The European Commission has closed the door on EU-level regulation of third-party litigation funding – at least for now. Commissioner Michael McGrath’s announcement this week that the Commission will “prioritise monitoring” rather than legislating marks a significant victory for the funding industry and closes a chapter of regulatory uncertainty that has shadowed the sector for years.
The Road to “No Regulation”
The decision represents a notable retreat from the trajectory set by the European Parliament’s September 2022 resolution, which called for binding EU rules on litigation funding. That resolution urged disclosure requirements, restrictions on funder control, and caps on funder returns – proposals that sent ripples of concern through the industry.
When the Commission launched its Mapping Study on civil justice systems and litigation funding practices in late 2023, many anticipated it would lay the groundwork for a legislative proposal. The study surveyed stakeholders across Member States about their experiences with third-party funding and attitudes toward regulation.
But the “Justice for Growth” forum, which ran from March to November 2025, appears to have shifted the Commission’s calculus. Stakeholders including European business organisations, Member State representatives, and industry participants delivered a clear message: EU-level regulation is unnecessary. As a consequence, Commissioner McGrath acknowledged the feedback that there was currently no need to regulate third-party litigation funding at EU level at the forum’s conclusion.
A Measured Outcome
The Commission’s decision effectively selects “Option 1” from the three policy pathways outlined in its final Mapping Study: the baseline scenario of no EU action, leaving market development to Member States and existing self-regulatory initiatives.
This outcome reflects a pragmatic assessment. The Mapping Study itself acknowledged that while the EU funding market is growing and professionalising, it remains modest compared to more established jurisdictions like the UK, US, or Australia. Imposing binding EU-wide regulation on a still-maturing market risked stifling growth before the sector could demonstrate its full potential for expanding access to justice.
That said, the decision is not without trade-offs. The Mapping Study documented genuine fragmentation across Member States – some with developed jurisprudence, others with no dedicated framework at all. This patchwork creates complexity for funders operating cross-border and may hinder enforcement of claims in collective redress proceedings involving parties across multiple jurisdictions. Those concerns haven’t disappeared; they’ve simply been deprioritised.
The timing nonetheless provides welcome clarity. With collective redress mechanisms expanding under the Representative Actions Directive, and major cases like Wirecard, diesel emissions, and data privacy claims working through various national systems, regulatory uncertainty was complicating capital deployment decisions. That uncertainty has now substantially diminished.
The Pivot to RAD Monitoring
Rather than regulating funding directly, the Commission will focus on monitoring implementation of the Representative Actions Directive across Member States. This pivot is significant for funders because the RAD governs qualified entities bringing collective actions on behalf of consumers – and many such actions require third-party funding to be viable.
The practical effect is that funding regulation, where it exists, will remain a national rather than European matter. Courts in individual jurisdictions will continue developing their own approaches to scrutinising funding arrangements, fee structures, and funder-claimant relationships.
This means the existing patchwork persists. Dutch courts actively examine funding agreements and have indicated that success fees in the 20-25% range represent maximum thresholds. German courts have imposed no such restrictions, and concepts like champerty and maintenance that constrain funding in common law jurisdictions don’t exist under German law. The UK continues grappling with PACCAR’s implications for damages-based agreements.
Ireland: The Market That Might Open?
One jurisdiction to watch is Ireland, where third-party litigation funding remains generally prohibited. The Law Reform Commission conducted a consultation in 2023 and is expected to publish recommendations in spring 2026. Commissioner McGrath’s home country could potentially liberalise its stance, opening a new market for funders.
The timing of the EU’s decision not to regulate may influence Ireland’s deliberations. Without pressure from Brussels to conform to a harmonised framework, Dublin has flexibility to craft rules suited to Irish circumstances – or to maintain existing restrictions if it chooses.
What This Means for Funders
The Commission’s decision provides clarity, but it also places responsibility squarely on the industry and national regulators to demonstrate that EU-level intervention remains unnecessary.
First, the spectre of EU-wide return caps or mandatory disclosure regimes has receded. Funders can structure deals according to case economics and national requirements without anticipating supranational constraints.
Second, the focus on RAD monitoring suggests the Commission views funding as ancillary to its primary concern: ensuring collective redress mechanisms function effectively for consumers. Funders who demonstrably enable access to justice – rather than extracting disproportionate value from claimants – are less likely to trigger renewed regulatory attention.
Third, the national patchwork, while complex, is now a known quantity. Funders can optimise jurisdiction selection based on established rules rather than hedging against hypothetical EU requirements.
However, the decision is explicitly provisional. Commissioner McGrath’s language – “currently no need” – leaves room for revisiting the question if market practices evolve unfavourably. The Mapping Study’s concerns about transparency, conflicts of interest, and funder control over proceedings haven’t been dismissed; they’ve been noted for ongoing observation.
The challenge now shifts from regulatory defence to demonstrating that robust contractual practices, professional standards, and national oversight adequately address the risks the Commission identified. How the industry conducts itself – particularly in high-profile collective actions – will determine whether this week’s outcome becomes a lasting settlement or merely a pause before more prescriptive intervention.
For sophisticated funders committed to transparent, claimant-aligned practices, the environment just became more predictable. For the market as a whole, the next few years represent an opportunity to prove that self-regulation and national frameworks can deliver both access to justice and appropriate safeguards.
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