On 9 July 2026, the SRA published new guidance on third-party litigation funding.

A lot of firms reading this don’t arrange funding for clients, so it’s easy to assume the guidance sits outside their compliance workload. It doesn’t. The obligations the SRA has set out – independence, conflicts, financial crime – apply from the moment funding touches a matter, whatever route it arrived by. The real story sits behind the guidance, in the numbers the SRA published alongside it.

The numbers behind the guidance

The SRA found that fewer than one per cent of regulated firms are likely to use or arrange third-party litigation funding for high-volume consumer claims. On the surface, that sounds like a narrow issue. But those firms collectively represent tens of millions of clients, and the SRA’s supervision work uncovered firms whose litigation funding debt exceeded their annual turnover.

The regulator has already acted. Seven law firms have been closed as a direct result of enforcement action in this space, a dedicated supervision taskforce has been stood up to catch problems earlier, and as of the end of June the SRA had 94 open investigations spanning 68 firms involved in high-volume consumer claims.

“Our evidence shows that some arrangements can create risks to firm stability and lead to poor outcomes for consumers.”

That’s a regulator responding to firms that got into financial difficulty through funding arrangements they didn’t have proper oversight of – and, in some cases, that they didn’t fully understand.

What the guidance actually asks of firms

The new guidance doesn’t create new rules. It sets out how firms should apply obligations that already exist under the SRA Principles and Codes of Conduct when litigation funding is involved. Specifically, firms need to be able to show they:

1. Assess whether a funding arrangement is genuinely in the client’s best interests
2. Maintain independence from the funder
3. Identify and manage conflicts of interest
4. Give clients the information they need to make an informed decision
5. Understand their financial crime and money laundering obligations where funding is involved

That last point is where this connects directly to the compliance work most firms are already doing. Litigation funding brings third-party money into a matter, and third-party money is exactly the kind of thing a firm’s AML risk assessment and client due diligence processes are designed to catch. Last year, we wrote about the SRA’s sectoral risk assessment and the risks that arise around complex funding chains and multiple intermediaries – litigation funding is a variant of the same underlying risk.

The SRA is also developing onboarding materials – checklists and key facts documents – to help consumers understand costs, risks and options before committing to a funded claim. Firms arranging funding should expect these to become a practical reference point in future file reviews.

Why firms outside high-volume consumer claims should still pay attention

Most firms reading this won’t be running a book of high-volume consumer claims. But funding relationships don’t always arrive neatly labelled as such. Referral arrangements, marketing partnerships, and “no win, no fee” structures can all shade into third-party funding without a firm ever formally deciding to “use litigation funding.” The independence and conflicts obligations apply from the point funding is involved, not from the point a firm sets out to arrange it deliberately.

This is squarely a COLP responsibility. Under the COLP and COFA requirements, monitoring compliance with the SRA Principles – including independence and conflicts management – sits with the COLP, and financial crime oversight sits across both COLP and COFA roles. If your firm has any referral, funding, or third-party payment arrangements in its client onboarding, this is a sensible trigger for a targeted file review, rather than waiting for the SRA’s own inspection programme to find the gap first.

Where funding can hide in plain sight

The SRA’s definition of TPLF doesn’t turn on what an arrangement is called – it turns on whether a funder independent of the firm and client is providing money tied to the litigation. That catches a wider range of everyday arrangements than the phrase “litigation funding” tends to suggest:

1. Working capital loans linked to case volumes.

The guidance describes funders providing money a firm can draw on for marketing and referral costs, with drawdown tied to claim intake and repayment due regardless of outcome, sometimes secured against firm assets. Internally, this often gets described as an overdraft facility or a loan from a specialist lender rather than litigation funding — but if the terms move with case volumes, it meets the SRA’s definition.

2. Disbursement funding through a panel provider.

Where a funder pays court fees or expert costs directly for a named client, with the client owing the funder if the claim succeeds, this is a direct client-funder agreement under the guidance. It’s frequently presented to clients simply as “our disbursement funding partner” without being flagged internally as third-party funding.

3. Referral arrangements with claims management companies or brokers.

A flat referral fee isn’t TPLF. But where the CMC or broker is itself backed by an investor whose return depends on claim volumes or outcomes, or where the firm and CMC share in the eventual recovery rather than a fixed fee, the arrangement can shade into funding – particularly given the guidance’s warning about circular or opaque movement of funds.

4. After-the-event insurance bundled with funding.

Some ATE products now combine premium cover with an element of case funding. Where the two are blended, the funding element falls within scope even though the whole product is sold and treated internally as insurance.

5. Capital injections from a parent company or external investor.

Group structures or outside investment where funding is linked to case intake or success rates can resemble portfolio funding in substance, even when labelled as corporate investment or a shareholder loan.

The test isn’t what the arrangement is called. It’s whether money coming into the firm -from anyone outside the firm and client – depends on how many claims are taken on or how they resolve.

What to do next

For firms that do arrange or use litigation funding, the practical step is a documented review against the five points above – independence, conflicts, best interests, client information, and financial crime – with evidence a supervisor or auditor could actually inspect.

For firms that don’t think this applies to them, it’s still worth a short exercise: map where third-party money enters a client matter, and check whether your current AML and conflicts checks would actually catch a funding arrangement if one existed. Given the SRA’s own findings — firms with funding debt exceeding turnover, seven closures, dozens of open investigations — this isn’t a corner of practice where “we don’t think we do that” is a comfortable answer to leave unverified.

How Enderley can help:

• Compliance audits and gap analysis against the new guidance
• COLP/COFA support retainers, including targeted file reviews of funding and referral arrangements
• Annual declaration preparation
• Staff training via our Infohub webinar platform

Get in touch to discuss a review of your firm’s exposure.

About the author: Anne Austin founded Enderley Consulting and has spent her career working alongside COLPs and COFAs on the practical side of SRA compliance – the file reviews, the audits, the moments where regulatory theory meets a real client matter.