If litigation funding has become a multi-billion-pound investment market, why isn’t it regulated like one?

That was the question posed in the House of Lords by Baroness Bowles of Berkhamsted, who tabled an amendment calling for third-party litigation funders to come under the supervision of the Financial Conduct Authority (FCA).

Ministers accepted that litigation funding requires greater regulation. What they failed to explain is why they continue to resist the obvious regulator.

That reluctance is becoming increasingly difficult to defend.

From Courtroom to Capital Market

Litigation funding was once presented as a specialist tool to help people who could not afford to pursue legitimate claims.

Today, it is something very different.

The UK has become one of the world’s largest litigation funding markets, attracting billions of pounds from hedge funds, private investment vehicles, sovereign wealth funds and other institutional investors seeking returns.

Legal claims have become financial assets.

That does not make litigation funding inherently wrong. But it does mean it should no longer be treated as a niche legal service operating largely outside mainstream financial oversight.

A Regulatory Blind Spot

Modern litigation funding involves complex commercial arrangements, opaque ownership structures, cross-border capital, contingent returns and potential conflicts of interest.

Yet much of the sector remains subject only to voluntary self-regulation.

The Association of Litigation Funders has helped establish standards, but membership is voluntary and covers only part of the market. That is no substitute for statutory regulation.

The risks are no longer theoretical.

The Solicitors Regulation Authority’s review of the mass claims market found that, among the firms it investigated using litigation funding, around half had failed to advise clients about those funding arrangements.

Consumers deserve far greater transparency about who is financing their claims, what commercial interests are involved and how those arrangements could affect their case.

The FCA Is the Obvious Choice

The Government has already accepted that reform is necessary. It intends to legislate following the Supreme Court’s PACCAR decision and has commissioned extensive work through the Civil Justice Council.

The debate is no longer whether litigation funding should be regulated.

It is who should regulate it.

The FCA already oversees capital adequacy, governance, disclosure, anti-money laundering, conflicts of interest and market conduct. Those are precisely the issues raised by modern litigation funding.

Creating an entirely new regulatory regime would be slower, more expensive and far less coherent than using the regulator that already exists.

Protecting the Integrity of Justice

The UK’s courts exist to deliver justice, not to provide investment opportunities for global capital.

When litigation becomes another financial product, the public is entitled to expect the same standards of transparency, accountability and consumer protection that apply elsewhere in financial markets.

Ministers have acknowledged the need for reform.

Now they should finish the job.

The era of voluntary self-regulation has passed. If litigation funders want the privileges of operating in one of the world’s leading legal markets, they should also accept the responsibilities that come with operating in one of the world’s leading financial centres.