As artificial intelligence (AI) integration accelerates across the legal industry, law firms in Europe and beyond are facing critical questions regarding business models, pricing structures, talent strategies, and geopolitical considerations. Industry leaders predict that AI will soon become fully embedded in legal practice, transforming how services are delivered, though significant challenges remain.

A 2026 report on innovative European law firms highlights rapid AI adoption, particularly among large international firms such as Allen & Overy, Shearman & Sterling, Freshfields, and the legal divisions of major accounting firms like PwC. These organizations have leveraged their scale to invest early in AI technologies, enabling them to build customized legal products, deploy intelligent agents, and provide quantifiable benefits such as significant time savings. For example, PwC Tax & Legal in Spain has reported a reduction of over 19,000 working hours across nearly 900 professionals in six months. Similarly, global firm Dechert states that AI usage has doubled in 2026 compared to the previous year.

While AI’s integration offers opportunities, it also raises pressing questions about law firm business models. The longstanding billable-hour system is increasingly under scrutiny. Antonio Herrera, managing partner of Uría Menéndez, a Spanish law firm, has long questioned this model, emphasizing that law firms should focus on value rather than time spent. Clients, too, are pushing for alternatives that reflect AI-driven efficiencies. However, many firms argue that transitioning from hourly billing is complicated by persistent cost structures that have yet to substantially change.

These pricing challenges are coming amid notable industry consolidations, including recent mergers between UK-originated international law firms and U.S. counterparts—examples include Ashurst with Perkins Coie, Herbert Smith Freehills with Kramer Levin, and Hogan Lovells with Cadwalader. Such moves underscore ongoing efforts to expand jurisdictional reach and scale, considered vital for serving global clients.

Geopolitical complexities further complicate the landscape. Miguel Zaldivar, CEO of Hogan Lovells Cadwalader, notes that while traditional globalization is shifting, a global mindset remains vital for firms advising multinational corporations. Risks related to multi-jurisdictional data sovereignty and political instability, highlighted by Freshfields senior partner Georgia Dawson, could disrupt international trade and legal work. Lawyers’ skills in judgment, relationship building, and nuanced geopolitical understanding continue to be highly valued, yet advancements in artificial general intelligence call into question whether some aspects of legal reasoning might increasingly be supported or replicated by AI systems. Caryn Sandler, chief knowledge and innovation officer at Australian firm Gilbert + Tobin, suggests that AI can capture elements of legal experience, potentially augmenting traditional lawyer expertise.

Adding to the disruption are “native-AI” law firms, built from the ground up around AI technology. Firms like Carta Law, which recently acquired the UK-regulated alternative legal business Avantia, exemplify this new breed. Backed by private equity and equipped with engineering talent, these AI-first firms aim to challenge conventional assumptions about service delivery, pricing, and staffing. Their more flexible organizational cultures and technology-focused approaches have attracted lawyers seeking alternatives to traditional long-hour models. Consultancy Legal Tech Collective founder Alex Baker argues that these firms will not only compete with incumbents but also expand access to legal services in markets previously underserved.

Despite concerns that such firms might displace established players, many industry leaders see a convergence rather than replacement. Alan Mason, global managing partner at Freshfields, predicts that distinctions will blur over time as all firms incorporate AI capabilities to some degree.

Pressure to reform pricing is intensifying, particularly from major clients. Wall Street banks such as Goldman Sachs, Morgan Stanley, and Citigroup are reportedly demanding fee reductions reflecting AI-driven efficiencies in legal work. Tom Hambrett, chief legal officer at fintech firm Revolut, has spearheaded efforts to move beyond traditional panel arrangements and demand greater value and transparency from law firms. Meanwhile, alternative fee arrangements are becoming more prevalent, rewarding outcome-focused work rather than hours billed, which some corporate legal managers believe better aligns incentives and encourages AI adoption.

Nonetheless, some law firms continue to raise hourly rates amid the uncertainty, prompting debate over whether AI will ultimately drive cost savings for clients or enable firms to sustain or increase revenues.

As AI becomes a foundational element across the legal sector, firms are navigating a complex environment marked by shifting client expectations, technological innovation, evolving geopolitics, and strategic realignments. The coming years are expected to see continued transformation of traditional legal service models, with AI acting as both a catalyst and a challenge for the industry.