Four years of institutional deliberation over whether and how Europe should regulate litigation funding have ended not with a rulebook but with a deliberate decision to stand back. For clients and counsel working with funders, this ends a period of uncertainty. For an industry that spent much of that period bracing for licensing regimes, fee caps, and fiduciary duties borrowed from consumer law, the Commission's choice to let existing frameworks do the work is a significant moment, and one worth understanding properly as it also affects parties seeking third-party funding, and counsel advising them.
After more than four years of institutional deliberation, the European Commission has confirmed that it will not introduce EU-wide legislation to regulate the third-party litigation funding ("TPLF") industry. European Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, Michael McGrath, made this clear in his closing remarks at the final meeting of the EU's High-Level Forum on Justice for Growth on 18 November 2025. He noted that forum participants, comprising Member States, the European Parliament, and key EU-level stakeholder organisations, had indicated that there is currently no need to further regulate TPLF at EU level. Commissioner McGrath stated that the Commission would instead prioritise monitoring the implementation of the Representative Actions Directive (Directive (EU) 2020/1828) over any new legislative proposals.
This decision marks the conclusion of a legislative journey that began with the European Parliament's ambitious call for hard regulation. It also preserves an important mechanism for access to justice, as litigation funding continues to enable claimants to pursue meritorious claims that might otherwise be financially out of reach. At the same time it provides welcome clarity for the litigation funding market in Germany and across Europe. The following update traces the key steps of this process and offers an assessment of the outcome.
The Origins: The Voss Report and the European Parliament's Push for Regulation
The institutional debate over regulating TPLF at EU level was set in motion in June 2021. At that time, MEP Axel Voss presented a first draft of his legislative own-initiative report ("INL") on "responsible private funding of litigation" before the European Parliament's Committee on Legal Affairs ("JURI"). The Voss Report was, according to its preface, motivated by the observation that TPLF was a growing but largely unregulated practice within the Union, with at least 45 funders known to operate across Member States at the time. Its proponents argued that a regulatory vacuum risked exposing claimants to potential conflicts of interest, opaque funding terms, and disproportionate returns to funders at the expense of those they purported to assist.
The JURI committee adopted the Voss Report on 14 July 2022. On 13 September 2022, the European Parliament voted overwhelmingly (504 votes to 57, with 65 abstentions) to adopt a resolution requesting the Commission to submit a legislative proposal for a directive establishing common minimum standards for commercial TPLF. The resolution was grounded in Article 225 of the Treaty on the Functioning of the European Union, which entitles the Parliament to request the Commission to table legislation and, should it decline, to state its reasons.
The Draft Directive: A Comprehensive Regulatory Proposal
The resolution was accompanied by an annex containing a full draft directive, which outlined a far-reaching framework for the regulation of litigation funders across the EU. According to many professionals from the industry, but also the broader disputes and legal community, it went far beyond what could be viewed as reasonable. Among the key elements of the proposed directive were the following:
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An authorisation system requiring Member States to establish independent supervisory authorities tasked with licensing, monitoring, and, where necessary, sanctioning litigation funders. Funders would need to demonstrate capital adequacy and compliance with governance requirements before being permitted to operate.
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A fiduciary duty obliging funders to act in the best interests of claimants and prohibiting them from exercising undue control over the legal proceedings they finance. Any contractual clause granting a funder the power to influence decisions on claims, settlement, or litigation strategy would be rendered void.
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A cap on funder returns, requiring that at least 60 per cent of the gross settlement or damages be paid to claimants, save in exceptional circumstances. This provision was aimed at preventing what the Voss Report described as disproportionate returns, which, in some instances outside the Union, were said to reach up to 300 per cent of the funder's investment.
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Disclosure and transparency obligations requiring claimants and their lawyers to inform courts of the existence and identity of commercial funding, and to disclose the full, unredacted funding agreement upon request of the court or the defendant.
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Joint liability of the funder for adverse costs in the event of unsuccessful litigation, preventing funders from limiting their exposure through contractual carve-outs.
The draft directive was comprehensive in scope, applying not only to court proceedings but also to international arbitration and alternative dispute resolution mechanisms seated in the EU.
The Commission's Response: A Mapping Study Before Action
The Commission responded cautiously to the Parliament's resolution. In its formal reply of 30 November 2022, the Commission acknowledged the concerns raised but declined to act immediately. It noted that within the specific area of collective redress, TPLF was already addressed by Article 10 of the Representative Actions Directive (RAD), which requires Member States to prevent conflicts of interest and ensure that funding does not compromise consumer protection in representative actions. The Commission committed to assessing the need for further regulation only once the transposition deadline of the RAD had expired and announced that it would first launch a comprehensive mapping exercise.
That mapping study, conducted in association with the British Institute of International and Comparative Law, was published in March 2025. The report (on an impressive volume of 706 pages) analysed the legal frameworks and practices of TPLF in all 27 EU Member States as well as selected non-EU countries, including the United Kingdom, the United States, Canada, and Switzerland. It drew on the results of an extensive stakeholder consultation involving litigation funders, law firms, businesses, consumer organisations, judiciary, and academia. Deminor senior case managers were among the respondents.
The study's conclusions were nuanced. It confirmed that TPLF remains largely unregulated at Union level, with significant variation across Member States. It acknowledged that the absence of specific regulation creates "a certain degree of confusion and uncertainty" in some jurisdictions but also recorded that stakeholders held deeply divergent views on the appropriate level and form of regulatory intervention. Notably, most funders and consumer organisations generally opposed stringent regulation, while some business groups favoured a more comprehensive approach. The study also highlighted that most EU jurisdictions generally allow TPLF and that, in the absence of bespoke legislation, general contract law, consumer protection law, civil procedure, and existing banking and financial regulatory frameworks provide a baseline of governance.
The Decision: No Need for EU-Level Regulation
Against this backdrop, Commissioner McGrath's announcement in November 2025 that the Commission would not pursue legislation came as a well-considered conclusion. Rather than introducing prescriptive rules, the Commission chose to focus on ensuring and monitoring the transposition of the Representative Actions Directive by Member States. The decision effectively preserves the existing diversity in how TPLF is treated across Member States, leaving it to individual jurisdictions to determine whether further regulation is needed.
A Welcome Outcome: Why Hard Regulation Was Never Warranted
From the perspective of the litigation funding industry and the sophisticated commercial parties it serves, the Commission's decision is the right one. Several considerations support this view.
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The market does not display systemic problems. The Commission's own mapping study, which can be considered the most comprehensive empirical assessment of the European TPLF landscape to date, did not identify evidence of widespread market failure or systemic abuse. Those who favoured no regulation rightly argued that "there is no evidence of TPLF having a negative effect and that over-strict regulation could effectively stop TPLF activity and hinder access to justice". The filtering function of professional funders, who conduct rigorous due diligence and legal merit analysis before committing capital, in fact strengthens the quality of claims that proceed, rather than encouraging frivolous litigation.
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Industry self-regulation provides meaningful safeguards. The litigation funding industry has developed its own governance structures. The International Legal Finance Association ("ILFA"), the only global trade association of commercial legal finance companies, maintains a set of Best Practice principles to which its members commit. These principles address clarity and transparency in funding arrangements, respect for lawyers' duties to clients and to the courts, the avoidance of conflicts of interest, the preservation of confidentiality and legal privilege, and capital adequacy. At the European level, the European Litigation Funders Association ("ELFA") was established with a similar mandate, including a Code of Conduct promoting best practices across the continent. While the Voss Report criticised voluntary codes for their limited uptake, it is notable that the industry's leading and most reputable funders, i.e. those who hold the vast majority of deployed capital, are members of these associations and operate within their frameworks.
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Consumer protection law already covers the B2C landscape. Where TPLF touches consumer-facing claims, the existing European legal architecture provides robust protections. Article 10 of the Representative Actions Directive specifically addresses third-party funding in the context of representative actions, requiring Member States to prevent conflicts of interest and ensure that funding does not undermine consumer protection. Several Member States have gone further in their national transpositions: Germany, for instance, limits funder returns to no more than 10 per cent of total awards in representative actions and mandates disclosure of funding agreements to courts. Other Member States have imposed additional safeguards, including caps on loan fees, anti-money laundering requirements for funders, and prohibitions on TPLF altogether in certain consumer contexts. This patchwork of consumer protection measures ensures a high level of information transparency and claimant protection in precisely those scenarios where individuals may be most vulnerable.
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The B2B context calls for a different approach. The overwhelming majority of third-party funding in the commercial litigation and international arbitration space involves sophisticated corporate parties. Those are companies with experienced in-house legal teams, external counsel, and the commercial acumen to evaluate funding arrangements on their own terms, not consumers in need of paternalistic protection. They are businesses seeking to hedge the financial risk of a dispute, often one of considerable complexity and value. In this setting, the rationale for prescriptive regulation dissolves. As ILFA has consistently emphasised, commercial legal finance transactions in private commercial actions represent a form of corporate finance between private parties and should be treated accordingly. Imposing rigid fee caps, fiduciary duties modelled on consumer protection principles or burdensome authorisation requirements would not protect sophisticated corporate clients. Quite the contrary, it would restrict their options and reduce the availability of funding precisely when it is most needed.
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Overregulation risks undermining access to justice. A separate study published by the European Law Institute in October 2024 cautioned that prescriptive regulation of the litigation funding industry could restrict access to justice and recommended that regulation "should either be to address an identifiable, and fixable, problem or to ensure consistency of best practice". A light-touch approach, it concluded, was preferable. The ILFA echoed this assessment, with its Executive Director Paul Kong stating that the Commission's decision "appears to close any talk of the need for new regulation, which was completely without evidence and created considerable uncertainty for the sector".
Outlook
The Commission's decision does not preclude future regulatory action, and the matter remains one for individual Member States to address within their own legal systems. It is worth noting that the United Kingdom has taken a different path: the Civil Justice Council's final report, published in June 2025, recommended the introduction of light-touch statutory regulation alongside a reversal of the PACCAR decision, and the UK Government announced in December 2025 its intention to legislate accordingly. Whether this divergence between the EU and the UK will have practical implications for cross-border disputes and forum selection remains to be seen.
For the time being, however, the European landscape is one of regulatory restraint, and rightly so. The litigation funding industry has demonstrated that it can operate responsibly within existing legal frameworks, guided by industry best practices and the commercial discipline of a maturing market. The Commission's decision reflects a sound assessment that hard regulation is neither necessary nor proportionate, and that the focus should instead remain on ensuring the effective implementation of those consumer protection measures that already exist.
This update is intended for informational purposes only and does not constitute legal advice.
