The Generally Accepted Principles and Practices (GAPP), also known as the Santiago Principles, establish standardized business procedures pertinent to the functioning of sovereign wealth funds (SWFs). These funds commit to prioritizing financial agendas over political motivations, aiding in the maintenance of a stable global financial system.
Understanding Generally Accepted Principles and Practices (GAPP)
The GAPP framework was finalized in October 2008 by the International Working Group of Sovereign Wealth Funds (IWG), comprised of 23 countries managing SWFs. Responding to concerns regarding inadequacies in transparency, independence, and governance within the industry, the IWG defined specific guidelines directed at ensuring SWFs structure their operations and investment activities based on economic and financial objectives, instead of political ones.
GAPP is supported by core objectives for SWFs, identified as “special purpose investment funds or arrangements, owned by the general government”:
- To help sustain a stable global financial system and the free flow of capital and investment;
- To adhere to all pertinent regulatory and disclosure mandates in countries of investment;
- To prioritize investments on economic and financial risk-return considerations;
- To institute a transparent and sound governance framework that ensures proper operational controls, risk management, and accountability.
The 24 voluntary Santiago Principles offer a structure supporting these objectives across three essential domains: legal, institutional, and investment & risk. These principles are overseen and furthered by the International Forum of Sovereign Wealth Funds (IFSWF), whose members voluntarily commit to implementing these standards in their governance and investment practices. As of 2021, the forum brought together over 30 sovereign wealth funds from around the globe.
Related Terms: Santiago Principles, SWFs, sovereign wealth funds, risk management, investment governance.
References
- International Working Group of Sovereign Wealth Funds. “Sovereign Wealth Funds: Generally Accepted Principles and Practices”, Pages 4 and 27.
- International Working Group of Sovereign Wealth Funds. “Sovereign Wealth Funds: Generally Accepted Principles and Practices”, Pages 7-9.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is the primary purpose of Generally Accepted Principles and Practices (GAPP)?
- [ ] Strictly regulating international trade practices
- [ ] Monitoring and auditing corporate finances
- [x] Promoting good practices in sovereign wealth fund operations
- [ ] Managing individual investment portfolios
## Which organization is primarily responsible for creating and promoting GAPP?
- [ ] The Federal Reserve
- [ ] The World Bank
- [ ] The European Central Bank
- [x] The International Forum of Sovereign Wealth Funds (IFSWF)
## How many principles are included in the Generally Accepted Principles and Practices (GAPP)?
- [ ] 10
- [ ] 15
- [x] 24
- [ ] 30
## One of the GAPP principles emphasizes the importance of which of the following in sovereign wealth funds?
- [ ] Marketing strategies
- [ ] Financial secrecy
- [ ] High-risk investments
- [x] Transparency and public disclosure
## GAPP aims to achieve which of the following objectives in sovereign wealth fund operations?
- [ ] Maximizing political influence
- [ ] Maintaining currency stability
- [x] Enhancing governance and accountability
- [ ] Promoting private sector investments
## Which key aspect is covered by GAPP for sovereign wealth funds?
- [ ] Short-term revenue growth
- [ ] Real estate portfolio expansion
- [x] Risk management frameworks
- [ ] Human resource development
## True or False: Adhering to GAPP is mandatory for all sovereign wealth funds.
- [x] False
- [ ] True
## Generally Accepted Principles and Practices (GAPP) are also known by which other name?
- [x] The Santiago Principles
- [ ] The Washington Principles
- [ ] The Basel Accords
- [ ] The Geneva Code
## According to GAPP, what role do sovereign wealth funds have concerning local economies?
- [ ] To destabilize local financial markets
- [ ] To avoid any form of public disclosure
- [x] To minimize negative impacts and contribute positively when feasible
- [ ] To primarily focus solely on foreign investments
## How often are the GAPP or Santiago Principles typically reviewed and reassessed?
- [ ] Never, they are static principles
- [ ] Once every decade
- [ ] Every five years
- [x] They undergo periodic review as needed
