KPMG Law US Formally Opposes Arizona Rule Changes Targeting ABS Firms

KPMG Law US filed formal opposition to proposed Arizona rule changes that would require alternative business structure firms to direct at least part of their legal offerings to Arizona businesses and consumers, a mandate the firm argues would constrain the operating model it built when it became the first Big Four entity licensed to practice law in the United States.

Arizona's Committee on Alternative Business Structures, the court-directed body that approves ABS licenses, recommended the rule changes earlier this year. The committee proposed two specific requirements: that ABS firms devote a portion of their services to Arizona businesses and consumers, and that they provide legal services directly rather than function as referral conduits. The Arizona Supreme Court, which must ultimately act on the committee's recommendations, has not yet adopted the changes.

The stakes are particularly high for KPMG Law US, which the Arizona Supreme Court approved on February 27, 2025, after the committee recommended the application in January of that year. KPMG Law US operates as an independently managed subsidiary of KPMG LLP and maintains strategic alignment with the firm's Tax practice. Its client roster is largely global, drawn from life sciences, financial services, and asset management, with the work concentrated in contract, tax, and M&A services. Christian Athanasoulas, executive sponsor of KPMG Law US, described the firm's target clients as those "in industries that are subject to evolving regulatory frameworks and those regulatory frameworks need to be revisited and actioned on."

KPMG has pointed to its existing footprint as evidence of Arizona commitment: the firm already serves more than 100 clients in the state. When the court approved its ABS license, KPMG said the approach "combines innovation with the longstanding KPMG LLP commitment to quality, ethics, independence, and professional standards, so clients may benefit from comprehensive, integrated professional services."

The State Bar of Arizona filed its own formal comment opposing the committee's recommended rule changes, but from the opposite direction. The bar argued the changes would "give entities with only a tangential connection to Arizona the regulatory justification to prioritize other markets," and described some ABS operators as using Arizona's experiment with investor-owned firms as a launchpad to reach states with more restrictive legal regimes.

Natalie Knowlton, associate director for legal innovation at the Rhode Center at Stanford Law School, offered context for why the court is examining the program's scope. "The Arizona ABS program is an incredibly dynamic space," she said. "The Arizona Supreme Court has been responsive to the growth of the program and is looking for ways to ensure one of the main aims of the program, which is serving Arizona businesses and citizens, are respected and protected as the national law firm model is expanding."

Arizona's ABS framework traces to August 2020, when the state Supreme Court voted unanimously to eliminate Rule 5.4 from the Arizona Rules of Professional Conduct, clearing the way for non-lawyer ownership of law firms. The Arizona Code of Judicial Administration Section 7-209, which established the regulatory structure for the program, took effect January 1, 2021. Professional guidelines in most states still prohibit non-lawyer ownership, making Arizona one of a small number of jurisdictions that have moved in this direction.

The conditions attached to KPMG's approval include a hard prohibition: KPMG Law US cannot provide legal services to any client that receives auditing services from KPMG or any of its member firms, though it may serve clients receiving other KPMG services. A compliance lawyer within KPMG Law US is required to conduct semi-annual internal audits and prepare written findings reports to demonstrate ongoing adherence to ABS requirements.

Whether the Arizona Supreme Court adopts, modifies, or shelves the committee's recommended rule changes will shape how broadly KPMG Law US and other ABS licensees can grow their national practices under an Arizona license.