Australian Regulation of Litigation Funders

26th May 2020
canberra-parliamentary-house-lcm-finance

AIM-listed Litigation Capital Management Limited (LCM), a leading international provider of disputes financing solutions, notes the announcement on 22 May 2020 by the Federal Treasurer of Australia, Josh Frydenberg, that litigation funders operating in Australia will be subject to new regulation requiring them to obtain and maintain an Australian Financial Services Licence (AFSL).

LCM believes it is the only litigation financier in Australia that currently holds and maintains an AFSL. Currently the supply of litigation finance is exempt from the requirement to hold an AFSL and such exemption is likely to be removed by August 2020. This places LCM in an advantageous position against its peers operating in Australia.

As part of the new regulatory process, LCM has been asked by the Australian Federal Government to assist in a parliamentary inquiry into whether any further regulation of litigation finance is required in the context of class actions, the findings and recommendations of which will be made public. LCM has anticipated for some time that class actions in Australia would be the subject of further regulation and expressed its support for such an initiative while assisting in two prior inquiries, one by the Australian Federal Government and one by a State Government.

LCM actively manages its portfolio of investments with its objective of spreading investment risk to ensure that no industry sector or type of claim dominates its portfolio. Specifically, LCM limits the number of class actions that it is prepared to invest in depending upon the size of its overall portfolio. LCM remains firmly focused on the provision of disputes financing solutions in the areas of insolvency, commercial disputes, arbitration and corporate portfolio funding.

Patrick Moloney, CEO of LCM, commented: “LCM anticipated changes to regulation and as a result already holds an Australian Financial Services Licence. LCM fully supports the move to increase regulation in our industry. Regulation of litigation funding insofar as it concerns class actions is something that is not only welcomed by LCM but could provide it with a strategic advantage as the cost and compliance issues are likely to create further barriers to entry and restrict the numbers of financiers that can fund class actions.”

In April, LCM appointed Mary Gangemi as its new Chief Financial Officer and James Foster as an Investment Manager, both based in London. Their appointments follow the March close of a new US$150m third-party fund backed by significant global blue-chip investors. The fund marks LCM’s return to managing third-party funds, following its building of a permanent source of balance sheet capital through the equity markets.

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