The resurgence of mid-tier law firms is about to come under pressure from ‘intense competition’ from the big accountancy firms entering the legal market.

A report published today by the Royal Bank of Scotland says mid-market law firms had enjoyed a ‘stellar’ year with increased profits and rapid growth.

Those firms ranked from 51 to 100 saw revenues rise by 13.6% in a comeback from the economic crash that the report described as ‘little short of spectacular’.

But while RBS praises law firms for their embracing of outsourcing, reducing of costs and greater use of fixed costs, the report says accountancy firms are ‘quietly’ taking away more commoditised work.

Three of the top four accountancy firms – EY, PwC and KPMG, all offer legal services armed with an alternative business structure licence, with PwC Legal posting revenues of £41m in the UK in the most recent year.

‘This undoubtedly raises the stakes for established firms as they seek to protect existing market share and invest in the cutting-edge technology required to compete,’ says the report.

It explains that with much legal work becoming increasingly process-driven, accountancy firms may appeal to clients seeking efficiency, standardisation and a move away from hourly rates.

Accountancy firms already have excellent technology and cheaper cost centres, it adds, and are well-established in ‘under-lawyered’ emerging markets.

‘For now, their strategy is to eschew full-service capability and the trophy hires of rainmaking partners from established firms.

‘Instead, they are focusing on legal areas that complement their own practices, such as compliance, due diligence, employment, immigration and tax.’

While this ‘soft’ entry into the legal market is likely to remain for now, RBS said the ‘smart money’ is on accountants going head-to-head with the established top City firms over lucrative capital markets and transactional activity.

The report says law firms at all levels must be ‘pro-active’ in managing their staffing, real estate and other key costs to fit rising and falling markets. They must also be able to differentiate from rivals and focus on the most profitable areas of the market.

‘Those nimble enough to roll with the markets will have a clear advantage over more traditional rivals.’