SRA Litigation Funding Rules: What the Consumer Claims Consultation Means for Firms

Third-party litigation funding — where an external funder finances a claim in exchange for a share of any damages recovered — has grown from a niche financing tool into a mainstream feature of consumer group claims and larger commercial disputes. Fewer than 1% of law firms currently use litigation funding on their files, yet because it is concentrated in exactly the kind of large consumer group actions that can affect tens of millions of individual claimants, its regulatory treatment has an outsized practical impact. The Solicitors Regulation Authority is now consulting on new rules specifically addressing how firms use litigation funding in consumer claims, with the consultation period closing on 17 September 2026.

This guide sets out what the SRA is proposing, why it matters even for firms that rarely touch litigation funding, and what to watch for as the consultation concludes.

Why the SRA is looking at litigation funding now

Litigation funding arrangements can create risks that are easy to overlook when a claim is framed primarily around the underlying legal merits. Funding agreements typically carry a return for the funder calculated as a multiple of the sum invested or a percentage of damages recovered, and in some cases these funder returns have been found to leave a claimant with a smaller net recovery than anticipated, or have left firms carrying litigation funding-related debt that exceeded their annual turnover when a funded case underperformed. Because consumer claimants are often not sophisticated purchasers of financial products, and may not fully appreciate how a funding arrangement affects their ultimate recovery, the SRA's consultation is focused specifically on the consumer end of the market rather than commercial litigation funding generally.

What the SRA is proposing

• Mandatory notification to the SRA. Firms using third-party litigation funding in consumer claims would be required to notify the SRA of the arrangement, giving the regulator visibility of funding use across the sector that it currently does not have in any systematic way.
• Documented risk assessment. Firms would need to carry out and document a risk assessment before entering into a funding arrangement on behalf of consumer clients, considering factors such as the funder's financial position and the effect of the funding terms on the client's likely net recovery.
• Mandatory pre-signing client summary documents. Clients would need to receive a clear summary document, before signing a funding agreement, that explains in plain terms what the funding arrangement means for their claim and their eventual recovery — addressing the concern that funding terms are sometimes presented within lengthy, technical documentation that consumer clients are not well placed to evaluate unassisted.

Taken together, these proposals shift litigation funding from a largely unregulated commercial arrangement between firm and funder into something the SRA expects firms to actively risk-assess and explain to clients as part of their existing duty of proper client care.

Why this matters even for firms that rarely use funding

Because so few firms currently use third-party litigation funding, it would be easy for the wider profession to treat this as a niche consultation relevant only to specialist group-claim practices. That would be a mistake for two reasons. First, the scale of consumer claims affected by funding arrangements is disproportionately large relative to the small number of firms involved, meaning the SRA's interest reflects genuine consumer protection concern rather than a narrow technical issue. Second, any firm that refers clients to, or works alongside, a funded group claim — even without directly holding the funding relationship itself — should understand the standards the SRA expects to apply, since referral relationships and joint conduct of proceedings can bring a firm within the practical scope of these expectations even if it is not the firm signing the funding agreement.

Firms should also consider how this consultation interacts with existing obligations around price transparency and client communications, since a client-facing funding summary is, in substance, another form of clear costs and risk communication that the SRA already expects firms to get right in other contexts.

What to do now

Firms that currently use, or are considering using, litigation funding in consumer matters should review the consultation document directly and consider responding before the 17 September 2026 deadline, particularly where the proposed notification and documentation requirements would require building new internal processes. Firms without direct funding relationships should still monitor the outcome, since referral arrangements with funded claims are common enough that the eventual rules are likely to have some downstream relevance even for firms that never sign a funding agreement themselves.

Frequently asked questions

When does the SRA's litigation funding consultation close?

The consultation is due to close on 17 September 2026.

Does this consultation apply to commercial litigation funding as well as consumer claims?

The proposals are specifically framed around consumer claims, reflecting particular concern about consumer clients' ability to assess funding terms; commercial litigation funding involving sophisticated corporate clients is not the primary focus.

What proportion of law firms currently use third-party litigation funding?

Fewer than 1% of firms currently use litigation funding, though the claims involved can affect very large numbers of individual consumer claimants given the concentration of funding in large group actions.

The SRA's litigation funding consultation reflects a broader regulatory pattern of scrutinising arrangements that are individually rare but collectively high-impact for consumers. Firms with any exposure to funded consumer claims — direct or through referral — should treat the consultation outcome as a genuine compliance development to track. Learnsignal's CPD courses cover SRA regulatory developments and client care obligations for solicitors.