The SRA’s consumer-claims consultation and the limits of conduct regulation
On 9 July 2026 the Solicitors Regulation Authority opened a consultation that would, for the first time, write third-party litigation funding into the conduct rules that bind every solicitor in England and Wales.[1] The proposals are careful and proportionate on their own terms. They are also a study in the limits of what a conduct regulator can achieve. The SRA regulates solicitors. It does not regulate funders. Much of the risk it has identified comes from the funders themselves. However carefully the firm-level rules are drafted, they bind the wrong party.
The collapses that frame the consultation
The consultation does not arrive in the abstract. It follows the disorderly collapse of consumer-claims practices whose business models depended on borrowed money. SSB Law entered administration in January 2024 owing six litigation funders more than £200m.[2] A year earlier an SRA review had judged the firm financially stable, even though it already owed funders £128m.[3] SSB had run many thousands of cavity wall insulation claims under conditional fee agreements. When the claims failed, former clients found themselves pursued for adverse costs of between £10,000 and £50,000, and the firm now faces up to 1,400 professional negligence claims.[4] Pure Legal, another practice built on funded high-volume consumer work, had collapsed before it.[5]
These were not, in the main, failures of individual solicitors mishandling individual files. They were failures of a funding structure. A funder advanced against a book of claims and the firm borrowed against that advance. When the claims did not convert at the assumed rate, the firm could not repay what it owed. Many clients, who had been told they carried no risk, were left carrying a great deal of it. The regulator’s tools were not built for firms financed this way, a point reinforced by an independent finding that the SRA had missed opportunities to intervene in SSB and by the Legal Services Board’s subsequent sanction of the regulator.[6]
What the SRA proposes
The consultation, which closes on 17 September 2026, would add funding-specific obligations to the Standards and Regulations.[7] A solicitor or firm arranging third-party funding for any claim would have to maintain independence from the funder, act in the client’s best interests, disclose confidential information only with the client’s informed consent and confirm in writing, to client and funder alike, that the funder is not regulated by the SRA.[8]
For consumer claims the requirements go considerably further. A firm would have to notify the SRA whenever it uses or arranges such funding. It would have to complete a funding risk assessment before any money is drawn, refresh it every six months and have it approved by the chief executive and the compliance officers.[9] Each client would receive a prominent funding information document before entering an agreement, setting out the firm’s fees and any success fee, how the funder’s return is calculated, the client’s likely damages and the availability of free alternatives such as ombudsman and redress schemes.[10]
The most demanding requirement is the orderly closure plan. A firm using or arranging third-party funding for consumer claims would have to maintain a wind-down plan where it uses non-recourse funding for 500 or more claimants, where recourse funding reaches 30 per cent of latest reported annual turnover or where the firm or an owner, manager or employee has provided security for the funding.[11] That plan too must be refreshed every six months and approved by the chief executive or managing partner and the compliance officers.[12] The definition of funding captures portfolio arrangements but excludes regulated consumer credit, ordinary bank lending and money put in by an SRA-authorised owner.[13] Personal injury and clinical negligence, Competition Appeal Tribunal collective actions and the defence of claims all fall outside the definition of a consumer claim.[14]
The regulatory perimeter
Every one of these obligations sits on the law firm, because the law firm is what the SRA can reach. The funder sits outside the perimeter. If the proposals are adopted, the SRA could require a solicitor to assess a funder’s capital adequacy. It cannot set a capital requirement for the funder, examine its liquidity or stop it writing commitments it cannot honour.
That distinction is critical because much of the structural risk the SRA describes originates upstream, with funders. Its evidence identifies funders that appear to have made commitments without the capital or liquidity to meet them.[15] Eighteen firms reported funding debt exceeding their last reported annual turnover, and although fewer than 1 per cent of firms use this funding for high-volume consumer claims, those firms act for around 10.8 million clients.[16] The regulator also flags the risk that funding vehicles are used to disguise proceeds of crime or to evade sanctions.[17] None of these is a solicitor’s conduct failing in the ordinary sense. Each is a feature of an unregulated counterparty.
Funder capital adequacy is, at present, a matter of self-regulation. Members of the Association of Litigation Funders undertake to maintain adequate financial resources to meet their funding liabilities, including cover for their aggregate commitments for a minimum of 36 months.[18] Membership is voluntary, the covenant is contractual rather than statutory, and the funders active in the consumer-claims market that stand outside the association are bound by none of it. A firm-level risk assessment can record that a funder is thinly capitalised. It cannot recapitalise it, and it cannot compel a funder to join a scheme it has chosen to avoid.
The danger is greatest before any insolvency, not after it. Once an insolvency practitioner is appointed, they can usually take rational decisions to limit the damage. The dangerous period is the run-up to that point, when a funder fighting for survival still holds contractual rights over the claims and their proceeds but can no longer fund them. Such a funder can withhold further drawdowns, resist a settlement it dislikes or assert priority over recoveries, while the claimant carries the risk it was told it did not have. Funding agreements can be drafted to guard against this, through step-in rights, run-off funding commitments, assignment restrictions or an escrow of the funder’s entitlement. Each of those protections is only as good as a distressed counterparty’s willingness to honour it, and a funder with rights over other people’s claims but no money left to fund them has little reason to.
PACCAR and the unfinished statutory settlement
The reason the SRA is filling this space is that the statutory settlement above it remains unbuilt. In July 2023 the Supreme Court held in PACCAR that litigation funding agreements giving the funder a share of the damages were damages-based agreements, and therefore unenforceable unless they complied with the DBA regime.[19] That decision destabilised the enforceability of much of the funding market and prompted the Civil Justice Council’s review. The Council’s final report, published in June 2025, ran to 58 recommendations and called for a new statutory regime for the regulation of third-party funding.[20] In December 2025 the Government announced its intention to accept the review’s two primary recommendations, but set no timetable for legislation.[21]
The Legal Services Board, for its part, has argued that funding should move from voluntary oversight to mandatory regulation by the Financial Conduct Authority, at least in the consumer-claims sector.[22] The SRA supports compulsory regulation of funders in principle.[23] It simply cannot deliver it. Only Parliament can create a funder-facing regime, and Parliament has not yet moved. The consultation is best read as a holding action. Until the statutory regime exists, the SRA is using the only lever it controls, the conduct of the firms it authorises, to manage a risk generated one step upstream.
What firm-level regulation can and cannot do
Read charitably, notification gives the SRA early sight of which firms are exposed and to whom. The closure plan forces a firm to confront, in advance, what happens to thousands of clients if its funding is withdrawn, which is precisely the question SSB never answered. The funding information document addresses a genuine consumer harm, the client who signs a geared conditional fee arrangement without understanding either the adverse-costs exposure or the free alternatives available to them.
Read critically, the same proposals load cost, documentation and personal sign-off onto solicitors for the conduct of counterparties they do not control. A risk assessment approved by a compliance officer does not make an under-capitalised funder solvent. It creates a record that will, in the next collapse, be used to establish what the firm knew and when. The duty to police the funder becomes, in substance, a duty to absorb the regulatory consequences of the funder’s failure. Firms may respond rationally by narrowing the funders they will deal with to the few that plainly meet the standard. That concentrates the market, and it may push the most marginal claims towards the least scrutinised capital, which is the opposite of what the SRA intends.
This is where practitioners will divide. One view is that the SRA is doing the achievable thing while the statutory regime is built, and that early visibility and forced planning are worth having even if they are incomplete. The other is that conduct regulation aimed at the wrong party will not prevent the next SSB, and risks conferring the appearance of protection without its substance.
Strategic outlook
For funders, capital adequacy, liquidity and the ability to honour multi-year commitments are becoming the criteria that determine whether regulated firms can deal with them at all. A funder that cannot satisfy a solicitor’s risk assessment will find its access to consumer-claims origination narrowing well before any statute compels the point.
For firms, the practical exposure is the sign-off. A six-monthly assessment approved by the chief executive and the compliance officers is a personal accountability document, and it should rest on genuine diligence into the funder’s balance sheet rather than a form completed to satisfy the rule. For the market as a whole, this is the point at which litigation funding in England and Wales starts to be regulated through the side door of solicitors’ conduct rules, because the front door of statutory funder regulation remains closed. Whether that sequence protects consumers or merely relocates the risk is the question the next collapse will answer, and the answer still depends on legislation the Government has accepted in principle and not yet written.
[1] Solicitors Regulation Authority, ‘SRA consults on new proposals to strengthen requirements for solicitors using or arranging third-party litigation funding in consumer claims’ (press release, 9 July 2026).
[2] Nick Hilborne, ‘SRA outlines specific regulation for law firms using litigation funding’, Legal Futures (9 July 2026).
[3] ‘Consumer claims firm went bust owing litigation funders £200m’, Legal Futures, reporting that SSB Law entered administration in January 2024 owing six funders more than £200m, having owed £128m at the time of an earlier SRA review that judged it financially stable.
[4] ‘Collapsed SSB “faces up to 1,400 negligence claims”’, Legal Futures. SSB’s cavity wall insulation clients, acting under conditional fee agreements, faced adverse costs reported at between £10,000 and £50,000.
[5] Hilborne, Legal Futures (9 July 2026), describing third-party funding as ‘one of the areas of greatest harm and risk’ and a significant feature in the collapses of both SSB Law and Pure Legal.
[6] On the regulator’s own handling, see ‘“We messed up”: apologetic SRA to be censured for SSB failures’, Legal Futures, and coverage of the Legal Services Board’s subsequent sanction of the SRA over the £200m collapse.
[7] SRA press release (9 July 2026). The consultation, ‘Protecting consumers: third-party funding’, runs for ten weeks and closes on 17 September 2026.
[8] Hilborne, Legal Futures (9 July 2026). These duties would apply to any solicitor arranging third-party funding, not only in consumer claims.
[9] Hilborne, Legal Futures (9 July 2026). The risk assessment must be completed before the firm receives funding and the client enters any agreement, updated every six months and approved by the firm’s chief executive or managing partner and its compliance officers.
[10] Hilborne, Legal Futures (9 July 2026). The prescribed minimum content includes the firm’s fees and any success fee, how the funder’s return is calculated, an estimate of the client’s likely damages and the availability of free alternatives such as ombudsman and statutory redress schemes.
[11] Hilborne, Legal Futures (9 July 2026). The closure-plan requirement applies to firms using non-recourse funding for consumer claims that act for 500 or more claimants, where recourse funding is equivalent to or exceeds 30 per cent of latest reported annual turnover or where the firm, an owner, manager or employee has provided security for the funding.
[12] Hilborne, Legal Futures (9 July 2026).
[13] Hilborne, Legal Futures (9 July 2026). The definition captures portfolio funding but excludes regulated consumer credit agreements, ordinary commercial credit from a bank or financial institution and funding provided by an SRA-authorised owner of the firm.
[14] Hilborne, Legal Futures (9 July 2026). At this stage the definition of ‘consumer claim’ excludes personal injury and clinical negligence, collective actions in the Competition Appeal Tribunal and the defence of claims.
[15] SRA press release (9 July 2026) and Hilborne, Legal Futures (9 July 2026), recording the regulator’s concern that some funders ‘appear to have made funding commitments without having the necessary capital/liquidity to meet them’.
[16] SRA, ‘Protecting consumers: third-party funding’ (consultation, 2026), reporting 18 firms with third-party funding debt exceeding latest reported annual turnover. Fewer than 1 per cent of regulated firms use or arrange such funding for high-volume consumer claims, yet those firms represented approximately 10.8 million clients in the declaration exercise. As at the end of June 2026 the SRA had 94 open investigations relating to 68 firms and had closed seven.
[17] Hilborne, Legal Futures (9 July 2026), noting the SRA’s concern that funding vehicles may be used to disguise proceeds of crime or to avoid the UK sanctions regime.
[18] Association of Litigation Funders of England and Wales, Code of Conduct for Litigation Funders, requiring members to maintain adequate financial resources to meet their funding liabilities, including cover for aggregate liabilities under all funding agreements for a minimum of 36 months. Membership is voluntary.
[19] R (on the application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 (26 July 2023), holding that litigation funding agreements under which the funder’s return is calculated by reference to the damages recovered are damages-based agreements and unenforceable unless compliant with the DBA regime.
[20] Civil Justice Council, Review of Litigation Funding: Final Report (2 June 2025), making 58 recommendations and recommending a new statutory regime for the regulation of third-party funding following PACCAR.
[21] In December 2025 the Government announced its intention to accept the review’s two primary recommendations, to legislate prospectively to clarify that litigation funding agreements are not damages-based agreements and to introduce proportionate regulation when parliamentary time allows. No legislative timetable was given.
[22] ‘LSB calls for mandatory regulation of litigation funding in consumer claims’, Law Gazette, and ‘LSB: Litigation funding “should be regulated by FCA”’, Legal Futures, reporting the remarks of Richard Orpin, the LSB’s director of regulation and policy, and the case for moving from a voluntary to a mandatory model.
[23] Hilborne, Legal Futures (9 July 2026), recording the SRA’s support for compulsory regulation of litigation funding as recommended by the Civil Justice Council.
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