In March 2025 the European Commission, in association with the British Institute of International and Comparative Law, published an analysis on the legal frameworks and practices of third-party litigation funding (TPLF) in all EU Member States and in some selected countries (the U.S., Canada, Switzerland and the UK).¹ The main purpose was to build a first comparative study for assessing future regulatory options, including a draft EU Directive.

TPLF occurs when a funder, unconnected to a legal dispute, provides resources (usually to the claimant) to cover litigation costs in exchange for a share of any award. TPLF gained momentum particularly in the 1990s, primarily in Australia, spread to the U.S. and UK, and is now present in most (but not all) EU Member States. EU Directive no. 2020/1828² (Representative Actions Directive [RAD]) on representative actions for consumer protection allows Member States to decide whether to permit TPLF. If allowed, they must ensure transparency, prevent conflicts of interest, and protect consumers’ interests. Enforcement mechanisms are required for non‑compliance.

Legal Frameworks

Most EU Member States allow TPLF, mostly with little or no specific regulation. Exceptions are provisions implementing the RAD for consumer collective redress.

Non‑EU countries such as the UK and Canada rely on common law and self-regulation. The U.S. has a patchwork of state and federal rules. Switzerland has no specific regulation but, in general, allows TPLF. Where no TPLF-specific legislation exists, TPLF operates under general contract law, civil procedure, and consumer law. Lawyers are bound by professional ethics, including conflict of interest and confidentiality.

Market Practices

TPLF is used in a wide range of legal areas: commercial, civil, competition / antitrust, consumer protection, intellectual property, insolvency, and mass claims.

Most litigation funders are private entities, often operating across multiple jurisdictions. There is no official registry, and the market is considered opaque.

Funders’ compensation is most often 20% to 30% of the award but can be higher or structured as a multiple of costs. Funders often require consent for settlement, choice of lawyer, and strategy, but the degree of control varies.

Country Comparisons

Among EU members, the Netherlands and Germany are the most developed and active TPLF markets, hosting most funders and pioneering regulatory discussion and litigation funding innovation. Italy is a small but growing market.

Stakeholder Views

There are several positive effects of TPLF, including:

• Improved access to justice
  Funding can provide essential support for claimants lacking financial means to pursue their rightful claims effectively. TPLF removes financial barriers for individuals by covering legal costs enabling them to pursue meritorious claims they otherwise couldn’t afford, especially when facing well-funded defendants.
• Risk-sharing between parties
  Risks are shared, with funders absorbing losses from unsuccessful cases to mitigate client exposure.
• Professionalization and filtering of weak claims
  Professional funders apply advanced due diligence, legal merit analysis, and financial modelling. This ensures only meritorious cases receive funding.
• Deterrence of corporate wrongdoing
  TPLF encourages corporations to strengthen compliance programs and avoid risky behavior. Corporations know that plaintiffs can access capital to pursue lengthy and complex litigation. This reduces incentives for companies to engage in harmful practices or ignore legal obligations.

On the other hand, TPLF has negative effects including:

• Reducing compensation for claimants
  Funders in general receive in the range of 20% to 30% of the award, but the share can be higher or structured as a multiple of costs. In some cases, compounded interest or success fees significantly cut into the claimants’ net recovery.
• Allowing potential conflicts of interest
  Funders may exert control or influence over litigation strategy, settlement decisions, and even choice of counsel, raising conflict-of-interest concerns and potentially undermining attorney independence.
• Lack of transparency
  Parties are not required to disclose the existence or terms of TPLF arrangements to courts or opposing parties. This creates uncertainty about who controls litigation strategy and whether conflicts of interest exist. In some jurisdictions, it is possible that claimants may agree to unfavourable terms without fully understanding the impact on their final compensation.

Conclusion

TPLF is growing but remains a small part of the legal services market in Europe. In terms of economic effects there are different views: some report increased litigation costs and insurance premiums, others see no significant impact. Internal discussions highlight TPLF’s rapid growth in the EU, especially in countries such as Germany and the Netherlands. TPLF is linked to rising liability insurance costs, with parallels drawn to the U.S. experience, where social inflation (partly driven by TPLF) has significantly increased claims costs.

The regulatory approaches vary but there is a trend towards more transparency and basic safeguards. Stakeholders are divided between those who see TPLF as essential for access to justice and those concerned about potential abuses.

In general terms, the lack of transparency and oversight in Europe raises concerns about conflicts of interest and unpredictability for insurers and reinsurers.

With a joint statement published in November 2024, Insurance Europe, EuroCommerce, the European Justice Forum and the European Banking Federation, along with other European industry associations, strongly recommended EU regulation of TPLF, with the main aim of transparency and ethical standards to prevent conflicts of interest and ensure funders act in claimants’ best interests: “The introduction of a purely profit-motivated third party, often non‑EU based, into the traditional lawyer-client relationship, raises serious ethical concerns and presents an economic security threat for Europe. … Therefore, our organisations, representing a broad spectrum of European businesses, call for regulation of TPLF at EU level to help maintain trust in the justice and financial systems and to ensure that the legal environment remains just, fair, and balanced for all.”³

In the same vein, the Reinsurance Advisory Board (RAB) and other stakeholders have highlighted that TPLF is a rapidly expanding, billion-dollar, global phenomenon, with significant implications in terms of claims, inflation and litigation costs, and remains a largely unregulated and secretive industry. According to the “Policy brief: Towards regulating TPLF” published by the European Justice Forum in May 2025, industry groups (including the RAB) expressed great concerns about the risks posed by unregulated TPLF, such as increased litigation costs, lack of transparency, and potential exploitation of claimants.⁴ The RAB’s position is that clear, enforceable EU rules are needed to safeguard the integrity of judicial systems, protect businesses, and ensure fair outcomes for claimants.