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Financial market operations

In putting into practice EU financial programmes and instruments, the European Commission's Directorate-General for Economic and Financial Affairs (DG ECFIN) carries out operations in financial markets, in close co-operation with major International Financial Institutions.

These financial market operations cover budgetary and off-budget resources with an aggregate volume of about €6 billion.

DG ECFIN manages off-budget financial assets which include the European Coal and Steel Community (a former European body which is still in liquidation) as well as the financial reserves of other instruments.

It also carries out borrowing and lending operations, such as contracting of new loans and borrowing and managing existing loans. These include Macro-Financial Assistance (MFA) loans and Euratom loans.

Finally, DG ECFIN is also responsible for the management of the Guarantee Fund for External Actions, which is set up to cover the risks to the general EU budget related to loans, and guarantees for loans granted to non-Member States.

Treasury and Asset management operations

Not many people are aware that the Commission has extensive expertise in the area of professional asset management.

DG ECFIN treasury and asset management activities comprise an in-house treasury and asset management of various mandates and the monitoring of asset management mandates to the European Investment Bank (EIB) and European Investment Fund (EIF) where DG ECFIN is referred to as the Asset Management Designated Service (AMDS).

DG ECFIN in particular manages substantial off-budget and budgetary resources with an aggregate volume of about EUR 13.5 billion, of which about EUR 7 billion are directly managed assets and about EUR 6.5 billion are contracted out to the EIB Group, i.e. the EIB or the EIF (amounts as of end December 2014).

Off-budget assets are those assets that are not included in the general budget of the European Union. For example, the financial assets managed by the Commission include the investments of the European Coal and Steel Community in Liquidation. The Commission for example also manages assets for the Participants Guarantee Fund, the Competition Fines Portfolio and the Reserve of the Joint Sickness Insurance Scheme as well as the Pension Fund for Local Agents.

As part of managing these assets, DG ECFIN carries out financial market operations in the money and fixed income markets, mainly in euro. The aim of these investments is to generate the highest return available, consistent with maintaining a high degree of security and stability. To ensure this, the portfolio management activities are carried out under the independent control of a risk management team. The risk management team supervise the compliance of the agreed asset management guidelines respecting limits, internal rules and procedures for which conservative minimum rating criteria and a system of credit limits is put in place.

In its asset management activities DG ECFIN applies best banking practices in all operations, including market analysis, dealing, settlement, performance measurement and benchmarking as well as risk management. It provides regular reports to an investment committee as well as to the clients, and has its own trading room with access to standard market data and a well-developed IT infrastructure. One of the key advantages of having a direct asset management inside the Commission is to have a direct contact with the markets and staff with the relevant experience.

In addition, DG ECFIN offers experience and expertise in financial market operations to other units within the Commission and other EU institutions, and provides advice on appropriate methods for financial operations.

Accounting for off-budget activities

DG ECFIN is responsible for the accounting, financial reporting and risk management for nearly 40 financial instruments and mandates.

The main activities on which these tasks are performed are off-budget, namely the European Coal and Steel Community in liquidation, Euratom loans and macro-financial assistance loans to third countries. These instruments and mandates have an aggregate volume of about €6 billion.

There are two main areas of activity:

Accounting

  • Keeping the accounts for the various financial instruments the EU uses in market activities.
  • Producing periodic financial statements, both for market-activity and financial-engineering instruments.

Since 1 January 2005, this is performed in line with EC accounting rules based on the International Public Sector Accounting Standards (IPSAS) and the International Financial Reporting Standards (IFRS).

Other activities include:

  • annual financial reporting on the EC budgetary programmes managed by other financial intermediaries (European Investment Bank, European Investment Fund, European Bank for Reconstruction and Development, and the Council of Europe Development Bank in co-operation with the Kreditanstalt für Wiederaufbau);
  • monitoring of almost 40 bank accounts used for financial operations; and
  • follow-up of the recovery of unpaid debts.

In addition, it authorises all SWIFT payment for the activities of DG ECFIN's treasury.

All activities are subject to regular internal and external audits, including by the European Court of Auditors.

Risk management

This function includes checking the compliance with investment guidelines and assessing, managing and reporting on the financial risks associated with the activities of DG ECFIN's treasury. These risks include market related risks, counterparty and operational risks. DG ECFIN draws up periodic reports on the monitoring of financial risks (e.g. reports on the situation of borrowers of the ECSC i.l. and reports on limit utilisation and risk concentration).

In addition to these main areas of activity, it undertakes other accounting and back-office duties as required.

Latest financial report of the ECSC in liquidation

31 December 2013:

View previous reports: financial reports of the ECSC in liquidation 2003 - 2012.

The Guarantee Fund for External Actions

Set up in 1994, it covers defaults on loans and loan guarantees granted to non-EU States or for projects in non-EU States.

Set up at a time when the guarantees on loans granted to non-EU countries were growing rapidly, the Fund was established:

  • to provide a "liquidity cushion" in order to avoid calling on the Community budget in case a default or late payment on a guaranteed loan would arise; and
  • to create an instrument of budgetary discipline by laying down a financial framework for the development of Community policy on guarantees for Commission and EIB loans to non-Member countries.

The lending operations covered by this Fund relate to three different instruments, each of which benefits from a guarantee from the EU budget. These are: European Investment Bank (EIB) lending, Euratom loans and Macro-Financial Assistance.

The Fund is provisioned from the general EU budget and has to be maintained at a certain percentage (the current target rate is 9%) of the outstanding amount of the loans and loan guarantees covered by the Fund.

At the end of 2014, the amount covered by the Fund was about EUR 26.4 billion, and the assets of the Fund stood at about EUR 2.1 billion. The Commission has entrusted the financial management of the Fund to the EIB.

The Commission supervises this mandate, monitors and reviews the Guarantee Fund mechanism, and is responsible for regular reporting on the situation of the Fund and its management to the European Parliament, the Council and the Court of Auditors.

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