The two largest litigation funders in the country have welcomed the government’s new class action regulations, which require litigation funders to hold an Australian Financial Services licence and, oddly, treat plaintiffs seeking compensation through a class action as investors in a managed investment scheme.

Why are big litigation funders applauding government red tape? Here’s a hint: Litigation Capital Management told shareholders the regulations would give it a “strategic advantage” by creating barriers to entry and reducing competition. The changes also have been welcomed by repeat class action defendant AMP, which distinguished itself as the biggest villain in the Hayne royal commission and is eager to escape accountability for misconduct.

Some suggest a political motivation for this change: to hurt the big plaintiff law firms Maurice Blackburn and Slater & Gordon, which routinely donate to Labor. It will do the opposite. Those industry giants are well-capitalised, have great market power and will gain even more. While they publicly oppose these regulations, in fact they are the only firms with the capital base and structure to self-fund class actions. Reducing the availability of litigation funding won’t hurt them but it will hurt smaller law firms that provide competition. Without this competition, Maurice Blackburn and Slater & Gordon’s market share will increase, and their prices and profits will rise.

This point was raised in 2016, when Treasury warned that imposing AFS licence and managed investment scheme requirements on the litigation funding industry would drive up costs for business and consumers, and force smaller firms out of the market, undermining competition. Four years ago, when Morrison was treasurer, he accepted this argument and left the exemptions in place. Quiet Australians will pay the price for reversing that decision.

The Australian Farmers Fighting Fund helped deliver justice for exporters affected by the shutdown of the live cattle trade by funding a class action. That fighting fund will be caught under these new regulations, a serious cause for concern for our world-class farmers. If Bundaberg growers affected by the Paradise Dam debacle launch a class action, they will be considered to be “investing in an MIS”— an absurd construct.

The regulations will hurt small and family businesses such as Michel’s Patisserie franchisees in their class action against the Retail Food Group, which a bipartisan parliamentary committee accused of “exploitative fee gouging”. Landowners whose properties and livelihoods have been poisoned by toxic PFAS chemicals will pay more to have their day in court, as will the north Queensland primary producers fighting a class action against state government-owned energy companies.

Coalition MPs who defended negative gearing and franking credits may be surprised to learn the regulations will hit property investors, such as those facing ruin in the Opal Tower fiasco in Sydney. They will hurt self-funded retirees and mum-and-dad investors who benefit from shareholder class actions.

Corporations claim they face an explosion of litigation, but that is not right. The Australian Law Reform Commission found that class actions made up only 0.68 per cent of cases filed in the Federal Court. Since the Hayne royal commission, can anyone sensibly suggest companies such as AMP need less accountability?

Yes, some past litigation funding deals have delivered poor returns for group members, but these regulations have nothing to do with prices as the regulator, the Australian Securities & Investments Commission, has confirmed.

We live in extraordinary times and the scale of the COVID-19 response means the Prime Minister and Treasurer may be forgiven for mistakenly believing these regulations, cobbled together in haste, would hurt only the big Labor firms. Liberals normally are first to recognise that government regulation doesn’t reduce costs and if high prices are the problem, competition is the solution.

It is competition from mid-tier firms and smaller litigation funders — not regulation — that will drive better financial returns for class action group members.

For instance, it is competition that means group members in our company’s class action against Westpac are guaranteed to receive more than 90 per cent of the total payout recovered.

And it is only competition that will provide a long-term challenge to the power of the big Labor firms.

These ill-fitting regulations will serve only to cement their power and dominance.