Big trading blocks will generate new niches and anomalies to keep offshore jurisdictions in business.

That's the upbeat view of Mr. Barry Riley, senior investment editor of The Financial Times.

He spoke to members at the Bermuda Chamber of Commerce's International Companies Division AGM yesterday of both the threats and new openings emerging for the currently booming offshore centres.

Acknowledging Bermuda's rapid growth of the insurance business, he said: "Your insurance business is growing fast while back in London poor old Lloyd's is having a very rough time of it.'' Cheap travel and advanced information technology have provided offshore centres with little disadvantage in terms of cost and location -- one reason why they have become more widely used, he said.

"This is true of activities in investment funds, offshore trusts and banking, but there remain the central trading and market-making functions, which continue to be based onshore in major countries: New York, London, Frankfurt, Tokyo and Hong Kong.'' He warned that the consequences of abolition of currency restrictions must be understood.

He pointed at problems facing the European Union over financial services.

Luxembourg and Ireland are the only jurisdictions to have benefited from the liberalisation of policy towards mutual funds in 1989, he said. The same liberalisation will be extended to life assurance in July.

"But what the European countries are discovering is that to liberalise their financial services industries without harmonising taxes is to risk huge movements of funds and disruption of the industry's infrastructure.

"There is some resentment in Europe at the activities in Luxembourg and Dublin, and one or two would-be imitators, notably Gibraltar.

"But you can argue that if these buffers did not exist within the European Union, the business would flow outside to Switzerland, the Channel Islands and Liechtenstein.'' New contenders, like Malta, are constantly appearing, he said. "If there were to be action against Luxembourg and Dublin, perhaps through the imposition of a community-wide minimum withholding tax on investment income, even Bermuda might be in a position to pick up some of the displaced business.

"Although, as far as Europe is concerned, your time zone is not ideal, and you would need to develop some of the specialised language skills that they have in Luxembourg and Switzerland.'' European Union president Jacques Delors has suggested the partial reimposition of foreign exchange controls.

Mr. Riley doubted this would happen in the short term. "This came in the aftermath of last year's upsets over the European Monetary System, in which global speculators tore apart the carefully constructed edifice of the exchange rate mechanism.'' Bermuda has benefited from global shifts in the pattern of wealth. But he warned that offshore centres were developing quite rapidly in the Far East region.

"Your niches may not be secure forever against tough competition. "The offshore industry must operate at the margin,'' said Mr. Riley.

"Offshore jurisdictions will hope that the European Union will take the Delors-type route of trying to reimpose exchange controls, and force a common tax regime on awkward members, like Luxembourg.'' MR. BARRY RILEY -- investment editor of The Financial Times.