ASIC manages transition to new regulatory regime for litigation funding schemes

ASIC has made ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 (Instrument) to manage the transition to the new regulatory regime for litigation funding.

On 22 May 2020, the Government announced that it would regulate litigation funders under the Corporations Act. Following the commencement of the Corporations Amendment (Litigation Funding) Regulations 2020 (Regulations), from 22 August 2020, operators of litigation funding schemes will be required to hold an Australian financial services (AFS) licence and litigation funding schemes will generally be subject to the managed investment scheme (MIS) regime in Chapter 5C of the Corporations Act.

The Instrument, which commences on 22 August 2020, includes relief from:

  • the obligation to give a Product Disclosure Statement (PDS) to ‘passive’ members of open litigation funding schemes – on the condition the PDS is available on the scheme operator’s website and referred to in advertising material;
  • the obligation to regularly value scheme property;
  • the statutory withdrawal procedures for members who withdraw from a class action under court rules;
  • the requirement to disclose detailed fees and costs information and information about labour standards or environmental, social or ethical considerations.

ASIC has also issued a no-action position in relation to the obligation under Chapter 2C of the Corporations Act to set up and maintain a register of members of a registered litigation funding scheme.

ASIC’s Deputy Chair Karen Chester said, ‘Since the Treasurer’s announcement on 22 May, ASIC has been working with Treasury, industry participants and other stakeholders to implement the new Government regulation of litigation funding.

‘As was contemplated in the Government’s Explanatory Statement, ASIC has given some relief for litigation funding schemes to manage the transition to the new regime.

‘We have concentrated on the relief required for Day 1 of the new regime. ASIC may provide additional relief or modify the relief we have made today as we and the litigation funding industry experience the new regulatory regime, and as the industry continues to evolve. ASIC will work to ensure that the Corporations Act operates effectively for litigation funding schemes,’ Ms Chester said.

ASIC will review its Day 1 relief in due course, taking into account the final report of the current Parliamentary Joint Committee inquiry into litigation funding and regulation of the class action industry.

ASIC will also consider applications for relief on a case-by-case basis, acknowledging the varying nature of litigation funding schemes in the market that may require a more bespoke regulatory response for some schemes. Applications for relief must be in writing and should address the requirements set out in Regulatory Guide 51 Applications for relief and any other regulatory guides relevant to the application.

ASIC encourages responsible entities of litigation funding schemes and other stakeholders to contact us if they have concerns about their ability to comply with the Corporations Act, particularly requirements in relation to PDSs and the content of scheme constitutions and compliance plans.

In order to ensure a smooth transition to the new regime, for the initial three months ASIC invites operators of litigation funding schemes to discuss their PDSs with ASIC before they issue them to consumers, and their scheme constitutions and compliance plans before lodging them with ASIC.

Background

The new regime for the regulation of litigation funding is subject to transitional rules in the Regulations. This means that the changes do not apply to litigation funding schemes entered into before 22 August 2020.

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