07 May 2009

Specific regulation on SWF’s may not be needed

The paper argues that at present a specific regulation of SWFs may not be needed as their asset management is already constrained by many regulatory, economic and political factors.

The Commission issued a research paper which studies the regulatory issues related to Sovereign Wealth Funds, described as “special purpose” government investment vehicles.

The paper identifies the actual legal and economic nature of such “special purpose” government investment vehicles. It points out that SWFs sharp growth is one of the by-products of the large and persistent global imbalances in trade - which may threaten global financial and economic stability – and that the increasing transfer of “excess reserves” from monetary authorities to SWFs is expected to result in significant rebalancing of capital flows in global financial markets.

 

The paper argues that at present a specific regulation of SWFs may not be needed, as their assets actual management is already constrained by SWFs own features and objectives as well as by many regulatory, economic and political factors. A balanced and proportionate regulatory approach to SWFs issues may just require, for the time being, to complement “soft law” instruments, e.g. the so-called “Santiago Principles” or GAPP and the OECD guidelines for SWFs investments that are expected to be finalised in 2009, with a “light” and “indirect” regulatory and supervisory framework for SWFs equity investments.

 

Full article

 

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