It is difficult to see a bright future for offshore financial centers amid media attacks, international tax information exchange, initiatives to curb cross-border profit shifting by multinational companies, anti-tax avoidance measures, transparency efforts that erode financial privacy and more extensive compliance rules.

There has been relentless pressure from international standard-setting bodies and onshore governments, which have made operating in the offshore world more onerous and expensive.

Yet, at the same time the world is filled with a growing number of increasingly wealthy people who lead complex multijurisdictional lives and more multinational companies with complex cross-border supply chains, who are as such key target clients for the offshore industry.

The rapid pace of regulatory change is not new to offshore centers, which are used to moving goalposts and unlevel playing fields in terms of the rules they are forced to follow.

Perhaps the most significant difference compared with previous decades of offshore evolution is the heightened level of media attention after the so-called “Panama Papers” and “Paradise Papers“ revelations.

For Dan Wise, head of litigation at Martin Kenney & Co., the Panama Papers leak, especially, caused a “media maelstrom” for his home jurisdiction, the BVI.

He says there is no doubt there was “a great deal of very bad behavior revealed by the Panama Papers.” But he points out as noteworthy that even though it involved “a less reputable player,” in the form of Panamanian law firm Mossack Fonseca, the data was available and could have been obtained through existing legal and judicial channels.

The Paradise Papers, based on information allegedly stolen in a cyber hack from offshore law firm Appleby, are much less dramatic, Wise said at the Offshore Alert conference in April in Miami.

“As far as I have seen, there has not been the same media maelstrom. It seems to me that it essentially revealed that rich sophisticated people engage in lawful tax avoidance advised and assisted by capable persons,” he said. “I would not see that as that remarkable.”

However, public opinion has clearly evolved. Helen Hatton, managing director at BDO Sator Regulatory Consulting in Jersey equated it to how attitudes have changed over time toward smoking in public spaces, like airplanes or restaurants.

“Public opinion changes and it has changed against us,” she said in another session at the Miami conference.

She believes that offshore centers are well placed to provide wealth management and other services, but they will have to do so “in a manner that is acceptable to the rest of the world.”

This involves finding a “zone of tolerance” in a regulatory world that is constantly changing.

To survive, she argued, OFCs must have the ability to meet international standards, whether they are set by the Basel Committee on Banking Supervision, by the International Association of Insurance Supervisors, the International Organisation of Securities Commissions, the Financial Action Task Force for anti-money laundering or the Organisation for Economic Co-operation and Development for tax issues.

Offshore centers must have the capacity to conduct the legal analysis and fill in the necessary forms. “[OFCs] have to get good at passing exams,” Hatton said.

They must also have the capacity for international cooperation by having sufficient staff and budget to commit regulators and law enforcement.

“For many jurisdictions that means trebling the number of public servants in these institutions,” she noted.

Most importantly offshore centers will have to adapt their service offering.

Hatton said secrecy and tax dodging are dead and have been for 20 years. Small financial centers now have to compete on skills, a tall order when the competitors are London, New York, Frankfurt or Luxembourg.

Some jurisdictions may not be prepared to accept the necessary influx of expatriate workers or to give up ownership of local businesses. This can be respected, Hatton said, but it will not build an international financial center that attracts complex international clients on the basis of skills.

The financial centers that open up to foreign workers, in turn, have to update their infrastructure in terms of properties and transport as well as high-quality schools.

At the same time, regulatory pressures focus on the provision of substance.

The tax residency of any entity is generally recognized on the basis of where the management is based or where its economic activity takes place. Hatton said, “A brass plate won’t do it.”

Rather than serving 4,000 companies with only six people, substance will be reflected in a larger number of people serving fewer companies in the top financial centers. This requires higher service fees which in turn elevates the value of the business.

“Jersey trust companies sell for 11 times revenue,” she noted.

Hatton believes the OECD pressure has culminated in a watershed moment, where some offshore centers find it difficult to comply because they lack the critical mass in terms of the size of the industry and capacity to comply.

Some OFCs will simply give up. The Seychelles recently took that step to focus on tourism and Malta relinquished OFC status to become a member of the European Union.

Hatton predicts that “fewer jurisdictions of higher quality are going to have a bigger slice of what globally is a smaller cake.”

The cake is getting smaller, because the growing compliance burden not only leads to a consolidation of offshore centers, it also reduces the number of clients that have enough money to make wealth planning that complies with international standards commercially viable for them.

The number of high net worth individuals who have liquid asset of $1 million or more may be growing. In 2016, more than half of the world’s high net worth individuals came from the U.S., Japan and Germany. In total there were more than 16.5 million HNWI worth $16.35 trillion.

But it is really only the ultra-high net worth individuals, who have liquid assets of more than $30 million, and the cross-border conglomerates that are the target markets for OFCs, Hatton said.

However, high regulatory hurdles will also create new openings. Banks are de-risking as they are more reluctant to deal with the type of clients and jurisdictions that attract costly compliance.

Hatton said, “That is a great opportunity for our jurisdictions who understand complex cross-border structures.”

Wise sees other opportunities in Asia, especially for firms in the BVI and Cayman because of the effort that has been made to establish a footprint in Hong Kong and the People’s Republic of China.

While it is already a significant part of the business, the planned construction of the New Silk Road, a large-scale communications and transportation network including new roads and rail to support Chinese exports, is a $1.5 trillion project that will rely largely on funds raised from private investors.

“I foresee and hope that a significant part of that business will come through BVI companies, probably acting in conjunction with Cayman companies,” Wise said.

Geopolitical events like the British decision to leave the European Union will also have ramifications for offshore financial centers such as those linked to the U.K.

Wise believes the EU is going to be fiercer on the British territories after Brexit.

“I think, however, that the straight end of the business in places like Cayman, the BVI, Channel Islands and Bermuda working in conjunction with what is still going to be a very important financial center, the City of London, is going to mean that these tax planning services continue to be a big part of the offering from these territories.”

Fellow panelist Arthur VanDesande, CEO of Concorde Associates, noted that although London is rumored to lose some of its financial services workforce to continental Europe, the EU will drive business the other way if it squeezes too much and creates too many regulatory hurdles.

“OFCs, especially the Crown dependencies will be invigorated by Brexit. After everything has settled down, clients will rethink tax rates, legal systems etc.”

Hatton agreed that changing patterns can provide new opportunities and said that the Crown dependencies had “an enormous lift in business since the Brexit decision.”

The uncertainty present in London does not exist in Jersey or Guernsey, which were never part of the EU. The Channel Islands’ existing relationships with the EU are treaty-based and well-known.

“If you are setting up funds, strategies or structures which have a four or five-year life span, are you setting up in London where you have no idea where the position will come down after Brexit or will you set it up in Jersey or Guernsey where those relationships are already clear?” she asked.