By Fatin Ismail
Introduction
The Arbitration (Amendment) Act 2024 (‘the Amendment Act’) came into force on 1 January 2026. This amendment brings upon a major reform to arbitration law in Malaysia. This amendment introduces several key changes to the Arbitration Act 2005, including provisions for third-party funding (“TPF”) in arbitration. This modification brings Malaysia in line with other prominent jurisdictions for arbitration, such as Singapore and Hong Kong. The introduction of third-party funding in Malaysian arbitration is a significant step in enhancing access to justice and promoting a more equitable arbitration process.
Code of Practice for Third Party Funding 2026
Section 46D of the Amendment Act provides that the Minister may issue a Code of Practice setting out practices and standards relating to third party funding which funders are ordinarily expected to comply with. Whereas s 46E provides any compliance or non-compliance with any of the provisions of the Code of Practice may be considered by any arbitral tribunal or court.
As such, the Legal Affairs Division of the Prime Minister’s Department has since officiated and implemented the Code of Practice for Third Party Funding, with it coming into operation on 1 January 2026. The Code of Practice is an important guideline to complement the enforcement of “light touch regulatory framework”.
The Code of Practice sets out the ethical standards and minimum practices that all third-party funders in Malaysian arbitrations are expected to comply with when they fund arbitration claims in return for a share of the recovery.
Key Points
The Code of Practice in applies to third party funders and third party funding agreements entered into after the commencement of Chapter 2, Part III. Third party funders are defined as someone who funds all or part of arbitration costs, has no independent legal interest in the case and is only paid if the arbitration is successful.
The Code of Practice places strong accountability on funders by making them responsible not only for their own conduct but also for that of subsidiaries, associated entities and advisers, whilst requiring transparency on who the funder really is. The third party funder must market their services honestly. In addition, funded parties are to be informed in writing of their right to independent legal advice, and include key mandatory terms in every funding agreement such as funding amount, return structure and a neutral dispute resolution mechanism.
Funders must have access to at least RM10 million in capital, be able to meet all liabilities for 36 months, notify funded parties if this position deteriorates, and submit to annual audits. They must also maintain systems to detect, disclose and resolve conflicts of interest, preserve confidentiality, and are expressly prohibited from controlling the conduct or settlement of the arbitration or undermining lawyers’ professional duties.
Finally, the Code emphasises fairness and protection of funded parties by requiring clear disclosure of liability for adverse costs, insurance and security for costs, limiting termination rights to defined circumstances, and imposing continued liability up to termination in most cases. Funders must also maintain proper complaint-handling procedures and may conduct reasonable due diligence on the merits, costs and progress of the proceedings.
Any breach of the Code of Practice does not automatically create legal liability, nevertheless, arbitral tribunals and courts may take non-compliance into account when deciding disputes (as per s 46E of the Amendment Act).
Conclusion
The Code of Practice for Third Party Funding 2026 marks a significant step in formalising and professionalising third party funding in Malaysian arbitration. By imposing minimum capital thresholds, transparency requirements, conflict-management systems and strict limits on funder control and termination, the Code of Practice balances commercial flexibility with robust safeguards for funded parties and the integrity of the arbitral process. Although non-compliance does not automatically attract liability, the fact that tribunals and courts may take breaches into account ensures that the Code of Practice will not be taken lightly. The framework signals Malaysia’s commitment to fostering a credible, well-regulated third party funding that supports access to justice whilst preserving the independence and fairness of arbitration.
We previously wrote on the Arbitration (Amendment) Bill 2024, read it here.
For the full Code of Practice for Third Party Funding, click here.
Published on 8 January 2026