Bermuda's new Governor Sir John Vereker says the Island must conform to global financial codes and standards in order to satisfy the examination of overseas territories by the International Monetary Fund at the end of this year.

Although Bermuda had little to fear, he said a clean bill of health would be crucial for the reputation of the offshore finance industry, adding that weakness in one jurisdiction could tarnish the standing of all offshore centres.

He warned some parts of the G7 - the group of developed industrial countries - and the Organisation for Economic Cooperation and Development bore little good will towards offshore jurisdictions.

Speaking on development finance, international trade and the globalisation of capital markets at the Institute of Directors Bermuda chapter's tenth anniversary celebration dinner at the Fairmont Southampton Princess on Saturday night, Sir John identified his observations from the wider world relating to the global environment in which Bermuda is placed.

"I believe that the forces of globalisation will grow stronger, not weaker," said Sir John.

He also said modern technology would continue to drive the world into a more integrated market place for goods, service and capital but said there was a need to manage the forces of globalisation, especially for poor countries, "but it does not mean that there is any realistic option of turning our backs on progress," he said.

Sir John added while recent waves of anti-globalisation protests may be well-intentioned, global capitalism was unfairly is being held up as the root of all evil rather than a source of jobs and livelihoods.

"Globalisation needs to be harnessed because it cannot and should not be halted in its tracks," he said.

"It follows that countries which are well integrated into the global economy, in terms of their investment in human and physical capital, will continue to do well, and that those which are not will increasingly be left behind. International capital now can, and will, move quickly between jurisdictions in search of competitive advantage, especially in high value, low volume business."

Sir John's said the price of this integration would be adherence to increasingly explicit global codes and standards.

"These will derive not just from the regulators, where there are depositors or policy holders to protect, but also from the international organisations - notably the IMF, the WTO and, of course, for EU members the European Commission," said Sir John.

He said Bermuda had nothing to hide and little to fear as far as adherence to the standards of best practice in regulation and transparency and the Island's record against the recommendations in the KPMG report is strong.

However, Sir John warned: "We must of course expect the IMF to take a continuing interest in the implementation of agreed measures when they come round the overseas territories in the last quarter of this year. A clean bill of health then will be crucial for the reputation of the offshore finance industry, and weakness in one jurisdiction could tarnish the standing of all."

Regulation led to two outcomes said Sir John, firstly that it was possible that a physical presence for international businesses - responsible persons, and proper company records, if not the actual holding of assets - will increasingly become the international standard. Secondly, it would not be surprising if these internationally accepted standards extended eventually into the quality of governance more widely defined.

Sir John also said antipathy in parts of the G7 and OECD to offshore jurisdictions is a fact of life, and would intensify if there are signs of reluctance to fall in with perceived best practice in transparency and reporting - as the Channel Islands were currently discovering.

"Of course, the two biggest offshore jurisdictions - defined as being where institutions are providing financial services to non-residents - are in fact the US and the UK. So attitudes in London and Washington are far from uniformly hostile. But there is far less sympathy and understanding in the large countries of continental Europe, particularly towards places which have not achieved the critical mass of talent and expertise upon which to base a truly competitive and dynamic financial services industry."

Sir John also said the prizes will go to those who get the best returns on investment in human capital. "The clear lesson of the most intensively studied fast growing economies - the Asian tigers between 1960 and 1990 - is that a well educated and well motivated work force is the key to economic success because it enables skills to change with changing demands. Each one of those highly successful economies chose investment over consumption for decades and invested particularly strongly in their education systems," said Sir John.

In conclusion, Sir John said: "What we are experiencing by way of the international focus of attention on financial services is the start of a process, not the end of an episode. This is not an exam we have to pass in order to put a certificate on the wall. Global financial stability requires properly regulated markets and institutions, and as the institutions develop and become more global, so that regulation will need to adapt, become ever more sophisticated, and extend into effective cross-border cooperation."

Sir John also said the cost of establishing offshore businesses was going to rise in response to the demands of best practice to the point where it may become uneconomic for the smaller jurisdictions, but said Bermuda could view that development with a certain amount of equanimity as some smaller competitors fall by the wayside.

Sir John said Bermuda must ensure it keeps its high international reputation to remain at the forefront of best practice in regulation; and must pay a great deal of attention to its future workforce.