The SRA has opened a new consultation on third-party litigation funding in consumer claims. It is a technical consultation about funding documents, notification requirements, risk assessments and orderly closure plans.
But the bigger message is more interesting.
The SRA is no longer looking only at how high-volume consumer claims are marketed, onboarded and managed. It is now looking at the funders behind the work.
That is an important shift for firms involved in consumer claims. The consultation is not a ban on third-party litigation funding. Nor is it a criticism of funded litigation as a concept per se. The SRA recognises that funding can improve access to justice by allowing consumers to pursue claims that might otherwise be out of reach.
The concern is what happens when funding arrangements create poor incentives, weak governance, unclear client information, own interest conflicts, financial instability or a disorderly firm closure.
The consultation opened on 9 July 2026 and closes on 17 September 2026. The SRA says it forms part of its wider work on high-volume consumer claims, where it has already carried out thematic work, investigations, consumer research and a declaration exercise. It also says it has closed seven firms working in this sector and has 94 live investigations relating to misconduct concerns about 68 firms managing high-volume consumer claims.
What is the SRA proposing?
The consultation proposes five main changes.
First, the SRA wants specific professional conduct requirements when solicitors and law firms use or arrange third-party litigation funding. These would apply to all claim types, not just consumer claims. The proposed requirements include maintaining independence from the funder, acting in clients’ best interests, only disclosing confidential information with informed client consent, and confirming these obligations in writing to clients and funders. Clients would also need to be told in writing that the funder is not regulated by the SRA.
Secondly, firms using or arranging third-party litigation funding for consumer claims would need to provide clients with a prominent funding information document before the client signs a funding agreement. This would need to explain key issues in clear and plain language, including free alternatives, other possible sources of funding, legal expenses insurance, the firm’s charges, any success fee, the funder’s return, likely deductions from damages, adverse costs risk, termination and cooling-off rights.
Thirdly, firms would need to notify the SRA promptly when they use or arrange third-party litigation funding for consumer claims. The SRA is not proposing a minimum threshold for notification. Its view is that earlier visibility will help it identify risk across the market, including exposure to particular funders.
Fourthly, firms would need to document and retain a third-party litigation funding risk assessment. This would need to be completed when entering into the relevant funding arrangement, updated every six months, and approved by the firm’s chief executive, managing partner or equivalent, together with the firm’s compliance officers. The risk assessment would need to cover areas such as the funder’s identity, source of funding, financial position, capital adequacy, liquidity, the firm’s financial exposure, legal assessment of the claims, adverse costs exposure, ATE insurance, funding terms and conflicts.
Finally, some firms would need to prepare and maintain an orderly closure plan. This would apply where the firm is using or arranging non-recourse third-party funding for consumer claims and has, or expects to have, 500 or more individual claimants; where recourse funding is equivalent to or greater than 30% of the firm’s latest reported annual turnover; or where the firm, or someone connected with it, has provided security in relation to the funding. The plan would need to cover issues such as client communications, file transfer, client money, closed file storage, run-off cover, liabilities and the resources needed to close the firm in an orderly way if that became necessary.
This is more about governance than client care
There will be a temptation to read this consultation as another client care exercise. That would be too narrow.
Yes, the proposed funding information document is important. The SRA is clearly concerned that clients may not understand what they have signed, what they will pay if the claim succeeds, what deductions will be taken from damages, what happens if they want to stop, or whether there were cheaper or free alternatives available.
That is not surprising. High-volume consumer claims often involve long documents, online onboarding journeys, automated communications and clients who may have little experience of legal services. The SRA says its consumer research and wider work have identified concerns about unclear information, limited explanation of costs and outcomes, and clients being unsure when they had formally signed up with a law firm.
But the consultation goes much further than the wording of client documents.
It asks whether the firm understands the legal, financial and regulatory risks created by the funding model itself. It asks whether the business can survive if claims take longer, become less profitable, fail altogether, or if the funder withdraws support. It asks whether the funder has the money it says it has. It asks whether the firm has allowed funding arrangements to influence which clients it takes on, how claims are run, or what advice clients receive.
Those are board-level and compliance officer-level questions.
The independence issue
The most sensitive issue is independence.
Where a funder is providing working capital, funding disbursements, taking a return from successful claims, or holding security over the firm, the funder may have a strong commercial interest in the volume, selection, progression and settlement of claims.
That does not automatically make the arrangement improper. But it does create a regulatory tension.
The solicitor’s duty is to the client. The funder’s interest is in the return. The firm may also have its own commercial interest in maintaining access to funding, meeting drawdown assumptions, servicing debt, or preserving the wider relationship with the funder.
The SRA is concerned that some firms may not be properly safeguarding their independence from funders, may not be identifying own interest conflicts, and may be arranging direct client-funder agreements that are not in the best interests of clients.
That should prompt firms to ask some questions.
Who decides whether a claim is accepted? Who controls the litigation strategy? What happens if the funder wants a different approach from the client? Does the firm have any financial incentive to take on more claims than it can properly supervise? Are clients being advised on the funding arrangement, or merely being presented with documents to sign? Can the firm say no to the funder without putting its business model under pressure?
If those questions have not been worked through before the arrangement is signed, the firm is already taking on avoidable regulatory risk.
The money laundering and sanctions angle
One of the more striking parts of the consultation is the SRA’s focus on financial crime.
The SRA says some firms are not alert to the risk that receiving funds from a litigation funder may involve criminal property or funds transmitted in breach of the UK sanctions regime. It also notes that third-party litigation funding is not subject to mandatory regulation in England and Wales.
A law firm should not treat a litigation funder as merely a commercial lender with a term sheet. The firm needs to know who it is dealing with, where the money is coming from, who ultimately controls the funder, whether any sanctions risk arises, whether the funder has the capital and liquidity to meet its commitments, and whether the structure creates any obvious financial crime risk.
This means taking a risk-based approach to the funder relationship and recording the checks, judgments and approvals that support the decision to proceed.
For some firms, this may require a change of mindset: if the funding is central to the delivery of legal services to large numbers of clients, it cannot sit outside the compliance framework.
The orderly closure proposal
The proposed orderly closure plan is perhaps the clearest indication of what the SRA is worried about.
The SRA is not simply asking firms to think about what happens when they are already in financial difficulty. It wants some firms to plan for failure before the funding arrangement begins.
The SRA says its declaration data and investigations show that some firms have taken on very high levels of working capital funding compared with turnover and reserves. It gives the example of 18 firms reporting debt to a third-party litigation funder that exceeded the value of the firm’s last reported annual turnover.
A firm built around high-volume funded claims may look profitable while claims are growing, funding is flowing and assumptions remain intact. The problem comes when the model is stressed. Claims may take longer than expected. A key issue may be decided against claimants. Client acquisition costs may rise. A firm may struggle to meet repayment obligations. The firm may have thousands of live clients, large volumes of data, ongoing disbursements, adverse costs exposure, PII implications and no easy way to transfer files.
At that point, the problem is no longer just commercial. It becomes a consumer protection problem.
That is why the orderly closure proposal should be seen as part of a wider trend. The SRA increasingly expects firms to evidence that their business model is not creating unacceptable risk for clients, the Compensation Fund, the profession or the wider public interest.
What should firms do now?
The proposals are not yet rules. The consultation is open until 17 September 2026 and the SRA will need to consider responses before deciding whether to proceed. If changes are made to the Standards and Regulations, approval from the Legal Services Board will also be required.
But firms should not wait passively.
Any firm involved in funded consumer claims should already be able to answer the questions sitting behind the consultation. In practice, that means reviewing:
- existing funding arrangements and whether they create financial, operational or regulatory pressure;
- funder due diligence, including ownership, source of capital, liquidity, sanctions and financial crime risk;
- whether clients are given clear information about funding options, deductions, alternatives and risks;
- whether funding agreements are genuinely in the client’s best interests;
- whether the firm has identified and managed own interest conflicts;
- whether confidentiality and legal professional privilege are properly protected when information is shared with funders;
- whether the firm has enough supervision, staffing and systems to manage the volume of claims it accepts;
- whether senior management, the COLP and the COFA have proper oversight of the arrangement;
- whether the firm could manage an orderly wind-down if the funding model failed.
The SRA has also published guidance on using or arranging third-party litigation funding. That guidance reminds firms of existing obligations, including financial stability, risk management, notification of serious financial difficulty, competent and timely service, referrals, conflicts, confidentiality, compliance officer duties and giving clients information in a way they can understand.
In other words, even before any new rules are introduced, the SRA is already telling firms how it expects existing obligations to be applied.
A wider lesson for consumer claims work
This consultation is aimed at third-party litigation funding, but the underlying lesson is broader.
The SRA is becoming increasingly interested in law firm business models. It is not enough for a firm to say that each client has signed the right document or that each matter has a file note. The regulator is looking at whether the structure of the work creates poor incentives, weak controls or unacceptable consumer risk.
For firms in high-volume consumer claims, that means compliance cannot be bolted on at the end of the process.
Third-party litigation funding can support access to justice. But if the funder, the firm and the client are not properly aligned, the arrangement can quickly become a regulatory problem.
The firms best placed to withstand SRA scrutiny will be those that can show clear governance, proper funder checks, transparent client information, active conflict management, realistic financial monitoring and early planning for what happens if the model comes under pressure.
JBL Compliance helps law firms review funding arrangements, client onboarding documents, risk assessments, governance controls and orderly closure planning. If your firm uses, arranges or is considering third-party litigation funding for consumer claims, now is a sensible time to review the arrangement.
