickly in a fast-emerging and unregulated new market,’ it said.

‘From experience of recent funding reform in the civil justice system, a failure to regulate in any form has led to questionable entrants to the markets, bringing speculative financial models and considerable satellite litigation.’

The CJC told Jackson that formal regulation raised difficult questions of who should be the regulator – the Financial Services Authority has ruled itself out – and how it should be paid for.

The code was drafted by Susan Dunn of Harbour Litigation Funding, Christian Steurwald of Allianz Litigation Funding and Peter Koutsoukis of Australian funder Claims Funding International and scrutinised by the Law Society, Bar Council and FSA among others.

It addresses issues such as the types of case that may be funded, the nature of funding agreements, consumer protection, capital adequacy requirements and complaints handling.

CJC chief executive Robert Musgrove said formal regulation could offer better consumer protection, but could also stifle the market. ‘Self-regulation provides an opportunity for the industry itself to promote acceptable market standards and levels of protection, while leaving the door open to formal regulation should the market fail to exercise sufficient self-control,’ he said.