Mumbai: The European Commission has called upon sovereign wealth funds to adopt a voluntary code of conduct that would make them more transparent and accountable even as treasury officials in the US met executives from two of the world's largest sovereign wealth funds to discuss a set of promises not to use their wealth for political advantage.

The commissioners of the 27-member European Union meeting tomorrow plan to draft a formal proposal for a continent-wide conduct code.

The US delegation met executives from the Abu Dhabi Investment Authority and from the Government Investment Corporation of Singapore last week, The Wall Street Journal reported, quoting officials involved in the talks.

Amidst fears about state-controlled foreign predators gobbling up major European companies, a top official of the EU, however, warned member countries not to pass broad laws to restrict investment from sovereign wealth funds.

The EU's internal market and services commissioner Charlie McCreevy said the 27-member states should exercise the power to block investments only in sensitive, security-related sectors. Restricting the flow of capital for other reasons will lead to legal action by the European Commission, he said in an interview yesterday. .

The code, being negotiated under the auspices of the International Monetary Fund, is aimed at easing Western concerns that the sovereign funds, which control about $3 trillion in assets, might pursue political rather than commercial goals.

Some countries, including Russia and Kuwait, have been skeptical about the code. The document being discussed outlines potential risks from sovereign fund investment, like access to sensitive technology.

The EU has rejected a Europewide screening mechanism on the lines of the US system of protecting crucial companies from hostile takeovers by creating "golden shares."

The plan to prescribe a code also runs the risk of sending a misleading signal - which the EU is stepping back from its commitment to an open investment regime.

While the funds have so far proved mostly beneficial, like helping major banks, including Citigroup, Merrill Lynch and UBS, recapitalise after losses linked to the US mortgage market, EU and US officials are hedging their bets.

European Commission president José Manuel Barroso said if a voluntary code proved ineffective, Europe would draft laws that could block sovereign fund investments.

Internal market and services commissioner Charlie McCreevy sounded the opposite when he said that Brussels took "a very liberal view" of the funds, adding: "I am political enough to recognise that there are those fears out there."

He warned that restricting investment risked retribution in countries with sovereign funds, including Russia and China, where European companies are active.

Though the EU treaty enshrines the general right to free movement of capital, member states can adopt measures controlling the movement of capital from outside countries under limited circumstances.