International law firms with Brazilian alliances look set to come under renewed regulatory pressure after the Sao Paulo Bar Association this month concluded that formal tie-ups breach local practice rules.

The recent opinion from the Sao Paulo Bar (Ordem dos Advogados do Brasil – Secao de Sao Paulo) illustrates the mounting tension over the recent influx of foreign law firms into Brazil's fast-growing market.

Though the decision by the ethical and disciplinary tribunal of the Sao Paulo Bar is only advisory, it is regarded as giving an indication as to which way a ruling would go if a case were to be pursued against one of the foreign firms operating in Brazil in alliance with a local firm.

Alliances under the spotlight include Mayer Brown and its local affiliate Tauil & Chequer, and DLA Piper and affiliate Campos Mello. Over the last year both firms have ruffled feathers by hiring senior lawyers from leading Brazilian law firms – with Tauil & Chequer recently bringing in partners from Machado Meyer Sendacz & Opice, and Campos Mello attracting a team of lawyers from Tozzini Freire Teixeira & Silva.

A number of foreign firms operate in Brazil as consultants, as local Bar rules prevent them from providing local law. Around 20 foreign firms now operate in Brazil including Clifford Chance, Allen & Overy and Clyde & Co. Linklaters has maintained a formal alliance with Lefosse since 2001.

The ruling has been met with disappointment among foreign firms, which have been stepping up their investment in Brazil in response to its recent emergence as a major economic power. One partner with a major international law firm said: "At the end of the day it's bad for clients."

Local lawyers, in contrast, argue that their firms are not yet ready to compete on a level playing field with international rivals given that Brazil has only in recent years fully emerged from a period of prolonged economic instability.

"Brazilian law firms have sophisticated structures and are prepared for competition, that's for sure. What we're not prepared for is unfair competition where the local workforce market is disturbed," Jose Luis Freire, founding partner of Tozzini Freire, told Legal Week.

The news of the ruling comes as Brazilian oil giant Petrobras this week completed its record rights issues, raising around $70bn (£44.6bn) in the largest share issue in corporate history. Cleary Gottlieb Steen & Hamilton acted as US counsel for Petrobras – Brazil's largest company – alongside local firm Machado Meyer. Shearman & Sterling and Mattos Filho Veiga Filho Marrey Jr & Quiroga acted as underwriter counsel.