At present lawyers in the UK are forbidden from entering partnerships or incorporating other than fellow lawyers. The government also supports the ending of restrictions under which lawyers employed by companies are allowed to offer legal advice only to that company and not to its customers.
The deregulation would open the door to mergers and diversification where accountants and lawyers in England and Wales could combine to form complete business services practices.
Investment banks could also set up, or takeover, legal teams to provide a full transaction facility.
David Clementi, former deputy governor of the Bank of England and chairman of the insurer Prudential, will head an independent review charged with drawing up new principles that will sweep away restrictions that stop companies such as banks and insurers from offering legal advice to their clients.
Mr Clementi will also consider the creation of a new super-watchdog – an equivalent to the Financial Services Authority for the legal profession – that could regulate all solicitors and barristers as well as companies that break into the market.
Mr Clementi has been given until the end of next to year to work out the details of how to regulate a more open legal market and safeguard the independence of the profession. His recommendations could lead to legislation.
Announcing the review yesterday, Lord Falconer said there was a “significant chance” the Law Society, which represents 90,000 solicitors in England and Wales, would lose its self-regulation powers.