SRA consults on litigation funding reforms

The Solicitors Regulation Authority (SRA) has initiated a 10-week consultation aimed at enhancing requirements for solicitors who use or arrange third-party litigation funding within the realm of consumer claims. This initiative comes alongside the publication of new guidance designed to help solicitors and law firms adhere to existing professional standards while managing such funding arrangements.

The SRA acknowledges the significant role that litigation funding can play in promoting access to justice but highlights evidence suggesting that certain funding arrangements may pose risks to the stability of law firms and result in suboptimal outcomes for consumers. In light of this, the SRA is looking to consult on targeted and proportionate new measures.

Proposed requirements for law firms include notifying the SRA when third-party litigation funding is arranged, creating and keeping a risk assessment related to this funding, and supplying clients with summary documents prior to the signing of any funding agreements. This consultation is part of a broader initiative by the SRA to mitigate risks prevalent in the high-volume consumer claims sector, which often utilises 'no win, no fee' funding models. The proposals are underpinned by extensive evidence of consumer harm gathered from various sources including the SRA’s 2025 discussion paper and ongoing investigations.

In addition to this consultation, the SRA is releasing supportive guidance that outlines how solicitors should evaluate whether funding arrangements truly serve the interests of their clients, maintain independence, manage conflicts of interest, and ensure that clients are well-informed before making decisions. The guidance also addresses crucial responsibilities concerning financial crime and money laundering.

The SRA is also in the process of developing onboarding materials, including checklists and key facts documents, aimed at improving consumer understanding and engagement. This effort is intended to better equip consumers with the knowledge they need regarding costs and risks associated with their claims before proceeding.

Data from the SRA indicates that while less than 1% of regulated firms are expected to engage with third-party litigation funding for high-volume consumer claims, these firms collectively represent tens of millions of clients. The research reveals an extensive reliance on third parties such as referrers and litigation funders, especially observed in the car finance sector, with some firms carrying litigation funding debts that surpass their annual turnover.

Aileen Armstrong, Executive Director of Strategy and Policy, expressed the regulator's concerns, saying, “We have seen clear evidence that third-party litigation funding can create risks to firm stability and lead to poor outcomes for consumers. That’s why we are issuing new guidance for law firms and solicitors, and consulting on targeted new requirements to ensure third-party litigation funding is used responsibly and with safeguards in place. At the same time, we are taking steps to improve the information consumers receive at the start of a claim. We are testing new materials to help people better understand what they are signing up to and make informed choices.”

The SRA has previously taken enforcement measures within this sector, including shutting down seven law firms. A supervision taskforce has been established to proactively identify and address risks by fostering better engagement with high-volume consumer claims firms, aiming to tackle concerning practices before they culminate in negative outcomes for consumers.

As of the end of June 2026, the regulator has 94 ongoing investigations spanning 68 firms involved in managing high-volume consumer claims. The current consultation will remain open until 17 September 2026 and is part of the SRA’s continued efforts to uphold standards and protect consumers in legal processes involving third-party litigation funding.