The Federal Government has released draft regulations to reinstate a financial services licensing exemption for litigation funders.

Assistant Treasurer Stephen Jones and Attorney General Mark Dreyfus say the regulations would “unwind the previous government’s unfair treatment of class action plaintiffs” and are drafted to facilitate access to justice.

The draft regulations would reinstate the longstanding exemptions from the Australian Financial Services Licence (AFSL), managed investment scheme (MIS) and other corporate regulatory regimes for litigation funders that existed before August 2020 changes.

Mr Jones and Mr Dreyfus say the decision to reverse the earlier regulations follows a Full Federal Court decision in June that held that the notion that funded class actions are managed investment schemes is “plainly wrong”.

An explanatory memorandum says the regulatory regime in the Act for regulating litigation funding schemes is not fit for purpose, and specifically, the MIS and AFSL regimes were not designed or intended to regulate the litigation funding industry.

The Government says it is also considering Australian Law Reform Commission recommendations to clarify and strengthen the powers of the Federal Court to ensure “fair and reasonable returns” to class action members.

Consultation on the draft regulation closes on September 30. Details are available here.