A clear path forward for reform of litigation funding in the UK has now been formalised in the Civil Justice Council's final report, published on 2 June 2025. A suite of 58 recommendations sets out the Civil Justice Council (CJC)'s proposed approach.

At its heart are three core objectives: to promote effective access to justice; to introduce fair and proportionate regulation of third party litigation funding; and to improve the accessibility and transparency of litigation funding, particularly for collective proceedings and consumer claims.

This final report follows the CJC's interim report from October 2024 and consultation responses published in March 2025.

For a refresher on the fundamentals of litigation funding, take a look at our resources: How can litigation funding help your business and Litigation funding: 10 things you need to know.

Key recommendations of the CJC final report:

The headline proposals for change are:

Light touch regulation

A central recommendation is the introduction of a light touch regulatory regime, guided by the European Law Institute's recent principles governing litigation funding (ELI Principles). This will replace the current self-regulatory and voluntary approach via membership of the Association of Litigation Funders (ALF).

PACCAR reversal

The report calls for urgent legislation to reverse the 2023 Supreme Court case of PACCAR. New law should apply both retrospectively and prospectively. The PACCAR decision re-classified many litigation funding agreements (LFAs) as damages-based agreements (DBAs), rendering them unenforceable under the rules governing DBAs. The proposed legislation should clarify that litigation funding is not a DBA.

Separate regulatory regimes

The CJC stresses the importance of clear separation between:

  1. contingency fee arrangements (i.e. Conditional Fee Agreements (CFA)s and DBAs), which is funding provided to a party by their legal representative, and
  2. third party litigation funding, where the funder is a separate commercial entity or individual who is not a party's legal representative.

Each model calls for different regulatory treatment.

No cap on funder fees

In a win for commercial funders, the report rejects the imposition of fixed caps on funders' returns, concluding that such caps could deter funding and that court oversight provides sufficient protection against excessive returns.

Other Recommendations:

We highlight below some, but not all, of the further recommendations made in the report:

No FCA regulation

Regulation by the FCA is not recommended at this stage, but this should be reviewed in five years' time (i.e. 2030), following implementation of the new light-touch regime.

Arbitration

Proposed regulation should not extend to arbitration funding.

Litigation Funding Regulations - Differential

Differential regulation should apply to litigation funding. Commercial users should need only minimal regulation, while enhanced safeguards should apply to consumer funded parties or where funding is provided in collective proceedings, representative actions or group litigation.

Baseline regulatory requirements

A baseline set of regulatory requirements should apply to all cases of litigation funding and should include provision for:

  • case-specific capital adequacy requirements – the litigation funder would be required to maintain a sufficient level of capital to enable it to meet its financial obligations under the funding agreement
  • codification of the current prohibition on litigation funders controlling funded litigation
  • prohibition and resolution of conflicts of interest
  • application of anti-money laundering requirements
  • disclosure at the earliest opportunity to the court and other parties of the fact of funding (but not LFA terms), the name of the litigation funder identity, and the ultimate source of the funding.

Breach of the regulations would render any regulated funding agreement unenforceable, although the court should have power to waive regulatory breaches where just and reasonable to do so.

Additional regulatory requirements for funding class actions and consumer claims

Where the funded party is a party to collective proceedings, a representative action, a group action, or is a consumer, the following additional requirements are recommended:

  • A new Consumer Duty should be introduced based on the FCA's Consumer Duty, which would include a requirement to provide advance information in clear and transparent terms about the funding.
  • Independent legal advice from a King's Counsel (KC) on a proposed LFA should be given to the funded party before entry into the agreement.
  • The funding agreement should be disclosed to the court, on a without notice basis, for approval of the funding arrangements, including and in particular the funder's return.
  • Certification by the funder and law firm that they did not approach the funded party in respect of the claim.
  • ATE would be required with robust anti avoidance endorsements.
  • Standard terms should be developed and annexed to the new Regulations, introducing clarity, improving consumer protection and reducing funding cost. Dispute resolution mechanisms for funders and funded parties should be included.

Single Contingency Fee Regime

To improve the operation of both CFAs and DBAs, there should be a single, regulatory, contingency fee regime. Responsibility for this should move from the Ministry of Justice to the Civil Procedure Rules Committee.

There should be urgent reform of the DBA Regulations.

Courts should have a discretion to enable non-compliant CFAs and DBAs to be enforceable.

In commercial cases, the approach to damage-related caps on success fees which is applied under Scottish regulatory regime (where specific caps are imposed depending on the case type) should be adopted in England and Wales.

Where commercial parties enter into a CFA or DBA, there should be no cap.

DBAs should be permitted in opt-out collective proceedings in the CAT, on the same basis that litigation funding is permitted. There should be no cap on such DBAs but the return should be approved by the CAT on the same basis as the return under an LFA, and entry into it should be approved.

Legislation should clarify hybrid funding arrangements are lawful.

The indemnity principle should be abrogated legislatively where CFAs and LFAs are concerned.

Effective legal services regulation

Legal services regulators should review their current approaches to regulation. This should be done not only in respect of litigation funding but also for the provision of loans, portfolio funding, CFAs and DBAs.

Reform of court rules

There should be a statutory power to enable the civil courts and CAT to manage and budget the costs of funding claims.

At pre-action stage of funding, they should be required to consider whether other, non-court-based forms of redress are available for proposed funded collective proceedings, representative actions and group litigation.

CPR 19 should be revised to be consistent with the CAT Rules where provision for litigation funding is concerned.

A pre-action protocol for mass claims should be considered, for civil proceedings and proceedings in the CAT.

Costs and funding

Enhanced costs budgeting and costs management should become mandatory for all collective proceedings, representative actions and group litigation.

Other funded claims should be considered for costs budgeting under CPR PD3D.

Better practice guidance on costs budgeting and management of funded claims should be developed.

Only specially authorised judges, with specific training, should be allocated to manage funded claims.

In a notable change to the current status quo, provision should be made for recoverability of litigation funding costs in exceptional circumstances. This would reflect the current position in arbitration, but would change the position in civil proceedings.

The current approach to the Arkin cap (where the court makes a decision concerning a litigation funder's liability for adverse costs of litigation on a case-by-case basis) should be codified in the CPR and CAT rules.

Security for costs

As capital adequacy requirements and other costs protections are recommended, a presumption of security for costs is not accepted. But security for costs will be necessary if a litigation funder breaches regulatory requirements concerning capital adequacy.

Portfolio funding

Portfolio funding should be regulated as a form of loan by the FCA. The government should investigate full impact of portfolio funding.

Single statutory framework, data collection and Standing Committee

All recommendations should be implemented through one single, comprehensive piece of legislation. A Standing Committee on Litigation Funding should be established, responsible for data collection on LFAs, CFAs, and DBAs from law firms, funders and the court service. Such data gathering will aid ongoing scrutiny and review of funding.

In so far as the CJC's recommendations in the report are to be accepted, the report anticipates that the recommendations form the subject of primary legislation, which would contain provision for the making of secondary legislation, namely the proposed Litigation Funding Regulations and Contingency Fee Regulations.

Insight and next steps

The CJC's recommendations are striking for both their breadth and clarity. Rather than seeking to constrain litigation funding as some had feared, the report acknowledges its role in widening access to justice, while also recognising the need for transparency, accountability and consumer protection.

The next steps will be for government to consult and consider legislative action. Whether this leads to a new statute in the near term remains uncertain but the momentum for reform is clear.

Gowling WLG Partner Emma Carr commented "The report is perhaps the most constructive development for litigation funding in over a decade. Most welcome of all is likely to be the call to reverse PACCAR, a decision that has since caused disruption and uncertainty in the funding market.

The challenge now lies in implementation, whether the government embraces the recommendations and how quickly it acts will determine its true impact. Delay risks prolonging uncertainty, but the report sets out a good foundation for forward looking reform."

If you would like to discuss the upcoming changes to litigation funding in the UK, contact our specialist Litigation Funding team for further guidance.