The Association of Litigation Funders (ALF) has set new capital adequacy requirements and complaint procedures for its third party funder members. The changes which were announced this week were met with approval by the Civil Justice Council, who wished ALF “. . . success in its continued efforts to progress and achieve a successful and robust regime of self-regulation for litigation funding in England and Wales.”
Under the new capital adequacy requirements the eight litigation funder-members of ALF will be required to maintain £2million of capital or an amount stipulated by the ALF, as well as accept a continuous disclosure obligation in respect of their capital adequacy. The provisions also require litigation funders to notify ALF as well as their clients if a change in circumstances means a previous representation of its capital is no longer valid. This is a significant change from ALF’s former requirement which merely required members to cover aggregate funding liabilities under their litigation funding agreements for a minimum period of 36 months. There were also further indications from ALF that the adequacy requirement is likely to increase in the future.
The new code also requires funder-members to be audited annually by a recognised firm and provide the ALF with the audit opinion and evidence from a qualified third party that the funder satisfies the minimum capital requirement.
In addition to the new adequacy requirement, ALF has amended its definition of a ‘funder’ to include corporate subsidiaries that hold funds, closing a possible loophole and making it obvious that the code applies to any entity with which an ALF member is connected.
The new adequacy requirement was accompanied by new procedures for making a complaint against a funder-member of ALF. Drafted by barrister Joanna Smith QC, the new complaints regime provides procedures for lodging a complaint against an ALF member. The procedures set out a process under which complaints will initially be investigated by ALF’s general counsel and then reviewed by the board for possible referral to independent legal counsel, who could then make a recommendation of sanctions. The procedure allows for appeals against complaints decisions, but if a complaint is upheld possible sanctions could include expulsion from the body, suspension of membership, publication of the independent counsel’s opinion, or a public or private rebuke. It is also within ALF’s power to issue small monetary fines of up to £500, which would likely be reserved for low-level technical breaches.
These changes reflect ALF’s desire for the code and membership in the body to ‘mean something’ without introducing ‘arbitrary obstacles’ to funder-members.