By Huw Jones
Voluntary code would ask funds to stress commercial goals over strategic considerations when investing.
The European Commission will consider a code of conduct asking sovereign wealth funds run by countries to stress commercial goals rather than strategic considerations when making investments, EU officials said.
"Our position is very clear that there won't be legislation. We are looking more to a code of conduct," an EU official with knowledge of the matter said.
A six-page draft of the document obtained by newswire Reuters focuses on concerns that countries with large amounts of money to invest may have little interest in the normal commercial goal of using capital to increase wealth.
"The fact that SWFs (sovereign wealth funds) are controlled by states suggests a different motivation from normal private sector decisions, potentially privileging national interests over shareholder values," say the document, an early version of the code to be considered on Wednesday by the full 27-member European Commission.
The EU has limited authority because its top court has ruled that investors outside the bloc enjoy the protection of free movement of capital, giving the funds wide latitude.
The draft document recommends countries with money to invest be open about what they are doing and act as normal commercial enterprises.
Some countries holding SWFs, such as Russia and Kuwait, have already signalled their hostility to overtures from the G7 group of rich nations to creating a code of conduct.
Sovereign wealth funds are pots of money held in another country's currency. They are current account surpluses that accumulate beyond what is needed for immediate purposes, so countries create sovereign funds to manage the extra resources.
China, Saudi Arabia, Singapore and Abu Dhabi are among the more than 20 countries which the International Monetary Fund says have such funds. The IMF estimates their worth somewhere between $2 trillion and $3 trillion, with the total potentially reaching $10 trillion by 2012.
Internal Market Commissioner Charlie McCreevy recently cited Norway's SWF as a model of transparency and accountability that should be followed by others.
Once the new Lisbon treaty governing the EU is approved, Brussels will gain more authority to deal with the funds and member states will have less.
The draft document said the new treaty would help avoid protectionist responses by individual states, which might find themselves pressured by public opinion.
Once the proposals are dealt with by the Commission they will be forwarded to the EU's heads of state at a Brussels summit on March 13 and 14. (Reuters)