EY Law Network Suffering Following Regulatory Clampdown

by Glen Shapiro, LawAndTax-News.com, New York

14 June 2005

According to a Legal Week report published late last week, four more firms are seeking to split from the international EY Law network.

Coming after the departure of the group's Austrian, Polish and UK members, and the announcement that its CIS-based network is in talks with DLA Piper Rudnick Gray Cary, it emerged recently that operations in Estonia, Latvia and Lithuania are seeking to split from the group.

Although the accountancy-tied group still has associated firms in France, Germany, Italy, Hungary, the Netherlands, Spain and Switzerland, it has reportedly found the change in the international regulatory climate regarding legal operations tied to accounting firms hard to deal with.

Speaking to Legal Week, Stefan Kraus, managing partner with Luther Menold, the group's German member, explained that:

"The network is very different from what we had envisaged and what was in place in late 2003 and there will be firms that look at the benefits of closer cooperation with Ernst & Young and the restrictions."

In February 2004, the KPMG-parented network, KLegal signalled its formal dissolution, although it stated that member firms would endeavour to keep close working relationships with each other.

Speaking at the time, chief executive of the former KPMG international operation, Robert Glennie explained that:

"The structure of our relationship with KPMG is changing for regulatory reasons. These changes will allow our members to work with KPMG, as independent legal practices, while offering the widest possible choice to our clients and ensuring full regulatory compliance."

The network first announced in 2003 that it would be ceasing operations under the KLegal branding, due to provisions in the Sarbanes-Oxley Act concerning the provision of non-audit services to audit clients by accounting firms.

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