On 1 January 2026, the <a href="https://strapi.bheuu.gov.my/uploads/FINAL_Code_of_Practice_for_Third_Party_Funding_2026_bb1350bf78.pdf" target="_blank" class="news-text_link">Code of Practice for Third Party Funding 2026</a> (the “<span class="news-text_medium">Code</span>”) pursuant to section 46D of the Arbitration Act 2005 (the “<span class="news-text_medium">Act</span>”) also came into force, setting out ethical practices and standards that third-party funders are ordinarily expected to comply with.
The Code applies to third-party funders and third-party funding under the Act where the third-party funding agreement is made on or after the commencement of the relevant third-party funding provisions. While non-compliance does not, by itself, render a funder liable to action or proceedings, a tribunal or court may take compliance or non-compliance into account where relevant to an issue it is deciding.
Core requirements likely to shape funding practice. Key features of the Code include:
- Funders must take reasonable steps to ensure funded parties are informed (in writing) of the right to obtain independent legal advice on the funding agreement, and must provide a reasonable opportunity to do so.
- Agreements must stipulate at least the funder’s name/contact details, funding amount, the agreed financial benefit, a neutral dispute-resolution mechanism for funding-agreement disputes, and other matters required under the Act and the Code.
- Funders must maintain access to at least RM10 million (or foreign-currency equivalent), maintain adequate resources to meet obligations (including covering aggregate funding liabilities for at least 36 months), and must notify funded parties expeditiously if they foresee inability to satisfy capital-adequacy requirements. Annual audits by a nationally or internationally recognised audit firm are also required.
- Funders must maintain effective procedures to detect and resolve conflicts of interest; parties must observe confidentiality and privilege protections to the extent provided by law; and funders must not control or seek to influence the conduct or settlement of arbitral proceedings (or cause counsel to breach professional duties).
- Agreements must state the extent of funder liability for adverse costs, costs insurance premiums, security for costs and other liabilities; termination by the funder is restricted to specified circumstances; and funders must maintain complaint-handling procedures and inform funded parties of these procedures in writing.
The Code represents a shift from merely recognising the permissibility of third-party funding to regulating how funding should be responsibly conducted e.g. reinforcing transparency, integrity and market confidence while preserving commercial flexibility. Therefore, early attention to disclosure strategy and conflict-management processes is likely to become standard, particularly in multi-party cases and where arbitrator appointment conflicts are a realistic risk.
