Class Actions Australia has slammed new regulations announced by Treasurer Josh Frydenberg defining class actions as "managed investment schemes" labelling them "bizarre", as the Senate holds its second public hearing into litigation funding and the regulation of the industry.
The regulations could stymie compensation payouts to Australians robbed by big banks, harmed by faulty products, or deceived by corporate boards, Class Actions Australia said.
Similarly, during the hearing, Professor Sulette Lombard argued that additional regulatory oversight would not generate the optimal outcome for the judicial system.
"I do have concerns on the emphasis on securities class actions and litigation funding," she said.
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"My view is yes, more regulation is required, but along with many other submissions I've read, I don't think the managed investments scheme or the AFSL would be the most appropriate method to do that, and I don't think regulation for litigation funders is something that is worth exploring in more detail."
Similarly, Professor Vince Morabito noted that the corporate watchdog also did not believe the two regimes were appropriate for litigation funders.
"ASIC has made it clear in public documents that its view that neither the financial services regime nor the management investment scheme regime would be suitable or applicable to address concerns about the involvement of litigation funders in class actions," he said.
"It's reasonable to come to the conclusion that if you have to comply with two different regulatory regimes, it will no doubt increase the compliance cost - and that is my concern."
He believes the proposed changes would discourage overseas based funders - subsequently decreasing competition and increasing commission fees.
"Whilst the government has announced these changes for the purpose of protecting class members, my concern is that it is likely to have the opposite effect," Morabito said.
The changes could also result in victims of illegal conduct not being able to launch class actions due to a lack of funding in the Australian market, he argued.
"Less funding will increase the proportion that funders will charge, and there will be less access to justice because of a more limited number of funders," Morabito said.
"I commend the government for wanting to protect the interests of class members in funded class actions, but that could just be achieved by implementing the recommendations of the Australian Law Reform Commission."
"I think the government's intention to protect the interests of class members can be achieved through giving greater powers to courts - not by creating excessive red tape, and excessive requirements through the legislations."
Likewise, Class Actions Australia spokesperson Ben Hardwick said the ramifications of these new regulations could be significant.
"I don't know what Frydenberg's discussed in his private meeting with the US Chamber of Commerce, but if you were an American multinational worried about Australian class actions this is exactly the kind of reform you would want to see," he said.
"Class actions are obviously not 'investment schemes.' To suddenly define them as such makes zero sense unless your motive is to stymie class actions. No wonder ASIC was so thoroughly baffled by the Treasurer's idea."
"A class action is a method through which ordinary Australians can seek justice when they've been hurt by a corporation. To suggest class action members are banding together in an investment scheme is insulting and incorrect. They are victims, not investors.
Regulating class action members as participants in an investment scheme will be at the detriment to victims, he said.
"The outcome of this regulation will be to make it harder for everyday Australians who have been harmed to get funding for a class action, meaning fewer class actions and less justice," Hardwick said.
"It will mean corporations face fewer consequences for bad behaviour, making them more likely to try and get away with wrongdoing.
"I suspect Frydenberg knows what he has done is not in the interests of ordinary Australians. His hope is that it's all so complicated that in the midst of a pandemic no one will notice."