The Australian Securities and Investments Commission (ASIC) has allowed litigation funding schemes three months of relief measures as they transition to a new regulatory regime.

The Federal Government announced in May that funders will be required to hold an Australian Financial Services Licence. The removal of regulatory exemptions, which took effect last week, requires funders to comply with the managed investment scheme regime.

Litigation funders have been blamed for fuelling a rise in class actions, particularly against listed companies, leading to soaring premiums for directors’ and officers’ cover.

To ensure a smooth transition to the new regime, ASIC is inviting operators of litigation funding schemes to discuss their product disclosure statements with it before they issue them to consumers for three months, and their scheme constitutions and compliance plans before lodging them with ASIC.

“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,” ASIC’s Deputy Chair Karen Chester said.

On Friday, ASIC revealed its ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 includes relief from:

• the obligation to give a product disclosure statement 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.

The Insurance Council of Australia has previously argued that litigation funders should come under a licensing regime and also be subject to some form of capital adequacy requirement.