On Brexit and confidence
The UK’s decision to leave the European Union is causing doubts and uncertainty in legal circles.
Some firms have announced they’re laying-off lawyers working in sectors including banking and real estate. Others have frozen or deferred pay awards – directly blaming ‘Brexit’ for a reduction in activity – while some larger firms have been registering solicitors in Ireland so they can ‘continue to practise’ in European law. In particular, it’s those law firms for whom transactional work is so critical that are having to make rapid adjustments to their business models to retain profitability.
But in the wider legal sector, does Brexit justify a lack of confidence and pessimism about future prospects?
Current evidence would not support that. Among the UK’s top 100 firms, Deloitte’s latest quarterly legal sector survey shows average revenues growing around six percent year-on-year. PwC says that external funding remains readily available to law firms, with increased debt facility levels being secured with little if any additional cost – and a reduction in year-end lock-up days.
Many laws firms are already much leaner and agile operations, having trimmed waste and excess fat following the 2008-09 financial crisis. And while transactional work may be more hard to come by, Brexit is likely to bring many new advisory opportunities helping clients cope with the enormous changes to the regulatory environment that are expected when the UK finally leaves.
But what of law firms’ international ambitions, and their ability to place experienced and talented people in key commercial centres in Europe?
On the face of it, Brexit casts a shadow over the ambitions of UK law firms to expand into Europe. But it could also prove to be a golden opportunity.
A big part of the UK’s economic success is its strength in professional services. Our law firms are world leaders, with turnover of more than £31bn a year … 20 percent of the European legal market … and seven percent of the market globally.
This has been underpinned by EU Establishment of Lawyers Directive, which recognises their right to practise in another member state.
In the short to medium term, we may face difficulties in maintaining and growing this market share when we are not in the EU, and UK lawyers could see their free movement across Europe restricted. However, it is difficult to see any settlement that prevents English law firms from continuing to practice in Europe just as they do in other non-EU jurisdictions.
England and Wales also has the advantage of leading the world in the way we regulate lawyers. Our framework is one of the most open, and one of few that permits external ownership. This has encouraged innovative firms to set up and grow, and has attracted forward-thinking legal providers from other jurisdictions.
By contrast, the EU legal services market is still dogged by restrictions. In particular, some jurisdictions limit the type of business structure that can be used to provide legal services.
For example, many EU jurisdictions require services to be provided through a partnership. In addition, there are restrictions in Member States relating to multi-disciplinary practices (‘MDPs’) and legal practices that have external ownership, otherwise known as ABSs.
This is a matter of concern at EU level and the issue is likely to be addressed in due course. However, the UK is at the forefront of liberalising the legal services market, and this has provoked debate within various European bars as to how their regulatory frameworks need to change to deal with the creation of ABSs here.
Lawyers and the legal market are no longer the same thing, and lawyers in other countries will not be able to hold back the competition. How could they hope to do so when so much law will be delivered via websites or through innovative technology-led providers?
The UK has led the way in supporting those international clients who demand better analytics and management information to support decision-making and manage risk, through new operating models, artificial intelligence systems and IT.
English law is already the most widely used legal system in the world. The UK’s decision to leave Europe could allow the country to go on modernising its processes in line with global legal systems without the need to build agreements with European partners that lag behind.
It is unsustainable that legal services in Europe will continue to be controlled mostly by lawyers.
Brexit could be an opportunity for the UK to further dominate the international legal sector, because we have created a better environment than other countries when it comes to allowing firms to grow and compete worldwide.