Fenchurch Legal’s Outlook for Litigation Finance in 2026

Litigation Finance in 2026 – Growth, Scrutiny and Opportunity

Litigation finance is moving from a specialist niche towards a more established position within private credit markets, alongside other forms of speciality and opportunistic credit. Institutional capital is increasingly familiar with the asset class and its distinctive characteristics, including low correlation to traditional markets and performance driven by legal process and precedent rather than macroeconomic cycles.

Globally, the market is now measured in the tens of billions of dollars, with further growth expected as more jurisdictions formalise third-party funding and investor participation increases. With that expansion has come greater emphasis on governance, transparency and risk management.

In the UK, 2025 was a year of disruption and reassessment, particularly within high-volume consumer claims. The Civil Justice Council (CJC) published its final report in June 2025, setting out a blueprint for light-touch statutory oversight of litigation funding. The Solicitors Regulation Authority (SRA) completed a thematic review of high-volume consumer claims firms and signalled more robust action when poor practices are identified. At the same time, developments in the PCP motor finance market – including Supreme Court rulings and the FCA’s consultation on redress – suggested that a large volume of claims is moving towards greater clarity.

Looking ahead to 2026, capital is becoming more selective. Funders with disciplined structures, strong governance and robust portfolio oversight are likely to be better positioned in this more scrutinised, but still growing, market.

Where Litigation Funding Sits Within Private Credit

The litigation funding market continues to expand and attract a broader range of investors. Global estimates place the sector at around USD 20bn, with further growth anticipated over the coming decade. While the market remains diverse, it is increasingly shaped by more structured and institutional capital.

Alongside traditional equity-style litigation funding models, a growing number of providers now operate using secured lending structures to finance high-volume, small-ticket consumer claims. In these structures, capital is advanced through structured credit facilities, with repayment linked to case portfolios and supported by contractual protections and security packages. This places a meaningful segment of litigation funding firmly within the private credit universe, rather than treating legal finance solely as an event-driven strategy.

As a result, litigation funding is now often viewed as a specialist theme within private credit. Returns in these secured‑lending models are driven by underwriting discipline, portfolio construction and cash‑flow management, rather than reliance on a small number of binary case outcomes. For investors, this makes the strategy easier to assess alongside other forms of complex credit.

In an environment where competition in traditional direct lending continues to compress spreads, many allocators are looking for higher-margin, less crowded areas of private credit. Within litigation funding, the key differentiator is increasingly structural: how capital is deployed, secured and repaid will matter more than headline market growth.

PACCAR and Market Structure

The PACCAR decision continued to shape discussion across the litigation funding market during 2025, creating a period of legal and structural uncertainty for some funding arrangements, particularly in collective competition and CAT‑style claims.  The ruling prompted closer scrutiny of how funding agreements are structured, documented and disclosed across the sector.

More broadly, PACCAR has accelerated engagement between policymakers, industry participants and regulators on the need for clearer and more consistent frameworks.

Legislative clarification expected in early 2026 is therefore likely to restore greater certainty and stability, particularly for funders whose models rely on defined contractual returns in regulated and collective‑action environments. For Fenchurch’s focus on high‑volume consumer claims, PACCAR is best understood as part of this broader shift towards explicit regulatory architecture, rather than as a direct constraint on the secured‑lending models that dominate this part of the market.

Civil Justice Council Proposals and Market Standards

The Civil Justice Council’s review of litigation funding marked an important step towards greater formalisation of the UK market. Its final report recommended a light‑touch statutory framework that recognises litigation funding as an established part of the civil justice system, while placing greater emphasis on transparency, governance and consumer protection.

For high-volume consumer claims in particular, the CJC’s proposals are less about restricting activity and more about setting clearer standards. Areas such as capital adequacy, clarity of funding arrangements, and oversight of relationships between funders, law firms, and claims businesses are expected to come under sharper focus. The review reflects concern not with the existence of high-volume models, but with how they are structured, monitored, and governed.

Looking ahead to 2026, the CJC’s work signals a clear direction of travel. Litigation funding is expected to operate within more clearly defined parameters, aligned with established financial and regulatory norms. For investors, this should support greater confidence in well-structured platforms, while raising expectations for those operating without sufficient controls or discipline.

SRA Scrutiny of High-Volume Consumer Claims

During 2025, the Solicitors Regulation Authority increased its focus on high-volume consumer claims practices, reflecting concerns around rapid growth, financial resilience, and standards of client care. Its thematic review, published in August 2025, highlighted issues including high levels of external debt relative to turnover, weaknesses in case management controls, shortcomings in transparency with clients, and variable due diligence on third‑party funders.

This scrutiny marks a shift away from tolerance of loosely structured volume models towards higher expectations of operational discipline. Law firms and funders operating in this space are increasingly expected to demonstrate robust systems, clear governance, and effective oversight of funded activity.

Into 2026, this regulatory focus is likely to continue. Strong borrower selection, ongoing monitoring and clear alignment with regulatory expectations are expected to become more important differentiators, with capital favouring models that support sustainable growth rather than unchecked expansion.

Consumer Claims: Current and Emerging Areas

Established Consumer Claims

High-volume consumer claims continue to underpin activity within the UK litigation funding market. Established categories such as housing disrepair remain active, supported by clear legal precedent and sustained demand. While these claims are typically process-driven and repeatable, rising costs, longer case durations, and increased regulatory oversight have heightened the importance of operational discipline and funding structures that can support working capital over extended timelines.

For funders, the focus in these areas has shifted away from headline volume growth towards consistency and control. Managing duration risk, maintaining underwriting standards, and ensuring claims can be handled at scale without compromising oversight or client outcomes have become central considerations.

PCP Motor Finance Claims

During 2025, the PCP motor finance claims market moved closer to resolution.  The Supreme Court’s decision in Johnson clarified aspects of commission disclosure and unfair relationship assessments, and the FCA opened consultation on a consumer redress scheme for motor finance commission complaints, covering agreements going back to 2007. These developments have provided greater clarity on how such complaints are likely to be assessed and processed, reducing some of the legal uncertainty that had previously constrained deployment in this area.

Looking ahead to 2026, PCP‑related redress is expected to generate significant volumes of consumer outcomes as regulatory frameworks for resolution become more established. However, as the market matures, funders are likely to become more selective in their exposure. Concentration risk, operational capacity, and timing considerations mean that PCP should increasingly be viewed as one component within a broader, diversified consumer claims portfolio rather than a standalone focus.

For disciplined funders, the focus in 2026 is increasingly on balance, with diversification across claim types and consistent underwriting standards becoming more important as the market matures.

Emerging Consumer Claim Categories

The hunt for the next wave of viable consumer claims is well underway. While financial mis-selling still draws attention, there’s growing interest in other areas — from business energy disputes to regulated credit products and beyond.

That said, having a large volume of potential claims isn’t enough. Funders are becoming more selective, focusing on the fundamentals: is the legal position clear? Is there strong evidence? Have similar claims performed well in practice?

Recent court decisions have helped shape where the market goes next. The Supreme Court’s ruling in Johnson, for example, went beyond just motor finance. By removing the so-called “halfway house” principle and sharpening expectations around commission disclosure, it’s prompted fresh scrutiny of other commission-based products –  though how that reasoning applies in new areas is still being worked through.

As we move into 2026, it’s clear that long-term success won’t come from chasing the latest trend. Instead, funders will be looking for categories where they can build reliable, repeatable outcomes – backed by sound case law, good data, and a clear path through the regulatory landscape.

Technology, AI and Operational Control

Technology, including the use of AI, is playing a central role in how high-volume consumer claims are assessed and managed. As volumes increase, manual processes become less effective, driving higher costs and operational risk. In response, litigation funding platforms are increasingly relying on automation and data-led systems to support consistent decision-making at scale.

Advances in legal technology and AI are improving early-stage case assessment, cost estimation, and portfolio oversight. Automated intake, analytics, and portfolio monitoring help reduce per-case costs and improve visibility across large numbers of smaller claims. This makes it more practical to fund claims that would previously have been uneconomic on a standalone basis.

Looking into 2026, technology and AI are best viewed as core infrastructure rather than differentiators. Regulatory guidance reinforces that accountability remains with firms, making strong controls and quality assurance essential. For investors, these tools matter because they support discipline, scalability, and responsible deployment.

Operating in a More Disciplined Market

As litigation funding enters 2026, the direction of travel is clear. The market is becoming more regulated, more closely scrutinised, and more demanding of both funders and the firms they support. Recent experience across the sector has reinforced the importance of robust structures, careful borrower selection, and ongoing oversight, particularly within high-volume consumer claims.

Fenchurch Legal welcomes this shift. Greater regulatory clarity and higher standards align with a responsible lending approach that prioritises sustainability over unchecked growth. Disciplined underwriting, diversified exposure, and active monitoring are not simply compliance measures, but core risk management tools in a market that continues to mature.

For investors, this environment is likely to widen the gap between well-structured platforms and more opportunistic models. Capital is becoming more selective, favouring funders with clear processes, strong governance, and an ability to deploy at scale without compromising standards. As litigation funding continues to institutionalise within private credit, responsible capital and regulatory alignment are increasingly central to long-term value creation.