The Federal Government's heightened scrutiny of sovereign wealth funds (SWFs) could jeopardise the export viability of Australia's financial services sector, according to the Financial Services Institute of Australasia (Finsia).

On Monday, Treasurer Wayne Swan announced that the Government would apply six foreign investment guidelines to funds seeking investments in Australia.

According to the Treasurer, the principles would assess whether particular investments by these funds were consistent with Australia's national interest.

"We welcome the Treasurer's review into foreign investment. Guidelines that apply to the national interest, however, only make the rules opaque. We should be doing everything to encourage investment and this means improving transparency and accountability in doing business in Australia," Finsia chief executive Martin Fahy said.

Sovereign wealth funds represent a new form of global capital flows and are unlike traditional foreign investment, according to Fahy.

"These funds are passive investors that take a long-term view to investing in companies and therefore should be encouraged to invest in Australia," he said.

"One would assume that private equity funds should also be subjected to guidelines relating to Australia's national interest as was in the case over the deal with Qantas."

The Investment and Financial Services Association (IFSA), however, believes that the real focus should be on amending certain takeover provisions for funds management.

"If we are to look at control tests, we should be looking at revising the 20 per cent takeover threshold. We are currently engaged in meaningful discussion about this with the Government," IFSA chief executive Richard Gilbert said.

A sovereign wealth fund is a state owned fund composed of financial assets such as stocks, bonds, property or other financial instruments.