The SRA has published new guidance on the use of third-party litigation funding (TPLF), reminding solicitors and law firms of their professional obligations when funding arrangements are used or when clients are introduced to external funders.
Third-party litigation funding can provide an important route to justice by enabling clients to pursue claims that they may otherwise be unable to afford. However, the SRA has highlighted that these arrangements can also create regulatory risks if they are not properly managed, particularly where firms are involved in high-volume consumer claims or rely heavily on external funders, introducers or other third parties.
What does the guidance cover?
The new guidance applies to SRA-regulated firms, solicitors and others involved in using or arranging third-party litigation funding. It focuses on ensuring that firms comply with their existing professional obligations, including their duties to act in the best interests of clients, provide information clients can understand, and manage risks appropriately.
The SRA highlights a number of areas where firms should exercise particular care, including:
- ensuring clients understand the nature of any funding arrangement, including the costs, risks and potential consequences;
- considering whether the funding arrangement is suitable for the client and the circumstances of the claim;
- managing any conflicts of interest that may arise between the interests of the client, the firm and the funder;
- carrying out appropriate due diligence on third-party funders and other organisations involved in the claims process; and
- ensuring appropriate supervision, governance and oversight arrangements are in place.
Why is this relevant now?
The publication of this guidance comes alongside wider SRA scrutiny of the high-volume consumer claims sector. The regulator has expressed concerns that some litigation funding arrangements have contributed to poor consumer outcomes and, in some cases, risks to firm stability. The SRA is consulting on potential additional requirements for firms involved in using or arranging third-party litigation funding for consumer claims, including notification requirements and the completion of a specific risk assessment.
Although the immediate focus may be on consumer claims, the underlying regulatory expectations apply more widely. Any firm using external funding arrangements should consider whether its existing policies, procedures and risk assessments adequately address the associated risks.
Practical steps for law firms
Firms that use or arrange third-party litigation funding should consider:
✅ reviewing their funding arrangements and identifying where third parties influence the client relationship;
✅ updating risk assessments to reflect the risks associated with funders, introducers and other commercial partners;
✅ checking that client care information clearly explains funding arrangements, costs and responsibilities;
✅ ensuring fee earners and supervisors understand the firm’s obligations when dealing with funded litigation; and
✅ documenting decisions so that the firm can demonstrate appropriate consideration of regulatory risks.
A reminder for compliance reviews
Third-party litigation funding is another example of the increasing expectation that law firms have robust governance arrangements around their business models, not just their legal work. The SRA’s guidance reinforces the importance of taking a proactive approach to identifying and managing risks before they develop into regulatory concerns.
For firms using litigation funding arrangements, now is a good time to review your policies, risk assessments and client communications to ensure they remain fit for purpose.
At Legal Compliance Services, we help law firms identify regulatory gaps and strengthen their compliance frameworks through practical, proportionate reviews, audits and ongoing support.
