Sovereign wealth funds will make annual disclosures
of their investments and give public explanations of their relationship with the governments that own them, under proposals unveiled yesterday by the European Commission.
The Commission said it hoped to persuade the funds to sign up to a voluntary code of conduct by the end of this year, but it reserved the right to propose legislation if an agreement proved beyond reach.
According to Commission estimates, more than 30 countries, including China, Kuwait, Norway and Singapore, have established wealth funds, and their assets could rise to $12,000bn (€7,900bn, £6,000bn) by 2015 from $1,500bn-$2,500bn now.
As in the US, European governments are troubled by the opacity of state-owned funds that do not disclose the value of their assets, describe investment aims or explain the nature of their risk-management systems.
European Union leaders are also concerned that the
governments controlling the funds might use their enormous assets not for normal commercial purposes but to advance their foreign and security policy objectives.
At the same time, EU leaders, keenly aware that their economies benefit from buoyant foreign investment, want to avoid the impression they are hostile to the funds, whose wealth can spur growth and create jobs.
"Europe must remain open to inward investments. Sovereign wealth funds are not a big bad wolf at the door. They have injected liquidity and helped stabilise financial markets," said José Manuel Barroso, the Commission president.
Under the Commission's proposals, which require approval from EU leaders at a summit on March 13-14, the funds would be asked to make public the size and source of their assets, the currency composition of their investments, and the regulation and oversight under which they operate in their home countries.
The funds would also be asked to issue "an investment policy that defines the overall objectives of SWF investment" and to provide "public disclosure of the general principles of an SWF's relationship with government authorities".
"Let us be brutally frank about this: sovereign wealth funds have been positive and long-term investors," said Charlie McCreevy, the EU's internal market commissioner. "There is, as far as I know, no instance of sovereign wealth funds acting in any manner other than responsibly up until now."
The Commission takes the view that, between the EU and its 27 member states, there are already comprehensive rules governing the activities of foreign investors, and so there ought to be no need for legislation touching specifically on the sovereign wealth funds.
But the Commission's proposals were also driven by concern that if public alarm about the funds were to develop, it could provoke unco-ordinated national res-ponses that would damage the EU's single market and its reputation for welcoming foreign investment.
The Commission also urged EU heads yesterday to adopt a set of principles at next month's summit for strengthening the stability of financial markets, including an agreement that cooperation among regulators must be stepped up.
