Increasing competition in the legal services market from new entrants

At the beginning of this year, multiple U.S. media outlets reported that KPMG U.S. was nearing the final steps to become the first of the "Big 4"[1] auditing firms to operate a law firm in the country. The potential approval by the state of Arizona for KPMG U.S. Law Firm - an arm of the KPMG auditing firm - to operate independently has sparked a significant shift in the legal services market[2]. Allowing non-lawyers to own law firms presents considerable disadvantages for traditional law firms but offers a major competitive edge to the world’s top auditing firms.

Source: The Saigon Times

Why has the U.S. been reluctant while Vietnam has already granted licenses?

Differences in legal systems

The most significant difference between Vietnam and the U.S. on this matter lies in the regulatory framework governing auditing firms and law firms. In the U.S., strict regulations mandate the separation of auditing and legal services. Auditing firms are strictly prohibited from providing legal advisory services to clients for whom they also conduct audits. This rule exists to prevent conflicts of interest. In contrast, Vietnam’s legal framework lacks clear and stringent regulations prohibiting auditing firms from establishing independent law firms while still leveraging the same brand and maintaining close client relationships. The "Big 4" auditing firms in Vietnam can easily establish law firms under the guise of foreign-invested independent partners while retaining the branding of their parent auditing firm. Meanwhile, in the U.S., regulatory barriers make such a model much more challenging to implement.

Additionally, the approach to managing conflicts of interest differs between Vietnam and the U.S., contributing to why the "Big 4" auditing firms have easily established law firms in Vietnam but have yet to do so under their own branding in the U.S.

In the U.S., the Sarbanes-Oxley Act (SOX) of 2002[3] and regulations from the Public Company Accounting Oversight Board (PCAOB) prohibit auditing firms from offering certain legal advisory services to their audit clients to ensure independence.

In Vietnam, although the Law on Independent Auditing (2011) includes provisions on conflicts of interest in auditing, there are no specific prohibitions on an auditing firm operating within the same ecosystem as a law firm. This is evident in Vietnam, where law firms and auditing firms are nominally separate (established by lawyers or foreign law practice organizations under the Law on Lawyers), yet in practice, they can still share clients, creating a significant competitive advantage over traditional law firms. In contrast, strict conflict-of-interest regulations in the U.S. prevent the "Big 4" from using a shared brand or providing legal services under a model similar to what exists in Vietnam. This is why, despite years of attempts, the "Big 4" auditing firms have yet to enter the U.S. legal services market.

Bar associations and legal profession oversight

The U.S., as one of the world’s leading developed nations, has a well-established and highly structured legal profession governed by state bar associations. The legal profession in the U.S. is heavily regulated by these State Bar Associations, and stringent licensing requirements prevent auditing firms from easily setting up law firms or employing lawyers to practice under their brand.

In contrast, Vietnam's legal profession is still in a nascent stage of development, lacking a strong regulatory presence and being more open to new foreign entrants in the legal market. Current Vietnamese laws do not impose strict regulations preventing auditors and lawyers from working under a shared brand. As a result, "Big 4" auditing firms can easily leverage their global or regional legal entities, already licensed abroad, to establish wholly foreign-owned law firms in Vietnam.

For instance, KPMG Law Firm was established in Vietnam using a Taiwan (China)-based entity, receiving operating license No. 70 from the Ho Chi Minh City Department of Justice in 2015. This demonstrates that professional legal associations in Vietnam have yet to strongly oppose the expansion and encroachment of auditing firms into the legal services sector. The absence of such resistance has allowed "Big 4" firms to easily establish law firms alongside their auditing operations, recruit legal professionals, and expand their legal services under their global brands, unlike in the U.S., where professional legal associations have actively blocked such moves.

A new era for the legal industry?

The fact that KPMG U.S. Law Firm is approaching final approval to operate independently in the U.S. marks a potential turning point in the legal industry. If this final regulatory hurdle is cleared, it will signal a new era in legal services, where competition is no longer confined to traditional law firms but includes formidable entrants from other industries. If approved, this decision would grant KPMG significant advantages.

In Vietnam, major auditing firms have already expanded into legal services, notably: EY Law (Ernst & Young); PwC Legal (PricewaterhouseCoopers); Deloitte Legal; KPMG Law Vietnam along with other large auditing firms, are actively pursuing similar expansion strategies.

Their legal services cover tax consulting, investment, mergers and acquisitions (M&A), corporate compliance, and regulatory matters. With strong brand recognition and extensive client networks, these firms are rapidly capturing a significant portion of the legal services market, servicing both foreign investors and domestic companies, especially publicly listed enterprises.

Although Vietnamese law prohibits auditing firms from directly providing legal services, these firms have circumvented this restriction by establishing independent law firms within their corporate groups, operating under prestigious global brands. This creates an unfair competitive landscape for Vietnamese law firms, which remain predominantly small-scale entities without the branding power to compete with these international giants.

Source: State Audit Newspaper

Potential solutions for Vietnam?

To ensure fair competition between traditional law firms and auditing firm-affiliated legal services, Vietnamese regulatory authorities should consider the following measures:

First, strengthening regulations on operational models

There must be clear regulations regarding whether auditing firms and law firms within the same corporate group can share clients, to prevent monopolistic practices and conflicts of interest. In cases where one service (audit or legal) is deemed unsatisfactory, clients should have the right to terminate both services simultaneously. This is a crucial issue, as auditing firms also providing legal services could lead to a concentration of power that disadvantages clients.

Second, ensuring structural and managerial separation

Authorities should enforce clear structural and managerial separation between auditing firms and their affiliated law firms to maintain independence and avoid conflicts of interest. Additional regulations should limit the scope of legal services that law firms affiliated with auditing firms can provide, particularly services directly related to their auditing clients.

Competition authorities should also monitor the market position of auditing firms to ensure they do not exploit their dominance to compel clients to use their legal services. Furthermore, regulators should consider policies that support traditional law firms, such as tax incentives or initiatives that help them expand their client base.

Strategies for traditional law firms

To compete effectively with legal services under auditing firms, traditional Vietnamese law firms need strategic adjustments:

Enhancing professional expertise

Law firms should not only focus on specialized practice areas where auditing firms have weaker capabilities, such as litigation, criminal law, intellectual property, and labor law, but also strengthen the expertise of their legal teams to reinforce their competitive advantage as traditional law firms. In particular, they can expand their offerings by developing specialized legal advisory services tailored to multinational corporations and domestic enterprises.

Developing independent client relationships

The key advantage of auditing firm-affiliated law firms lies in their ability to directly transfer clients from their parent company. To enhance their competitiveness, traditional law firms should focus on building independent client relationships by collaborating with small and medium-sized enterprises (SMEs) and startups, offering flexible legal services at competitive rates.

Leveraging legal technology (LegalTech)

To grow and maintain a leading position in the legal industry, law firms must recognize that technology is no longer optional but essential. Firms that fail to integrate technology into their legal practice risk falling behind with a widening competitive gap. Therefore, investing in technology-driven solutions, such as contract automation, legal case management software, and online advisory platforms, is a crucial step for traditional law firms to increase efficiency, expand service offerings, and gain a competitive edge.

Expanding strategic alliances

Traditional law firms can broaden their operational networks by forming partnerships with strategic consulting firms, financial advisory companies, or even smaller auditing firms to deliver integrated services. This approach allows them to compete more effectively against the "one-stop-shop" model adopted by large auditing-affiliated law firms. By diversifying their service ecosystem, traditional firms can mitigate competitive pressure and establish a stronger market presence.

The expansion of law firms under global auditing corporations is reshaping the legal services industry in both the U.S. and Vietnam. While this trend is inevitable, regulatory oversight is essential to ensure fair competition and a level playing field.

Rather than solely focusing on direct competition among themselves, traditional law firms should prioritize differentiation strategies, embrace technology, and build long-term client relationships. By doing so, they can safeguard their market position in an increasingly competitive and unpredictable legal services landscape.

Lawyer Nguyen Van Phuc

HM&P Law Firm

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