*New rules could see funded class actions grind to halt
The Australian Securities and Investment Commission said the MIS scheme simply did not fit litigation funding. Treasury warned previous requirements for litigation funders to hold AFSLs may have resulted in some litigation firms leaving the market. The Association of Litigation Funders of Australia said the current MIS regulatory regime was "unsuitable for class actions.
"AFSL holders are obligated to: act honestly, efficiently and fairly; maintain an appropriate level of competence to provide financial services; and have adequate organisational resources to provide the financial services".

But Ms Taylor said the MIS scheme simply did not fit litigation funding, a view shared by the Australian Securities and Investment Commission.

"We don’t know how to comply. We don’t know what a class actions MIS looks like. We don’t know what we need to set up," Ms Taylor said.

"We don’t operate the causes of action. We have no participation in that. We provide funds. The lawyers could be said to be the scheme operator … but they’re prohibited [by law] from doing so.

To categorise class members in this way is inappropriate and has the potential to do great harm to the class action regime in Australia. — Pip Murphy, Association of Litigation Funders of Australia

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"This regulation does not fit class actions, but after August 22 we will have to comply with something that makes no sense.

"What that will mean is nobody will be able to file a funded class action until this is sorted out, which might take six to 12 months."

In 2009, the Full Federal Court found litigation funder-backed class actions met the definition of Management Investment Schemes and were required to register and be managed by the holder of an AFSL.

Then Labor Treasurer Chris Bowen amended the Corporations Act to exempt litigation funders and overrule the court's decision.

Regulations introduced on Thursday repeal Labor's amendments which reverts the system back to the decision of the Full Federal Court.

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"It is expected that the members of the MIS will be the class action plaintiffs in any similarly constituted litigation funding scheme," A Treasury spokeswoman told The Australian Financial Review on Monday.

"The relevant parties will need to ensure that there is an operator of any litigation funding scheme constituting a MIS. Any parties who do not want to be considered to be operating the MIS will need to ensure that there is another party performing that role."

In 2015, Treasury warned previous requirements for litigation funders to hold AFSLs "may have resulted in some litigation firms leaving the market, dampening competition and/or raising the price at which litigation funding was offered".

The Association of Litigation Funders of Australia said while it supports funders being required to hold AFSLs, the current MIS regulatory regime was "unsuitable for class actions".

"If Treasury seeks to shove the square peg of class actions into the round hole of the MIS regime by 22 August 2020, there will be material prejudice to group members seeking to enforce the rule of law," ALFA chief executive Pip Murphy said.

"Does the government really think that the thousands of Indigenous Australians who sued to recover their stolen wages are investors in a MIS?

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"To categorise class members in this way is inappropriate and has the potential to do great harm to the class action regime in Australia as well as decreasing a claimant's ability to access to justice."

Ben Phi, managing director of funder Phi Finney McDonald, warned the new rules would reduce competition and drive up prices.

"Plaintiffs in a class action aren't investors trying to make a profit – they're everyday Australians seeking recompense for a wrong," Mr McDonald said.

"ASIC and the ALRC say the MIS regulations aren't fit for purpose and even Treasury admits they'll push up regulatory costs for business, force smaller players out of the market, destroy competition and drive up prices."

Litigation funders have launched a marketing campaign – Keep Corporations Honest – against the government's proposed changes.