What has changed from 2007-2013?
Widening the scope of financial instruments
In contrast to the 2007-2013 programming period, the rules adopted for 2014-2020 financial instruments are non-prescriptive in regards to sectors, beneficiaries, types of projects and activities that are to be supported. Member States and managing authorities may use financial instruments in relation to all thematic objectives covered by Operational Programmes (Ops), and for all Funds, where it is efficient and effective to do so.
The new framework also contains clear rules to enable better combination of financial instruments with other forms of support, in particular with grants, as this further stimulates the design of well-tailored assistance schemes that meet the specific needs of Member States or regions.
Financial instruments are a special category of spending and their successful design and implementation hinges on a correct assessment of market gaps and needs. Therefore, in the context of an OP, there is a new provision that financial instruments should be designed on the basis of an ex ante assessment that has identified market failures or sub-optimal investment situations, respective investment needs, possible private sector participation and resulting added value of the financial instrument in question. Such an ex ante assessment will also help to avoid overlaps and inconsistencies between funding instruments implemented by different actors at different levels.
A range of new implementation options
Across Member States and regions, the operational environment for financial instruments, as well as the administrative capacity and technical expertise required for their successful implementation, vary significantly. Against this background, the new regulations offer different implementation options from which Member States and managing authorities may choose the most suitable solution. ESIF programme support can be provided to:
Financial instruments set up at EU level and managed by the Commission, in line with the Financial Regulation (direct or indirect management). This includes specific provisions for the implementation of dedicated financial instruments combining ESI Funds with other sources of EU Budget and EIB/EIF resources with a view to stimulate bank lending to SMEs.
Under this option, OP contributions to the financial instruments will be ring fenced for investments in regions and actions covered by the OP from which resources were contributed.
Financial instruments set up at national/regional, transnational or cross-border level and managed by or under the responsibility of the managing authority. For these instruments, managing authorities have the possibility of contributing programme resources to:
- already existing or newly created instruments, tailored to specific conditions and needs; and
- standardised instruments (off-the-shelf), for which the terms and conditions are pre-defined and laid down in a Commission Implementing Act. These instruments should be ready-to-use for a swift roll-out.
- Financial instruments consisting solely of loans or guarantees may be implemented directly by managing authorities themselves. In such cases, managing authorities will be reimbursed on the basis of the actual loans provided or guarantee amounts committed for new loans, and without the possibility to charge management costs or fees under the FI operation.
More flexible co-financing modalities and additional financial incentives
Payments by the Commission to managing authorities will in future be strictly linked to implementation on the ground. There will also be a possibility to include in the payment declaration the expected national contribution which is to be paid to the financial instrument or at the level of final recipients within the eligibility period.
- For contributions to an EU-level financial instrument under Commission management (option 1 above), a separate priority axis is to be envisaged in the OP. The co-financing rate for this priority axis or national programme will be 100 %.
- For contributions to national, regional; transnational or cross-border financial instruments (options 2 a. and b. above), The EU co-financing share will be increased by ten percentage points in cases where a priority axis is fully implemented through financial instruments.
Clear financial management rules
Building on the recent guidance issued to the Member States through the Coordination Committee of the Funds (COCOF), the Regulations provide for continuity and certainty regarding the financial management of EU contributions to financial instruments. The new framework contains clear rules in terms of the qualification of financial streams at the different levels of financial instruments and corresponding eligibility or legacy requirements. The following provisions are included in the Common Provisions Regulation:
- EU contributions to financial instruments are to be placed in accounts in Member States, and to be temporarily invested in accordance with the principles of sound financial management;
- Interest or other gains generated at the level of the financial instrument prior to investment in final recipients are to be used for the same purposes as the initial EU contribution within the eligibility period;
- EU share of capital resources paid back from investments, gains, earnings, or yields generated by investments is to be used until the end of eligibility period for:
- further investment in the same or other instruments, in line with the specific objectives set out under a priority.
- preferential remuneration of investors operating under the market economy investor principle (MEIP) and providing co-investment at the level of financial instrument or final recipient; and/or
- management costs/fees;
- Capital resources and gains and other earnings or yields attributable to the EU contributions to financial instruments are to be used in line with the aims of the OP for a period of at least 8 years after the end of eligibility date.
Streamlined reporting on implementation progress
Given the specific procedures and delivery structures for financial instruments, the availability of reporting data on the use of budgetary resources from the ESI Funds is of key importance to all cohesion policy stakeholders as they allow for conclusions to be drawn on the actual performance of supported instruments and adjustments that may be needed to safeguard their effectiveness. Therefore, the new framework requires managing authorities to send to the Commission a specific report on operations comprising financial instruments as an annex to the annual implementation report. Based on the reports submitted the Commission will provide summaries of data collected.