The Victorian Law Reform Commission has urged the State Government to push for stronger national regulation and supervision of the class action funding industry.

“Apart from those listed on the Australian Securities Exchange, litigation funders in Australia are free from mandatory licensing, financial disclosure requirements, reporting obligations or prudential supervision,” the commission says in a report tabled last week.

“State regulation of litigation funding is not a viable option, because a national response is required.”

The commission also suggests lawyers could be allowed to charge contingency fees, permitting law firms to receive a percentage of the amount recovered if a claim is successful.

“This would increase competition with litigation funders, which may reduce costs in some cases, and enable claims to be pursued that are not financially viable investments for litigation funders.”

The Australian Law Reform Commission is also reviewing class action proceedings and third-party litigation funders, focusing on the Federal Court, where most shareholder actions are filed. It will deliver its report by December 21.

A rise in class action settlements, supported by litigation funders, has been blamed for surging premiums in directors’ and officers’ cover.