Litigation funders face the prospect of having to submit an annual compliance report to the Australian Securities and Investments Commission and also having to provide security for costs.These are among the recommendations included in an Australian Law Reform Commission report on class actions and litigation funders, released at the end of last month.The ALRC stopped short of recommending that funders be required to hold an Australian Financial Securities Licence - a prospect that it raised in its interim report. It has also steered clear of a proposal to impose capital adequacy requirements on funders.However, it made a number of recommendations that would give the courts and ASIC greater control over funders.Class actions financed by litigation funders are controversial. They give investors and consumers a way of getting access to legal redress they could not afford on their own, but there are questions over conflicts that may arise because of the involvement of funders.The ALRC says litigation funders are in a unique position: they fund litigation and can give directions to the plaintiff's solicitors, but they are not the client. Conflicts may arise where a solicitor acts for the funder and the class members, where there is a pre-existing commercial relationship between a funder and a solicitor, or where the funder has control of proceedings.There are also concerns about how well courts are equipped to manage the increase in class action activity, particularly where multiple actions address the same issues.The ALRC says one of its overarching principles was to ensure that there were appropriate procedures to ensure that groups of persons who have suffered loss or damage will be able to pursue redress and to do so more cheaply and efficiently that would be the case with individual actions.It has recommended that the courts be given additional power to resolve competing representative actions and manage procedures for competing actions. It has also recommended that the courts be given powers to open and close cases.It says the court should have power to appoint a referee to assess the reasonableness of costs prior to settlement approval.It recommended that funders must report annually to the Australian Securities and Investments Commission on their compliance with the existing requirement to implement practices and procedures to manage conflicts of interest.It says lawyers acting for a representative plaintiffs should not be able to act for the funder to recover legal fees from those plaintiffs.It wants funders to be required to provide security for costs and it wants courts to have power to award costs against funders that fail to meet compliance obligations.It wants funding agreements to be enforceable only with the approval of a court and it wants the courts to have power to reject or vary terms of a funding agreements.