Offshore law firms in the Caribbean basin are no strangers to tempests. Last year's Atlantic hurricane season was one of the worst on record. The British Virgin Islands (BVI) suffered catastrophic damage; many BVI-based law firms had to evacuate their staff after Hurricane Irma crippled infrastructure across the island chain.

Storm clouds have been brewing metaphorically too. Ongoing regulatory scrutiny across the offshore world continues to hang heavy, with the broader industry still trying to salvage its reputation from the wreckage caused by the Panama Papers leak. So when US President Donald Trump announced changes to the country's tax laws at the end of last year, offshore firms were bracing for another violent squall that threatened to flatten large chunks of their business.

For now, it looks like the storm has passed. The increased regulatory burden has not dampened demand for offshore legal services. In the first six months of the year, new incorporations in the Cayman Islands were up by 39%, in BVI they were up by 16%, and in Bermuda by 6%, according to data tracked by Conyers Dill & Pearman. And the revamped US tax legislation has not yet been the scourge that many initially feared. On the contrary, a booming US economy is creating a fertile backdrop for global dealmaking – a potential boon for offshore firms.

"The biggest driver of our business is the health of the onshore economy, but the country that is more significant than any other is the US," says Marcello Ausenda (pictured right), a director in Conyers' corporate practice in Bermuda. "If there is growth in the US – and there has been very heathy GDP growth over the last few years – and you have healthy capital markets and a healthy stock market, then that provides oxygen for deal flow, and when there is buoyant deal activity onshore, some of that comes offshore to us."

The amount raised in global initial public offerings (IPOs) hit $134bn at the end of August, the most since 2014, according to Dealogic, a data provider. And that is not just being driven by deals out of the US; the Asia-Pacific region saw its IPO market pop to $61bn, the highest in seven years. Some 112 IPOs were launched across Bermuda, BVI and Cayman in the first half of the year, Ausenda says. A significant number of those Cayman deals were listed in Hong Kong, including China's Cayman-incorporated Fusen Pharmaceutical Company Limited, which raised HK$416m ($53m), and REM Group (Holdings) Limited, which raised HK$135m.

Chinese companies in particular find the relative simplicity of the Cayman Islands and its regulatory regime attractive

"Chinese companies in particular find the relative simplicity of the Cayman Islands and its regulatory regime attractive, and you couple that with deep legal teams and a professional knowhow around what is required – people in Hong Kong and Shanghai are very comfortable with Cayman companies," says Simon Raftopoulous, a partner at Applebys in Cayman, whose firm advised on the Fusen and REM IPOs.

Raftopoulous (pictured right) says one of the reasons for Cayman's appeal is flexibility around capital structuring, such as creating special classes of preference shares or having a mixed board. That has firmly established Cayman as the go-to locale for offshore IPO work. Brazilian fintech firm PagSeguro Digital, for instance, incorporated in Cayman for its $2.3bn IPO on the New York Stock Exchange.

The US tax changes have also boosted corporate confidence, says Raftopoulous, spurring a flurry of mergers and acquisitions. Global M&A activity surged above $3trn this year for the first time since the financial crisis, according to Dealogic. In the offshore territories, Bermuda in particular has seen a busy year of dealmaking. At the end of August, there had been six inbound M&A deals into Bermuda (where an overseas company seeks to buy a Bermuda-based entity), worth about $8.2bn – double the value of deals seen during the same period in 2017. Meantime, there were 17 outbound deals (where a Bermuda entity seeks to make an acquisition overseas), worth about $4.3bn, three times last year's value (the number of deals was also the highest since 2012).

"In Bermuda we have a large insurance industry, and that industry has been experiencing quite a long period of soft rates, which has encouraged consolidation," says Ausenda. "In the past six to eight months, there have been a couple of very large deals – one of them was AXA's acquisition of XL Group and the other was AIG's acquisition of Validus."

Another big trend that has been gripping the offshore territories this year is the growth in the cryptocurrency, blockchain and wider fintech market. In the first six months of the year, there were just over 600 initial coin offerings (ICOs) globally, raising more than $16bn, according to Coinschedule, an ICO tracker. Almost $6bn of that was issued in June alone, proving that excitement around cryptocurrency assets shows little signs of waning despite a huge fall in the value of Bitcoin since the turn of the year.

The vast potential of the fintech market has not gone unnoticed by offshore governments seeking new ways to expand their economies. Bermuda, for instance, is seeking to position itself as the destination of choice for cryptocurrency and fintech companies, having passed a raft of legislation this year to bolster its appeal. Among those is a bespoke ICO act that will regulate new coin offerings, alongside a fintech advisory committee that has been set up to vet ICO applications. It has also passed a digital asset business act, which will regulate service providers that cater to the fintech industry. And Bermuda has also made an amendment to its banking act to create a new class of bank to better serve the sector, thus sidestepping reluctance from existing financial institutions.

The government is taking a bet that there are enough reputable players in the fintech industry who will want to come and use Bermuda

"The Bermuda government, as a strategic imperative, has gone out and created infrastructure in Bermuda to support the fintech industry and to attract the subset of clients in the fintech space who want to be regulated by a reputable jurisdiction, and the government is taking a bet that there are enough reputable players in the fintech industry who will want to come and use Bermuda," says Ausenda, whose firm worked closely with the government and the Bermuda Business Development Agency during the legislative process.

"There is an enormous advantage to being the first mover, because you can then develop a reputation as being the go-to jurisdiction for that product or asset class, and then the herd follows," Ausenda adds.

Given the nascency of the market – Bermuda's fintech advisory committee was not even set up when it started receiving ICO applications under the new legislation – offshore lawyers remain circumspect about how the business might unfold.

"We suspect that blockchain may ultimately be more important than cryptocurrency work in the long run. But will this result in significant jobs? The jury is out on that," says Keith Robinson (pictured right), a partner at Carey Olsen in Bermuda. "Until recently we hadn't seen the fintech space result in significant instructions, but we have now seen some come in and it's certainly possible that jobs will result. We have seen some advisory work around employment and immigration because companies that do want to set up in the fintech world [in Bermuda] are exploring what it means to have significant employees on the ground. Clients tell us that location is important. Bermuda has the direct flight to London, it's two hours from New York, so for people wanting to span those two worlds it's not a bad proposition."

Onshore concerns may also have an impact on how the market develops. A number of countries have already banned Bitcoin. And the US Securities and Exchange Commission is said to be investigating about 80 cryptocurrency startups for violating securities regulations.

"Certainly, whether you're onshore or offshore, there's a desire and need for regulatory certainty in this space and people are grappling with what that actually means," says Raftopoulous. "For crypto and ICOs to be accepted as a legitimate business and enjoy credibility beyond what is currently afforded in the business sector, we're far away from that and there will be consequences to the views they are taking onshore that will trickle down to offshore. But crypto and blockchain, it's here to stay and it's going to morph into a globally regulated form, that's where it has to head."

Raftopoulous says Applebys' dedicated global technology and innovation group has seen it lead the way for offshore firms in the fintech space, having worked on a number of groundbreaking transactions, such as SelfKey's $22m, blockchain-based digital identity token sale.

We were living and breathing this market before it was cool

"We were living and breathing this market before it was cool, so we take a deep sense of pride that the lawyers in our fintech team really understand what is going on," he says. "That's important because clients in this sector, maybe more so than other sectors, have an intrinsic need or want that you understand what they're doing and how their product works. We've been lucky in getting that right and it's certainly reflected in the amount of instructions we've got and the amount of deal flow."

Despite Bermuda's move to embrace the potential crypto-goldrush, Cayman-based lawyers do not expect to see their work dry up. Cayman has already seen a host of successful ICO and token generation events, says Alan de Saram (pictured right), managing partner at Collas Crill in Cayman, mostly because of its existing investment funds framework.

For instance, for people wishing to issue tokens that are not classified as securities (a utility token, in the crypto parlance), Cayman law has a robust definition of what does and does not constitute a security, which means issuers can structure a utility token offering without having to tip-toe around any regulatory uncertainty, de Saram says.

The introduction of Cayman's Foundation Companies law last year has also been popular with ICO issuers. Foundation companies make it easier to set up a bespoke governance structure, and the not-for-profit element is useful for coin issuers that have an altruistic element to them, he says.

That existing investment framework has also encouraged the launch of a number of cryptofunds, which are mostly structured in the same way as a standard investment fund, but which hold crypto assets instead, de Saram says.

Wider fund work also continues to be healthy, notably in the private equity space, which remains popular with investors, given the meagre returns up for grabs in other asset classes. Private equity funds raised a record $542bn last year, according to Preqin, a data provider (the pace is slightly slower this year, with $255bn raised by the end of August). Hayden Isbister, managing partner at Mourant Ozannes' Cayman practice, says his firm has seen an increase in the number of Asia-focused private equity funds, which tend to set up Cayman vehicles if they are selling into the US.

Raising all that money has come with other challenges though, namely there is a huge pile of cash chasing a finite number of assets. That is driving up prices, making it harder to invest those funds, lawyers say. At the end of June, private equity funds had a record $1trn of unspent 'dry powder' waiting to be deployed, Preqin data shows.

That frothiness in asset prices – which can crimp potential returns – has led to a rise in the use of fund finance, typically short-term subscription credit lines. Private equity funds have traditionally used these to quickly purchase assets while waiting for cash to be drawn down from investors but, more recently, funds have been extending these credit lines as a way to boost performance, as it allows them to hold assets for longer without using investors' cash. That can potentially lift a fund's internal rate of return higher than it would have been had they received the cash from investors earlier.

Isbister (pictured right) says where fund finance was once the domain of more boutique lenders, most of the large US investment banks are now providing fund-level subscription lines, which has led to an increase in the amount of credit being offered.

"Historically many of these facilities have been relatively small in money terms but the amounts now are mind-boggling, in some cases billions of dollars," he says.

The growth in private equity funds has not been matched by the hedge fund industry, which has generally underperformed from a returns perspective during the past decade, denting demand. In part that is because stock markets have been rising, and hedge funds tend to do better when markets are falling, de Saram says. Yet given that bull markets tend to have a roughly 10-year shelf life, those dynamics may soon begin to change, and that could lead to a big uptick in new hedge fund formation, he says.

Increased regulation and compliance is not depressing fund work either. In fact, Isbister says regulation is actually a growth opportunity for offshore firms as they help funds adapt to the shifting compliance backdrop. That is especially pertinent for the Cayman Islands, which has 11,000 registered funds and more than 30,000 unregulated funds that will have to meet a plethora of new rules, such as having to appoint anti-money laundering officers by the end of September this year.

"That's one of the biggest changes we've seen in many years here," says Isbister. "The amount of regulation that is creeping into the offshore world now is really seeing it become a specialised area for offshore firms; rather than all lawyers dabbling in regulatory work, each firm has got specific regulatory practices and regulatory lawyers."

As well as greater scrutiny around anti-money laundering processes, de Saram says rules around beneficial ownership and data protection are the most pressing topics offshore firms are having to deal with.

"People are worried that beneficial ownership regimes will have a negative effect on offshore because it has traditionally been more private," he says. "It's going to add to costs, which obviously goes against the grain because it is usually cheaper to set up funds offshore than onshore, but most onshore jurisdictions are having to put in place data protection checks and balances and more robust beneficial ownership practices, so maybe some of our nervousness has been unwarranted."

Robinson reckons there is also an opportunity for offshore law firms to wrestle work away from accountancy firms that currently prepare businesses for regulatory reviews.

"A lot of that is really legal work, but law firms don't seem to have caught on to the fact that they can market their skills to help corporate services providers, trust companies and the whole range of financial services companies get ready for regulatory inspections," he says.

But there is no doubt the tangle of new regulations is a drag. In Bermuda, companies now have to file bylaw provisions to the island's Registrar of Companies related to the quorum of a shareholders' meeting, any restrictions on share transfers, and the duties and obligations of the company's secretary, says Ausenda.

"Mostly because of the onshore regulatory pressure from the European Union and the Organisation of Economic Co-operation and Development, we have this new legislation which just makes it a little bit more cumbersome in Bermuda," he says.

Ausenda is less concerned, however, about any jitters around beneficial ownership requirements.

The inconvenient truth for many onshore regulators is that Bermuda is the world leader in the vetting of ultimate beneficial ownership

"The inconvenient truth for many onshore regulators is that Bermuda is the world leader in the vetting of ultimate beneficial ownership," he says. "Since we invented the offshore company 80 years ago, from that very first company, Bermuda has always and consistently vetted ultimate beneficial ownership. The Bermuda Monetary Authority has its own private register, and we're probably the only jurisdiction in the world where you can pick any company on our companies' registry and our regulator can tell you who the ultimate beneficial owners are."

The regulatory headwinds are unlikely to dissipate in the foreseeable future. The UK has said its overseas territories must make those beneficial ownership registers public before 2020. And the EU is seeking further compliance measures from offshore jurisdictions around the world by stiff-arming them into drafting legislation that will set guidelines on the level of economic activity a company must undertake in the offshore jurisdiction in which it is registered. Failure to enact these so-called substance rules before the end of the year could result in the EU blacklisting that jurisdiction.

Black clouds may also be forming over global trade, as tensions continue to escalate between China and the US. Protectionist policies and barriers around inbound foreign investment are unlikely to be good news for cross-border capital flows and by extension offshore financial centres such as Cayman, Bermuda and the BVI. Increased competition among offshore law firms may also add to the challenges ahead.

"It's only the large law firms with an international footprint operating offshore that are successful in securing the best work for the best clients," says Isbister. "There are too many offshore law firms and too many lawyers in this market. There's a huge gap between the big global firms and those at the next level. Small firms are struggling."

There are too many offshore law firms and too many lawyers in this market

Yet others are optimistic that greater competition – and therefore more choice for clients – is healthy. Carey Olsen, for instance, this year opened a Bermuda office as the firm continues its global expansion.

"We opened in January with a building on a three-year lease and we're already full, so we physically have no office space left, and that means there's demand for people who want to have variety and have competition, and I'm sure that's the same with Carey Olsen the world over – we face increasing competition in all of the jurisdictions, and that's not a bad thing," says Robinson.

And despite the geopolitical tensions, markets continue to be upbeat. A new trade pact between the US, Mexico and Canada was agreed at the end of September, with only relatively minor tweaks to the old North American Free Trade Agreement that President Trump had so vehemently railed against. That might offer a glimmer of hope that Trump's trade grievances with China could yet be resolved without the need for a prolonged and messy trade war.

"As long as the Chinese economy and US economy remain strong and buoyant, then our business will follow suit," says Ausenda.