Legal Business Blogs

Return of the accountants: KPMG and EY consider ABS

Global accountants including KPMG and EY have the UK’s legal sector firmly in their sights as they consider their options under the Legal Services Act (LSA) in a move said by one tax partner at a leading City law firm to be ‘clearly a threat’.

Last month it emerged that KPMG is looking at an alternative business structure (ABS) conversion in a bid to expand its legal services capability. EY, meanwhile, has the position ‘under review’ and PwC is also understood to be considering its position. Deloitte was the only one of the Big Four accountants to deny any plans to set up an ABS.

KPMG, which is also currently looking to recruit a team of corporate lawyers in Manchester, confirmed to Legal Business that it is ‘considering whether to apply for an ABS licence’. A statement from the firm explained: ‘We have long had non-practising solicitors working with colleagues in the tax practice to provide certain complementary services to our existing tax clients and we continue to recruit in this area.’

The statement added: ‘[An ABS licence] would allow us to extend these services in certain limited areas. However, we have no plans to provide a full-service legal practice.’

EY, meanwhile, said: ‘A number of EY offices in Europe have had legal services capabilities for a number of years, this is not a service that is currently provided by the UK firm.

‘We are aware of the changes to the Legal Services Act in the UK and always keep these things under review.’

Meanwhile, a PwC spokesperson told Legal Business it ‘will always consider different operational structures’ while Deloitte says it has ‘no plans’ for an ABS.

KPMG famously withdrew from the legal sector in 2003 when it split from its 3,000-lawyer KLegal network in light of heightened regulation, including the Sarbanes-Oxley Act 2002 in the US.

This latest move, which would potentially put the accountancy firms in direct competition with the large law firms they currently refer work to, comes as one City tax partner claims they have been recruiting lawyers and competing with City firms for some time.

‘It’s no secret that accountancy firms have been bulking up their legal capacity for the last three to four years; the next logical step is an ABS. You’ve seen accountants directly instruct barristers for a while as well,’ said the partner.

PwC Legal has maintained its legal capability in the form of a limited liability partnership that houses 2,000 lawyers, providing commercial legal advice in 75 countries and immigration law services in 116 countries.

While some City partners question what benefit accountants would derive from setting up as an ABS would bring, others say there is an obvious rationale – privilege. ‘An ABS gives an accountancy firm a law firm wrapper and they can rely on privilege,’ says another City tax partner. ‘They want to get more involved in tax advice, documenting and actual implementation of things – it is really just a search for revenues in adjacent sectors, think Tesco Law.

‘Lawyers struggle against accountants because of the close relationships they have with their clients. This move is clearly a threat; we are always jostling for position and there are lots of lawyers chasing a limited amount of work.’