The main problem I foresee is that giving players the power to enact laws, inflict punishments, etc. is always dangerous.
One solution is to have GMs enforce the laws. A good idea in theory, but it takes a lot of manpower that just isn't there.
You could give certain players 'guard privileges.' This spreads out the workload but raises questions of fairness. Why does person A get special privileges that person B doesn't? Undoubtedly this will lead to OOC conflicts.
Another option is to have a guild that acts as law enforcers. This requires that everyone recognize and obey this guild's leadership though. If the guild is "sponsored" by the GMs, then it begs questions of fairness ("why does his/her guild get to be in charge???"). If it's not, then people may think of them as mere vigilantes and not respect their authority.
The GMs could set up a separate guild specifically for guards, and have "tryouts" and "training." This seems like the option that would result in the least conflict, since anyone could try out to be a guard. And if someone abuses their power, the GMs can be notified and have the abusing player stripped of their rank. The main problem I foresee is again manpower to do all the training of players (what the laws are and how to handle certain situations).