The funders of class action lawsuits warn incoming regulation would stop upcoming cases in their tracks.
A parliamentary inquiry is currently looking into litigation funding and regulation in the sector.
Litigation Capital Management has told the inquiry it does not know how to comply with new regulations being introduced next month.
It would force litigation funders to register as investment funds with the corporate watchdog.
"We will have to comply with something that makes no sense," senior investment manager Susanna Taylor told the inquiry on Friday.
Ms Taylor said anyone who was looking to file a class action involving a matter that needed to be pursued within a limited time frame would lose out.
"It is clearly not in the interest of class members, it cannot be," she said.
It could take six to 12 months before firms could comply with the new regulations.
"We will be in a regulatory vacuum," she said.
Ms Taylor said she had received the draft regulations from the Australian Securities and Investments Commission on Thursday, a month before the changes hit.
"ASIC has said they hadn't had sufficient time to prepare for this," she added.
The federal government is trying to clamp down on litigation funders, citing concerns the backers were taking the lion's share of the settlements.
Association of Litigation Funders of Australia chair John Walker said it was the courts who decided on the fee paid to the financial backers of the suit.
"Regulatory interventions are currently being provided by judicial oversight on a direct and bespoke basis," Mr Walker told the inquiry.
He was supportive of licensing litigation funders but critical of forcing regulations on to the sector in a month.
"(It) is currently, without adequate consultation, a step too far," he said.