Third-party funders will need to maintain a minimum of £2m of capital if they are to be members of the Association of Litigation Funders (ALF), after it today strengthened its capital adequacy requirements.
As well as updating its code of conduct, the ALF has introduced a detailed complaints procedure by which each funder member will agree to be bound.
The ALF currently has eight funder members: Argentum Capital, Burford Capital, Calunius Capital, Harbour Litigation Funding, Redress Solutions, Therium Capital Management, Vannin Capital and Woodsford Litigation Funding. Juridica Investments is an associate/overseas member.
Previously the code just required members to cover aggregate funding liabilities under all of their funding agreements for a minimum period of 36 months.
Now they have to maintain £2m of capital or such other amount as stipulated by the ALF, and accept a continuous disclosure obligation in respect of their capital adequacy, including a specific obligation to notify the ALF and clients if the funder “reasonably believes that its representations in respect of capital adequacy under the code are no longer valid because of changed circumstances”.
The new code further requires each member to be audited annually by a “recognised” audit firm and provide the ALF with a copy of the audit opinion on their most recent annual statements, along with “reasonable evidence from a qualified third party” that the funder satisfied the minimum capital requirement.
ALF chairman Leslie Perrin, who is also the chairman of Calunius Capital, said the increasing stringency of the capital adequacy requirements – the £2m is likely to increase next year – reflected the experience members had gained of what was needed to operate securely in the market, while at the same time not introducing “arbitrary obstacles” to potential members.
He added: “If the code and membership of the ALF is going to be some kind of mark of approval, the code has got to mean something.” Similarly, “you can’t have a code without a complaints procedure”, although to date the ALF has never received a complaint about a member anyway – although it has about non-members.
The robustness of the code made it harder for lawyers to steer clients to funders who are not members, Mr Perrin noted.
The changes have been welcomed by the Civil Justice Council (CJC), which is chaired by the Master of the Rolls, Lord Dyson. In a statement, it said: “The CJC wishes the 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.”
The other main change to the code makes it more obvious that it applies to any entity with which an ALF member is connected.