ASIC flags class order relief on Govt class action changes
The Australian Securities and Investments Commission (ASIC) has flagged issues with implementing the Government’s proposals for class action litigation funding to be subject to financial services regulation and managed investment scheme (MIS) arrangements.
The regulator has pointed out that the existing legal arrangements were never intended to cover litigation funding, stating “financial services and managed investment scheme regulation was not specifically designed to regulate litigation funding”.
In doing so, ASIC’s deputy chair, Daniel Crennan QC, flagged there may be a need for class order relief.
ASIC’s comments to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Government’s changes come amid earlier revelations that the regulator was given barely 24 hours’ notice of the Government’s intentions and amid claims by the Labor Opposition that the Government has been motivated by lobbying by particular US business groups.
In its opening statement, ASIC said that issues arose from the fact that the law was not designed to handle litigation funding, not least around product disclosure statements.
“We are aware from submissions and earlier hearings that there is considerable interest in the fees and profit margins of litigation funders and the risk of financial default by litigation funders. However, the financial services licensing and managed investment scheme regimes do not extend to price or prudential regulation,” it said.
“Further, litigation funding schemes may have some difficulties complying with some of the relevant laws.
For example:
- The requirement to provide a Product Disclosure Statement does not work easily with open class actions.
- Another challenging example relates to the rules in relation to withdrawal from managed investment schemes. There are specific rules for withdrawal from illiquid schemes that are not necessarily consistent with Court rules in relation to withdrawal from class actions.
“In light of these and other issues and as noted in the Government’s Explanatory Statement, ASIC may need to give some relief to apply the managed investment scheme and financial services licensing regimes to litigation funding.”
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