TL;DR
HSBC’s annual survey of UK law firm leaders finds 60% naming clients who pull work in-house, often with their own AI tools, as a source of disruption, and 73% describing a major organisational challenge in integrating AI. Almost three-quarters say technology is disrupting legal delivery, which strains the billable hour. The findings land in the same week the FT reported senior Freshfields partners debating whether their AI unit could be spun out as a company “worth billions”.
HSBC’s 2026/2027 survey of law-firm strategy and investment, conducted with the legal publisher Briefing over the summer, drew on more than 100 responses from senior decision-makers. HSBC’s release frames the sector as ambitious but more selective about investment.
Clients doing it themselves
The problem City AM draws out is pricing. Helen Drayton, chief executive of Penningtons Manches Cooper, said clients “increasingly try to do more for themselves” with their own AI tools, and sometimes arrive at meetings with an AI-generated strategy the lawyer then has to spend time arguing against. “How do you decide how to charge for that?” she asked.
Knights’ chief executive, David Beech, noted that general counsel may be using AI products the firms themselves recommended or built, leaving firms “more pressured to make the case for an ongoing relationship”.
HSBC UK’s Victoria Ritchie, whose brief covers professional services, said AI is “already challenging the traditional law firm operating model, accelerating changes in how legal services are delivered, priced and resourced”. A generative AI strategy exists at almost every firm; the barriers now are time, legacy systems, cost and uncertain returns.
The other side of the ledger
If clients’ AI erodes fee income, firms’ own AI may become an asset in its own right. The FT reported that Alan Mason, who is Freshfields’ global managing partner, had told a colleague he was putting “a lot of work” into placing the firm’s AI business in a separate legal entity open to outside investors, citing legal-tech valuations of 25 to 40 times revenue. The exchange, accidentally sent to a firm-wide distribution list, named Harvey and Legora, with valuations of $15.5bn and $5.6bn, as the benchmark. Ethan Klingsberg, the other party to the exchange, described the talks to the FT on Wednesday 14 October as “very early stage”.
We have covered the SRA’s consultation on AI competence and Co-op Legal Services’ AI call scoring.
Looking forward
In our view the survey and the Freshfields emails describe the same shift from opposite ends. Clients with AI need fewer billable hours; firms with AI are starting to think of their tools as products. Roythornes’ finance director Sam Elkin put the dilemma plainly: firms are wrestling with “what a fresh wave of potentially transformational technology will now mean for the business model of a law firm” as pressure builds to show a return on generative AI spending. For UK businesses buying legal services, the near-term effect is leverage on fees; the longer-term one may be buying software from firms they used to instruct.