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KPMG secures legal licence

  • Author: Isabella Grotto & Vincent Huck
  • Published: 2 Oct 2014
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KPMG UK has secured an alternative business structure (ABS) licence in a bid to diversify its legal service offering to clients.

Granted by the Solicitors Regulation Authority (SRA), the licence will allow KPMG to operate on a multi-disciplinary practice base, but does not constitute the creation of a separate legal practice.

The decision echoes a similar move earlier this year by fellow Big Four, PwC. In January, PwC was granted an ABS allowing it to establish PwC Legal as a standalone legal firm within the business.

In a statement released today, KPMG said: "We are taking a focused approach: our key market differentiator is that we will only offer legal services which are fully integrated with other areas where we already provide advice."

The firm was also keen to specify it would not be following in the steps of PwC, but will instead become the first of the Big Four to present itself as a multi-disciplinary practice.

"To be clear, we have absolutely no plans to develop any kind of standalone legal practice," said KPMG UK chairman Simon Collins. "The new regulatory regime, designed to open up the provision of professional services across the sector, allows us to extend our legal services provision where we have a proven and successful track record."

The licence will allow KPMG to develop its existing legal capabilities, in particular its team of 50 non-practicing solicitors, who generated almost £10m in revenue last year according to the network.

KPMG partner Gary Herley, responsible for the implementation of the firm's legal services provision following the attribution of the ABS licence, said: "We are in recruitment mode: we have already hired a number of extremely highly regarded lawyers and we continue to attract exceptionally high quality candidates as we add to our team."

Audit vs non-audit
In recent months most of the Big Four have made investments in their legal practices, in what seems to be a step back to their business model prior to the Enron scandal in the early 2000s.

Asked if there could be a conflict of interest by having auditing, accounting and legal practices in one business, ACCA tax and business law manager Jason Piper said: "The principles of independence are there, it is a matter of making sure that practices obey them."

ICAEW Peter James head of regulatory policy said that the immediate response from firms to the Enron scandal was to sell their consultancy arms but as time went by "they have developed alternative marketing strategies".

Following the adoption of tight regulations globally to prevent accountancy firm to offer non-audit services to their audit clients, firms have created what they call "channel one and channel two", James explained.

"Channel one is made of the audit clients and channel two is made of the non-audit clients," he continued. "So you had two targeted groups as part of your market profile but if your client is in the channel two suit you can sell anything to them apart from audit including legal services."

Legal Services Act 2007
The establishment of multidisciplinary practices has been facilitated by the adoption of the Legal Services Act 2007, James said.

"Prior to 2007, solicitors couldn't be a partner in a multidisciplinary practice so the Big Four had difficulty in retaining talented people within their legal practices has they usually left the accountancy networks to create their own legal practices."

The Legal Services Act 2007 now allows solicitors to become partners in multidisciplinary firms in the UK, and it will uncap a source of additional revenue for accounting firms.

Last month, ICAEW was made an approved regulator and licensing authority for probate and ABS and the institute delivered its first licence this week.

While there are seven approved regulators and licensing authorities, ICAEW is the first accounting body to be awarded this type of oversight. There are six reserved services under the Legal Services Act 2007 which requires a licence, ICAEW is only allowed to issue licences for one: probates.

UK accounting firm Kingston Smith will be allowed to carry out probate work under the ICAEW licence.

Related articles:

ICAEW members to provide certain legal services in UK

ICAEW applies to regulate probate services and ABS

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