The International Monetary Fund (IMF) is facing criticism over new guidelines governing the conduct of sovereign wealth funds, with industry observers claiming it fails to outline how the new rules will be policed.

The voluntary code of conduct, which has yet to published, was agreed by an IMF working group that included representatives of 26 funds at a meeting in Santiago, Chile, on 2 and 3 September.

However, some commentators are questioning the impact of the code, or whether it will allay the concerns of governments that sovereign funds have political as well as financial motives for their investments. “The biggest question facing the IMF now is how it is going to enforce these guidelines,” says Michael Maduell, president of the US-based Sovereign Wealth Funds Institute.

So far, little is known about the details of the code – known as the ‘Santiago Principles’. They will be made public when they are presented to the IMF’s governing council on 11 October. The code covers issues of transparency, governance and accountability.

The danger is that a toothless code will satisfy neither sovereign wealth funds seeking to demonstrate that they are responsible investors, nor governments nervous about hidden agendas, says one observer.

“A voluntary code will not satisfy certain governments who were hoping for some form of compulsory transparency rules,” says Debbie Fuller, associate in the corporate practice group at UK law firm Eversheds.

Speaking in late August, Nasser al-Suwaidi, governor of the Central Bank of the UAE, said the new guidelines would cause sovereign wealth funds to seek investments in more welcoming countries.

Drosten Fisher, a principal at international consultant The Monitor Group, agrees that funds may increasingly bypass some markets, including those in the Organisation for Economic Co-operation & Development (OECD).

“Funds from emerging markets may simply sidestep investment opportunities in OECD markets because of the political friction and transaction costs,” he says.