EUROPEAN COMMISSION Brussels, 16.5.2022 COM(2022) 223 final 2022/0162(COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the financial rules applicable to the general budget of the Union (recast)



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal The Financial Regulation lays down the principles and general financial rules for establishing and implementing the EU budget and controlling EU finances. The 2018 Financial Regulation is the result of a major revision, incorporating the previous Rules of Application into a single rulebook. The revision increased flexibility, simplified financial rules considerably and paved the way for the proposals under the 2021-2027 multiannual financial framework (MFF). These simpler rules need time to harness their full potential for the implementation of the 2021-2027 programmes and instruments, for example on the single audit approach, cross-reliance on audits and assessments, simplified cost options, reduced administrative burden, and the focus on results. Changing financial rules too often creates uncertainty for recipients of EU funds. Therefore, the Commission is now proposing a targeted amendment, aiming to strike the right balance by focusing on changes that are really necessary. The main reason for this revision is the need to align the Financial Regulation with the MFF package, to maintain a single rulebook governing the expenditure of the Union, meaning that all general financial rules are included in the Financial Regulation. This will provide greater legal certainty for Union institutions and recipients of Union funds. The proposal also reflects declarations made by the EU institutions in the context of the MFF. In addition, the proposal includes targeted improvements and simplifications. These have been identified since the entry into force of the 2018 Financial Regulation and some of them respond to recent events and trends. Improvements build on the lessons learned from the COVID-19 pandemic and focus on crisis management. They also aim to better protect EU financial interests (for example by making more use of digitalisation), better contribute to the achievement of the EU policy objectives and to achieve additional simplification for recipients of Union funds. •Consistency with existing policy provisions in the policy area This proposal comes after the adoption of the MFF package, to further improve the rules to be used in the implementation of the 2021-2027 programmes and instruments, and beyond. The proposal reflects certain derogations to the current Financial Regulation that the Union legislator decided during the MFF negotiations, notably on sectoral legislation. Simplifying and improving EU financial rules should also increase the policies’ impact and their results on the ground. 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis The proposal is based on Article 322(1) of the Treaty on the Functioning of the European Union (TFEU). •Subsidiarity (for non-exclusive competence) The adoption of EU general financial rules falls under the exclusive competence of the EU. •Proportionality This proposal aligns the Financial Regulation with the 2021-2027 MFF package and includes targeted improvements and simplifications. It does not contain rules that would not be necessary to achieve the objectives of the Treaty. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Stakeholder consultations A public consultation on the proposed amendment of the Financial Regulation was held from July to October 2021, receiving 38 contributions. The contributions came from a wide range of stakeholders, including the general public, Member State authorities, international organisations, non-governmental organisations (NGOs) and business associations.

On strengthening the protection of the Union financial interests, most respondents would support additional transparency and protection measures. They considered flexibility and proportionality to be necessary, and saw confidentiality, data protection and consistent use of existing tools as important. Participants generally welcomed possible improvements of the early-detection and exclusion system (EDES). There was general support for the Commission to perform appropriate due diligence to ensure that entrusted entities comply with applicable Union law and agreed international and Union standards. Finally, stakeholders wanted to strengthen the Financial Regulation’s role in preventing conflicting professional interests of candidates or tenderers. However, internal guidelines to EU staff could also play a role in this. The participants in the public consultation agreed on the importance of simplifying and clarifying certain rules on programme implementation to reduce administrative burden. Stakeholders welcomed measures for the following topics: (i) EU security and strategic autonomy; (ii) financial instruments, budgetary guarantees and financial assistance, where there is clear support for streamlining reporting obligations; and (iii) digital controls and audits, where stakeholders acknowledged that human oversight should be maintained. On crisis management, participants in the consultation encouraged the approach of building on lessons learned from the COVID-19 crisis to improve procurement rules. Stakeholders elaborated on possible changes, for example additional flexibility to conclude contract amendments, the acceptance of electronic documents, and facilitating support to global initiatives and programmes. The Commission has carefully considered this feedback and reflected most of it in the draft proposal. •Impact assessment In line with the Commission’s statement on future revisions of the Financial Regulation, no impact assessment is required. The Financial Regulation provides the general rules and the toolbox for the implementation of EU spending programmes and instruments. Therefore, revisions of the legislation do not have any direct economic, environmental or social impacts which could effectively be analysed in an impact assessment. The value added of impact assessments comes when making policy choices on specific spending programmes and instruments, which have to comply with the regulatory framework provided by the Financial Regulation. Instead, the Commission has carried out a public consultation for this proposal, which is common practice. The Commission has also build on the operational experience and lessons learned, in particular to identify and analyse the issues to be addressed and the added value of Union involvement. •Regulatory fitness and simplification The revision of the Financial Regulation does not fall under the regulatory fitness and performance programme (REFIT). However, by responding to the need to simplify, improve and align EU financial rules with the 2021-2027 MFF package, the revision contributes significantly to the better regulation agenda. The proposed approach is fully in line with the better regulation framework and the Commission’s work on simplification. For example, the proposal includes a reference to digital audits and emerging technologies to encourage their wider use, while keeping flexibility. The proposal also includes lessons learned from COVID-19 on procurement (e.g. joint procurement, procurement on behalf of the Member States, use of a central purchasing body, multiple sourcing for the same type of goods or services, electronic invoicing and better rules on external experts). It also contains simplification measures for grants (e.g. simplified forms of grants, simpler rules for use of volunteers, simpler calculation to show compliance with the no-profit principle, and simpler process for granting humanitarian aid). The ultimate goal of all these measures is to reduce the administrative burden for applicants and recipients of EU funds, without creating additional risks for the sound financial management of the EU budget. The proposal does not exempt micro-enterprises from its scope. Such enterprises can be beneficiaries of EU funds and must therefore be subject to the general financial rules. The rules for the 2021‑2027 funding period already make it easier for micro-enterprises to participate. For example, the Commission recently used the Financial Regulation’s rules on simplified forms of funding to adopt a decision allowing owners of micro-enterprises to declare their staff costs as predefined unit costs under any funding programme, without need to provide evidence for the rates declared. Moreover, in certain areas, the proposal reduces costs for businesses, which are often micro-, small and medium‑sized enterprises (MSMEs). The proposal aims to strengthen the implementation of the principle of proportionality by inter alia relying on the due diligence of partners implementing the budget under indirect management. This would enable a more flexible approach to MSMEs. More generally, many of the targeted simplification measures should benefit all enterprises and thus also small to medium-sized enterprises. •Fundamental rights The proposal complies with the Charter of Fundamental Rights of the European Union. 4.BUDGETARY IMPLICATIONS The proposal does not have budgetary implications. 5.OTHER ELEMENTS •Detailed explanation of the specific provisions of the proposal 1.1.Alignment with the MFF and simplification ·Alignment with the MFF (general): some references to the basic acts of 2021-2027 and other legislation are added to the Financial Regulation. In addition, to ensure smooth implementation of the MFF Regulation, certain derogations from the budgetary principles set out in the sectoral basic acts are proposed to be reflected in the Financial Regulation in line with the single rulebook approach (Articles 12, 14, 15 and 18, Article 32(2), Article 41(2), Article 44(1) and (3), Article 48(2), Article 54, Article 96(1) and (2), Article 97(3), Article 106(1), Article 115(3), Article 214(3), Article 250(1)(b) and Article 253(1)(c) of the Financial Regulation). Moreover, to follow up on the joint declaration on the potential inclusion of the content ofthe General Conditionality Regulation, a reference to this Regulation is added under Title II on the principles from which sectoral legislation cannot derogate (Article 6). ·Borrowing and lending: the proposal aims to enhance reporting in line with the joint declaration 2020/C 444 I/06, in order to increase transparency and facilitate cooperation with the budgetary authority. The proposed amendment streamlines the reporting obligations for borrowing and lending operations. It codifies the current practice by including in the document annexed to the section of the budget relating to the Commission a comprehensive overview of the Commission’s borrowing and lending operations (Article 52(1)). ·Assigned revenue: the proposal aims to increase the transparency and visibility of external assigned revenue in the documents accompanying the budget, in line with the joint declaration (Article 22(1) and Article 41(3) and (8)). It also aims to facilitate the management of additional contributions (including voluntary ones) from Member States (Article 21(2)), thus avoiding the need to request payments from Member States before actual payment needs arise.

·Financial instruments and budgetary guarantees: the proposal aims to enhancing legal clarity by: (i) addressing inconsistencies and redundancies in the current Financial Regulation; (ii) better reflecting the functioning of provisioning and of budgetary guarantees; and (iii) updating relevant rules (Article 2(9), new Article 2(15), new Article 2(33), new Article 212(3), Article 212(5), Article 213(4), Article 221 and Article 223(6), and new Article 213(5)). ·In addition, the proposal streamlines reporting to avoid duplications and inconsistencies. It strengthens reporting obligations in a working document attached to the draft budget and the integrated financial report under Article 253(1). This streamlining also means that current Article 250 must be deleted. Finally, the proposal strengthens Article 218 by moving certain provisions of former Article 41(5) to Article 218. This move makes sure that it is not necessary to prepare two parallel reports on the common provisioning fund with similar content (new Article 41(5)(g), Article 210(3) and Article 218). ·The proposal also clarifies how the provisioning and budgetary guarantees interact with the definitions and rules on budgetary commitments, legal commitments, recipients and publication of information on recipients (Article 2(38) and (58), Article 7(4), Article 10(3), Article 38(3)(c), Article 112(2), Article 113(1)(a), Article 113(4), Article 115(2) and Article 163). 1.2.Crisis management, modernisation and simplification ·Non-financial donations by EU institutions: the proposal includes a new instrument reflecting current practice. It will provide a framework for the EU institutions to donate goods, services, supplies or works. It will also provide a stable legal basis in particular for future emergency situations, more transparency, accountability and legal certainty for recipients (Article 2(1), (2), (3), (38), (50) and (58), Article 133, Article 154(3) and new Article 244). ·Prizes: similar to the introduction of non-financial donations, the EU institutions should also be able to award prizes which are not financial, such as vouchers, tickets and trips. This is also important for example in order to allow contests among young people who do not have a bank account in their Member State, but who can easily receive their reward in a practical form. The introduction of this possibility requires small modifications in Articles 2(52), 210(4) and 211(1). ·Procurement and experts: the proposal adapts the procurement rules that apply in crisis management situations to enable EU institutions or bodies to procure on behalf of Member States or to act as a central purchasing body. This central purchasing body would be able to donate or resell supplies and services to Member States, and launch joint procurement procedures, although the EU institutions would not be acquiring services and supplies for themselves (Article 169(1) and (2), new Article 169(3), and point 11.1(f) and point 12.2(a) of Annex I). The proposal also updates the definition of crisis to include public and animal health, food safety emergency situations and global health threats such as pandemics (Article 2(22)). Other simplification measures and technical corrections and updates enable multi-sourcing contracts, correct inconsistencies and omissions, and clarify digitisation of procurement procedures (new Article 2(46), Article 2(76), Article 164(5), Article 168(3), Article 171(1), Article 173(1), Article 174(2) and (3), Article 175, and point 1.2, point 6.2, point 6.3, point 6.4, point 6.6, point 9.3, point 9.4, point 9.5, point 11.1(a) and (c), point 11.1(h)(iv), point 11.1(j) and (m), point 11.2, point 16.3(f) and (g), point 18.1, point 18.7, point 19.2, point 20.2, point 21.1, point 24.3, point 27, point 28.1, point 28.2, new point 29.4, point 30.2, point 31.1, new point 34, point 35.1 and point 39.3 of Annex I). The proposals further align the procurement rules of the Financial Regulation with Directive 2014/24/EU on public procurement and Directive 2014/55/EU on electronic invoicing. For example, the proposal clarifies time limits that apply to dynamic purchasing systems, and includes the possibility to assess – as award criteria – qualifications and experience of staff assigned to perform the contract (Article 117(3), Article 176(2), new Article 176(4) and (5), and Article 179(1)). The proposal also responds to the need for more flexible rules for Union delegations in third countries, factoring in local market conditions and practices of Member States. Therefore, the threshold for and the rules on market access are aligned with those that currently apply to external action procurement. In addition, Union delegations that award contracts on their own account would be allowed to accept, for example, submission of application documents by hand delivery (Article 153(5)). It is also proposed to apply the measures taken under the International Procurement Instrument (IPI, not yet adopted) to EU institutions’ procurement. Contracting authorities will have to apply IPI measures (in a form of score adjustment to bids received from or an exclusion of economic operators established in certain third countries) in the same manner as contracting authorities and contracting entities of Member States once the IPI Regulation enters into force and IPI measures are adopted and published in the Official Journal – the EU institutions should lead by example and apply the same rules (Article 179(1), new , and point 14 of Annex I). The proposal responds to the need for simplification of procurement procedures for buildings. Furthermore, the proposal excludes from the scope of the procurement rules of this Regulation the authentication services provided by notaries, includes the possibility of having negotiated procedures without prior publication for services provided by Member State organisations and extends the scope for the use of a negotiated procedure without prior publication of a contract notice following an unsuccessful competitive procedure with negotiation (Article 164 and point 6 of the Annex I). Under current case-law, tenderers have to provide evidence of the selection and exclusion criteria they have used before they take a decision to award a tender. The proposal ensures that the Financial Regulation is aligned with case-law on this (Article 2(51) and point 18.4 of Annex I). The recitals highlight current rules on green public procurement. Finally, the proposal makes rules for experts more comprehensive and aligns them with market reality. This would enable Union institutions to compete with remunerations offered by other players on the market when contracting remunerated external experts. New rules would also enable the Commission to use lists of experts for a longer time (Article 242). ·Grants: the proposal includes technical updates, simplification, clarifications and corrections. It clarifies rules on simplified forms of grants (Article 184(3) and Article 187) and lays down that the 50% limit for volunteers’ costs applies to the total financing of an action (Article 194(2)). Moreover, the proposal clarifies that an adversarial procedure is not systematically required to reject a participant from an award procedure (Article 135). The proposal also simplifies calculations under the no-profit principle (Article 196(4)) and the provision of financial support to third parties for special cases (Article 208, third subparagraph). To increase transparency, a definition of NGOs is added, while grant applicants would need to declare their legal status and confirm whether they are NGOs (new Article 2(46) and Article 200(1)(a)). Finally, the definition and use of ‘public contracts’ under Title VIII are corrected (Article 2(16) and Article 205(1) and (2)).

·Donations to the EU institutions: the proposal allows deciding faster whether to accept or reject donations when a rapid reaction is needed, in exceptional circumstances and with appropriate safeguards, where such donations are made for the purposes of humanitarian aid, emergency support, civil protection or crisis management aid (Article 25(3)). ·Digitalisation: the proposal supports the Commission’s commitment to be digital by default. It increases the efficiency and quality of controls and audits with the help of digitalisation and emerging technologies such as data-mining, machine learning, robotic process automation and artificial intelligence. Giving these aspects more visibility should lead to wider and more consistent use of digital audits and controls. This, in turn, should increase the level of assurance, while decreasing the cost of audits and controls (Article 36, Article 63(4)(a), Article 74(5) and (6), Article 150(1)). The proposal also aims to improve the quality and interoperability of data on recipients of Union funding for controls and audits, including through the use of a single integrated IT system for data-mining and risk-scoring (further details under point 3 below). Certain rules and procedures on procurement and experts should be amended to reflect progress on digitalisation. ·Green transition: this proposal also aims to adjust the Financial Regulation to ensure that budget implementation effectively helps achieve the European Green Deal. To this end, an explicit reference to the do-no-significant-harm principle should be inserted in Article 33(2), in line with the Commission’s commitment to sustainable financing and the green transition. Furthermore, to facilitate the greening of EU buildings, the possibility to use loans to finance building renovation is inserted in Article 271. Finally, when relevant, calls for tenders in public procurement procedures should include green award or selection criteria to incentivise economic operators to offer more sustainable options. In line with Article 6(4) of the Climate Law, the Commission considers that the proposals above are consistent with the climate-neutrality objective set out in Article 2(1) of the Climate law, as well as the Union 2030 and 2040 climate targets. These proposals are also consistent with ensuring progress on adaptation, as referred to in Article 5 of the Climate Law, and aligned with the objectives of the Climate law. 1.3.Enhanced protection of the EU’s financial interests and indirect management ·Early-detection and exclusion system: it is proposed to strengthen the system by better targeting its application to funds under both shared management and direct management where funds are disbursed as financial contributions to Member States, for instance under the Recovery and Resilience Facility. The objective is to prevent Member State authorities from selecting fraudulent economic operators to carry out projects, and to better protect the Union budget against serious misconduct without waiting for the final outcome of national procedures. On the cross-territorial dimension of the implementation of projects, it is proposed that exclusion of entities and persons at Union level applies to all Union funding for project implementation across all Member States. Such exclusion would be subject to several limitations and safeguards. Its scope would be limited to an exhaustive list of the most serious forms of misconduct (e.g. corruption, fraud, money laundering and terrorism) found in: (i) a final Union audit, a report of the European Anti-Fraud Office (OLAF) or an investigation by the European Public Prosecutor’s Office (EPPO); or (ii) a national audit, judgment or administrative decision (Article 138(2), Article 139(1) and Article 145(5)). In addition to the above, autonomous grounds for exclusion are added, based on the refusal to cooperate in investigations, checks or audits carried out by an authorising officer, OLAF, EPPO or the Court of Auditors and on the incitement to hatred or discrimination (new Article 139(1)(i) and 139(1)(c)(vi), respectively). It is also proposed to explicitly mention the breach of conflict of interest as an autonomous ground of exclusion within the notion of grave professional misconduct (Article 139(1)(c)(iv)). An expedited procedure is proposed for cases whosenature or circumstances require it (new Article 139(6)). The proposal also includes the possibility to exclude beneficial owners and affiliated entities if the requirements to attribute liability are considered fulfilled (new Article 138(2)(h) and (i), Article 139(2) and new Article 139(5)). Other amendments address current shortcomings in the system, for example by creating a legal presumption of notification of the content of adversarial letters and administrative decisions (new Article 138(2)(g), Article 139(1), Article 139(1)(d)(i), Article 139(1)(e), Article 139(7), Article 140(1), Article 143, Article 145(5), Article 146(2), new Article 147, new Article 152(3), Article 152(2)(h), Article 153 and new Article 156(6)). ·Single integrated IT system for data-mining and risk-scoring: the proposal aims to improve the quality and interoperability of data on recipients of Union funding and on those ultimately benefitting, directly or indirectly, from Union funding. To effectively prevent, detect, investigate and correct frauds or remedy irregularities, it is necessary to be able to identify the natural persons who are the beneficial owners of the recipients and who ultimately profit from the misuse of Union funding. This is achieved by standardising the electronic recording and storage of data on the recipients of Union funding and their beneficial owners for control and audit purposes. Moreover, there would be an obligation to use a single integrated IT system for data-mining and risk-scoring (provided by the Commission) to access and analyse those data on the recipients of Union funding. This system would considerably facilitate the identification of risks of fraud, corruption, double funding, conflict of interest and other irregularities. The Commission would be responsible for the development, management and supervision of the single integrated IT system for data‑mining and risk-scoring (Articles 36, 159 and 275). The rules on the recording, storage, transfer and processing of data should comply with applicable data protection rules. Finally, the proposal applies Article 36 to cases where Member States receive and implement Union funding under direct management. The above obligations would apply to programmes adopted under and financed from the post-2027 MFF to allow enough time to adapt electronic data systems and to provide guidance and training. During the transition period, voluntary application will remain possible and will be encouraged. This proposal plays a key role in the actions for digitalisation explained in point 2 above. ·Transparency: the proposal aims to improve the information provided to the public on the use of the Union budget and on recipients of Union funding. This is achieved by requiring Member States implementing the Union budget under shared management, entities implementing the Union budget under indirect management, and other Union institutions and bodies to send information to the Commission on their recipients of Union funding at least once a year. The Commission would add to the above information the data it has on direct management and would be responsible for consolidating, centralising and publishing the information in a database on a single website, covering all methods of Union budget implementation, including by other Union institutions and bodies. The resulting single website would be an improved version of the Financial Transparency System currently in use for direct management (Articles 38, 159 and 275). Finally, the proposal applies Article 38 to cases where Member States receive and implement Union funding under direct management. The above obligations would apply to programmes adopted under and financed from the post-2027 MFF, to ensure a smooth transition and adapt electronic data systems. ·Indirect management: indirect management relies on the rules, systems and procedures of Union implementing partners to provide adequate protection of the EU’s financial interests. The proposal aims to strengthen the application of proportionality as a general principle of law, notably when assessing partners and imposing contractual obligations. This would improve cooperation with Union implementing partners. It is also consistent with the rules recently agreed under the Neighbourhood, Development and International Cooperation Instrument. Unnecessary administrative burden should be avoided, in particular for final recipients that are MSMEs or comparable economic operators with equivalent turnover or balance sheet total. Relevant provisions need to be adjusted, and cross-references need to be updated. As a simplification, the proposal provides for the option to exempt managing authorities under shared management from pillar assessment, as their rules are already assessed under shared management. The current possibility for decentralised agencies to be exempted from pillar assessment would become an exemption by default and would be extended to fully self-financed agencies and CFSP missions. Finally, rules on transparency for recipients of EU funding are changed and technical clarifications are added (Article 62(1), Articles 158 and 159, Article 160(3), new Article 212(3) and Article 212(4)). ·Union award procedures concerning security or public order: this proposal aims to lay down specific conditions for the participation of third country entities in Union award procedures that concern security or public order. It also aims to apply these conditions in line with the international obligations of the Union, in particular in the area of public procurement. These rules concern award procedures for all kinds of budget implementation instruments: grants, procurement, prizes, indirect management, etc. (new Article 137). ·Conflict of interest: this proposal includes a clarification of the notion of applicable law, which includes national law on conflict of interest (Article 61). ·Professional conflicting interests that may negatively affect performance of a procurement contract. Following up on the European Ombudsman’s investigation into the award of a contract , it is proposed to add a definition and an explicit ground for rejecting participants from award procedures for such reasons (Article 144). In addition, all tenderers must submit a declaration on honour confirming that they do not have any professional conflicting interests, and provide relevant information when required (point 18.4 of Annex I). Finally, the proposal highlights the contracting authority’s obligation to assess whether there are such interests (point 20.1 of Annex I). ·Member States’ assistance in the recovery of EU claims must be ensured by extending the assistance mechanism already applied between Member States under Directive 2010/24/EU concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures to also cover the Commission. In order to recover EU claims more effectively, the Commission’s accounting officer must be able to rely on Member States’ assistance to effectively notify debtors and identify debtors’ assets (new Article 104). ·Foreign subsidies: the Commission proposal for a regulation on foreign subsidies is currently being negotiated. Depending on how the proposals progress, the Financial Regulation may be aligned to that new regulation in the course of the negotiations. 1.4.Miscellaneous simplifications and technical updates

The following technical changes and updates to the Financial Regulation are proposed: ·addressing omissions and wrong cross-references in Article 49(1), Article 71, Article 114(4), Article 154(3), Article 163(4) and Article 253(1)(d) and (f); ·completing the list of working documents in Article 41(3)(e) by a document on building policy; ·amending Article 41(4)(j) to reflect the International Public Sector Accounting Standards; ·adjusting specific commitment rules for the European Agricultural Guarantee Fund in Article 114 to facilitate better alignment with standard accounting practices.This technical change also affects the specific rules for payments made in advance under Article 270 but has no impact on payments to Member States or to beneficiaries; ·inserting technical updates in Article 252 on advanced deadlines for consolidated accounts, and changing the dates for document submission in Article 271; ·updating references to repealed Union legislation. The following other necessary changes to the Financial Regulation are proposed: ·ensuring an appropriate budgetary treatment and avoiding undue financial strain on the expenditure side of the Union budget, making it possible to deduct interests, and any other charge due where a fine, other penalty or sanction has been cancelled or the amount has been reduced, including any negative return related to such fines, other penalties or sanctions from the revenue side of the Union budget (negative revenue), while also ensuring an adequate compensation in the event of the reimbursement of provisionally paid fines (Article 48(1) and new Article 48(2), Article 99(4), Article 108(2), Article 109(1), Article 109(2) and Article 109(4)). These changes integrate those already proposed by the Commission, on account of the urgency of the matter, in the stand-alone Commission proposal on the Financial Regulation amendment concerning the treatment of cancelled or reduced competition fines; ·simplifying the rules on imprest accounts to address issues encountered by EU delegations (Articles 88 and 89) and on treasury management, notably the use of credit cards and modern payment methods (Article 86). 🡻 2018/1046 (adapted) 2022/0162 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012(recast) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular point (d) of Article 46, Article 149, point (a) of Article 153(2), Articles 164, 172, 175, 177 and 178, Articles 189(2), 212(2) and 322(1) and Article 349 thereof, in conjunction with the Treaty establishing the European Atomic Energy Community, and in particular Article 106a thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the Court of Auditors, Having regard to the opinion of the European Economic and Social Committee, Having regard to the opinion of the Committee of the Regions, Acting in accordance with the ordinary legislative procedure, Whereas: ⇩ new (1)A number of amendments are to be made to Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council. In the interests of clarity, that Regulation should be recast. 🡻 2018/1046 recital 1 (2)Following three years of implementation, further amendments should be made to the financial rules applicable to the general budget of the Union (the ‘budget’) in order to remove bottlenecks in implementation by increasing flexibility, to simplify delivery for the stakeholders and the services, to focus more on results, and to improve accessibility, transparency and accountability. Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council should therefore be repealed and replaced by this Regulation. 🡻 2018/1046 recital 2 (3)In order to reduce the complexity of the financial rules applicable to the budget and to include the relevant rules in one single regulation, the Commission should repeal Delegated Regulation (EU) No 1268/2012. In the interest of clarity, the main rules from Delegated Regulation (EU) No 1268/2012 should be included in this Regulation, while other rules should be included in guidance for services. ⇩ new (4)This Regulation should provide for the financial rules applicable to the general budget of the Union within the meaning of Article 322 TFEU and does not regulate or affect the implementation of restrictive measures adopted on the basis of the TFEU and the TEU, including in the framework of implementation of the Union budget. (5)Taking into account the experience gained with the implementation of the financial rules applicable to the general budget of the Union (the ‘budget’) and following the adoption of Council Regulation (EU, Euratom) 2020/2093 which laid down the Multiannual Financial Framework from 2021 to 2027, certain targeted amendments should be made in order to align the general financial rules to the new legal framework, adapt them to the needs of efficient crisis management and enhance the protection of the Union’s financial interests. Furthermore, targeted simplifications, technical updates and corrections should be made. (6)Following the adoption of the Multiannual Financial Framework for 2021 to 2027, the references to basic acts, to Decision (EU, Euratom) 2020/2053, to Council Regulation (EU, Euratom) 2021/768 and to the Interinstitutional Agreement of 16 December 2020 should be replaced or be added to the references used throughout this Regulation. (7)In the interest of clarity, all references to the repealed Regulation (EC) 45/2001 shall be replaced by references to Regulation (EU) 2018/1725 of the European Parliament and of the Council .

(8)In the interest of legal certainty, a number of cross-references should be corrected. (9)It is necessary to better reflect the specific nature and functioning of the provisioning of financial liabilities and of the budgetary guarantees. Certain definitions and rules on budgetary guarantees, budgetary commitments, legal commitments, payment appropriations, recipients and publication of information on recipients should therefore be adjusted. A definition of the constitution phase of the provisioning of financial liabilities should be added. Additionally, definitions should be updated to reflect in particular amendments to procurement rules and the introduction of rules on non-financial donations. (10)In order to enhance transparency on recipients of Union funds which are non-governmental organisations, there should be a definition of non-governmental organisations providing for criteria to identify them and grant applicants should declare their legal status, including whether they are non-governmental organisations. (11)A reference to the general regime of conditionality for the protection of the Union budget laid down in Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council should be inserted in this Regulation. Regulation (EU, Euratom) 2020/2092 is a cornerstone of the legal framework for the implementation of the Union budget. 🡻 2018/1046 recital 3 (12)The fundamental budgetary principles should be maintained. Existing derogations from those principles for specific areas such as research, external actions and structural funds should be reviewed and simplified as far as possible, taking into account their continuing relevance, their added value for the budget, and the burden they impose on stakeholders. 🡻 2018/1046 recital 4 (13)Rules on the carry-over of appropriations should be presented more clearly and a distinction should be made between automatic and non-automatic carry-overs. The Union institutions concerned should provide information to the European Parliament and to the Council on both automatic and non-automatic carry-overs. 🡻 2018/1046 recital 5 (14)The carrying-over and use of external assigned revenue for the succeeding programme or action should be allowed with a view to using such funds efficiently. It should be possible to carry over internal assigned revenue only to the following financial year, except where this Regulation provides otherwise. ⇩ new (15)Following the adoption of the Multiannual Financial Framework for 2021 to 2027 and related basic acts thereto, certain rules related to budgetary principles, in particular as regards cancellation and carry-over, decommitments and making appropriations corresponding to decommitments available again, laid down in Regulation 2021/2116 of the European Parliament and of the Council, Regulation (EU, Euratom) 2020/2093, Regulation (EU) 2021/836 of the European Parliament and of the Council, Regulation (EU) 2021/947 of the European Parliament and of the Council, Regulation (EU) 2021/1529 of the European Parliament and of the Council, Council Decision (EU) 2021/1764, Council Regulation (Euratom) 2021/948 and Regulation (EU) No 2021/1060 of the European Parliament and Council, should be incorporated into this Regulation. 🡻 2018/1046 recital 6 (16)With regard to internal assigned revenue, the financing of new building projects with the revenue from lettings and the sale of buildings should be allowed. To that end, such revenue should be considered as internal assigned revenue which can be carried over until it is fully used.

⇩ new (17)In the interest of simplification and in order to align better the timing of contributions from Member States with the corresponding payment needs, all additional financial contributions from Member States to Union’s actions and programmes, including voluntary contributions, should be subject to the same treatment and be considered as external assigned revenue. (18)In order to increase transparency in the presentation of assigned revenue, detailed information on the estimated amount of the external assigned revenue to be received, and the foreseen allocation to the relevant budget lines should be provided in an annex, which forms an integral part of the budget. (19)The rules on transfers subject to special provisions should be updated to take into account the Solidarity and Emergency Aid Reserve established pursuant to Regulation (EU, Euratom) 2020/2093. In addition, adjustments should be made in order to reflect that draft amending budgets are no longer required for the mobilisation of the Solidarity and Emergency Aid Reserve. 🡻 2018/1046 recital 7 (20)Union institutions should be able to accept any donation made to the Union. ⇩ new (21)In order to allow a rapid reaction in exceptional circumstances, the Commission should be able to accept in-kind donations, irrespective of their value, where such donations are made for the purposes of humanitarian aid, emergency support, civil protection or crisis management aid. In order to ensure appropriate safeguards, the Commission should only accept such donations where acceptance is in accordance with the principles of sound financial management and transparency, does not give rise to conflicts of interest and does not harm the image of the Union. The donor should not be, at the moment of acceptance, in one of the exclusion situations under the early-detection and exclusion system and should not be registered as excluded in the corresponding database. 🡻 2018/1046 recital 8 (22)A provision should be introduced to allow for in-kind sponsorship by a legal person of an event or activity for promotional or corporate social responsibility purposes. 🡻 2018/1046 recital 9 (23)The concept of performance as regards the budget should be clarified. Performance should be linked to the direct application of the principle of sound financial management. The principle of sound financial management should also be defined, and a link should be established between objectives set and performance indicators, results and economy, efficiency and effectiveness in the use of appropriations. For reasons of legal certainty, while avoiding conflicts with existing performance frameworks of the different programmes, performance terminology, in particular output and results, should be defined. ⇩ new (24)Considering the importance of addressing climate and environmental challenges and in order to ensure that budget implementation contributes to the achievement of the European Green Deal, the concept of performance as regards the budget should be extended to include the implementation of programmes and activities in a sustainable way, which would not hinder the achievement of the environmental objectives of climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control and the protection and restoration of biodiversity and ecosystems.

🡻 2018/1046 recital 10 (25)In accordance with the Interinstitutional Agreement of 13 April 2016 on Better Law-Making, Union legislation should be of high quality and should focus on areas where it has the greatest added value for citizens and is as efficient and effective as possible in delivering the common policy objectives of the Union. Making existing and new spending programmes and activities entailing significant spending subject to evaluation can help achieve those objectives. ⇩ new (26)In order to implement the Commission’s commitment to be digital by default and to foster more efficient and qualitative controls and audits by increasing the level of assurance while decreasing the cost, it is appropriate to introduce an explicit reference to the use of digital tools and emerging technologies such as machine learning, robotic process automation, data-mining and artificial intelligence. (27)In order to enhance the protection of the Union budget against fraud, corruption, conflicts of interest, double funding and other irregularities, standardised measures to collect, compare and aggregate information on the recipients of Union funding should be introduced. In particular, in order to effectively prevent, detect, investigate and correct frauds or remedy irregularities, it is necessary to be able to identify the natural persons that ultimately benefit, directly or indirectly, from Union funding and who ultimately profit from the misuse of EU funding. The electronic recording and storage of data on the recipients of Union funding, including their beneficial owners as defined in Article 3, point (6), of Directive (EU) 2015/849 of the European Parliament and of the Council and the regular making of those data available in a single integrated IT system for data-mining and risk-scoring provided by the Commission, should facilitate risk assessment for the purposes of selection, award, financial management, monitoring, investigation, control and audit and contribute to effective prevention, detection, correction and follow-up of fraud, corruption, conflicts of interest, double funding and other irregularities. The Commission should be responsible for the development, management and supervision of the single integrated IT system for data-mining and risk-scoring. The Commission, the Member States, the persons or entities implementing the budget, the European Anti-Fraud Office (‘OLAF’) and other Union investigative and control bodies should have the necessary access to those data within the exercise of their respective competences. The rules related to the recording, storage, transfer and processing of data should comply with applicable data protection rules. 🡻 2018/1046 recital 11 (28)In accordance with the principle of transparency enshrined in Article 15 of the Treaty on the Functioning of the European Union (TFEU), Union institutions are to conduct their work as openly as possible. With regard to budget implementation, the application of that principle implies that citizens should know where, and for what purpose, funds are spent by the Union. Such information fosters democratic debate, contributes to the participation of citizens in the Union’s decision-making process, reinforces institutional control and scrutiny over Union expenditure, and contributes to boosting its credibility. Communication should be more targeted and should aim to increase the visibility of the Union contribution for citizens. Such objectives should be achieved by the publication, preferably using modern communication tools, of relevant information concerning all recipients of funds financed from the budget which takes into account those recipients’ legitimate interests of confidentiality and security and, as far as natural persons are concerned, their right to privacy and the protection of their personal data. Union institutions should therefore adopt a selective approach in the publication of information, in accordance with the principle of proportionality. Decisions to publish should be based on relevant criteria in order to provide meaningful information. 🡻 2018/1046 recital 12 (adapted) ⇨ new (29)Without prejudice to the rules on the protection of personal data, the utmost transparency regarding information on recipients should be sought. The information on recipients of Union funds implemented under direct management should be published on a dedicated website of Union institutions, such as the Financial Transparency System,. and ⇨ Publication requirements should cover all methods of budget implementation, including by other Union institutions and bodies. To that end, Member States, persons and entities implementing the budget and other Union institutions and bodies should transmit to the Commission, at least on a yearly basis, information on their recipients of Union funding. That information ⇦ should include at least the name ⇨ , a unique identifier ⇦ and the locality of the recipient, the amount legally committed and the purpose of the measure. That information should take into account relevant criteria such as the periodicity, the type and the importance of the measure. 🡻 2018/1046 recital 13 (30)It should be possible for the Commission to implement the budget indirectly through Member State organisations. For reasons of legal certainty, it is therefore appropriate to define a Member State organisation as an entity established in a Member State as a public-law body, or as a body governed by private law entrusted with a public-service mission and provided with adequate financial guarantees by that Member State. Financial backing provided to such private-law bodies by a Member State in accordance with existing requirements set out in Union law, in a form decided by that Member State and not necessarily requiring a bank guarantee, should be considered as adequate financial guarantees. 🡻 2018/1046 recital 14 For prizes, grants and contracts awarded following the opening-up of a public procedure to competition, and in particular for contests, calls for proposals and calls for tenders, in order to respect the principles of the TFEU and in particular the principles of transparency, proportionality, equal treatment and non-discrimination, the name and locality of the recipients of Union funds should be published. Such publication should contribute to the control of the award procedures by the unsuccessful applicants in the competition.

🡻 2018/1046 recital 15 (31)Personal data referring to natural persons should not be publicly available for longer than the period during which the funds are being used by the recipient and should therefore be removed after two years. The same should apply to personal data referring to legal persons whose official name identifies one or more natural persons. 🡻 2018/1046 recital 16 (32)In most of the cases covered by this Regulation, the publication concerns legal persons. Where natural persons are concerned, the publication of personal data should respect the principle of proportionality between the importance of the amount granted and the need to control the best use of the funds. In such cases, the publication of the region on level 2 of the common classification of territorial units for statistics (NUTS) is consistent with the objective of publication of information on recipients and ensures equal treatment between Member States of different sizes while respecting the recipients’ right to private life and, in particular, the protection of their personal data. 🡻 2018/1046 recital 17 ⇨ new (33)For reasons of legal certainty and in accordance with the principle of proportionality, the situations in which publication should not take place should be specified. For example, information should not be published with regard to scholarships or other forms of direct support paid to natural persons most in need, to certain contracts with a very low value or to financial support below a certain threshold provided through financial instruments ⇨ or budgetary guarantees ⇦ , or in cases where disclosure risks threatening the rights and freedoms of the individuals concerned as protected by the Charter of Fundamental Rights of the European Union or causing harm to the commercial interests of the recipients. For grants, however, there should be no special exemption from the obligation to publish information on the basis of a specific threshold, in order to maintain the current practice and to allow for transparency. 🡻 2018/1046 recital 18 (34)Where personal data of recipients is published for the purposes of transparency in relation to the use of Union funds and the control of award procedures, those recipients should be informed of such publication, as well as of their rights and the procedures applicable for exercising those rights, in accordance with Regulations (EU) 2018/1725 (EC) No 45/2001 and (EU) 2016/679 of the European Parliament and of the Council. 🡻 2018/1046 recital 19 (35)In order to ensure that the principle of equal treatment is respected for all recipients, the information related to natural persons should also be published, in line with the obligation for Member States to establish a large degree of transparency for contracts above the thresholds laid down in Directive 2014/24/EU of the European Parliament and of the Council. 🡻 2018/1046 recital 20 ⇨ new (36)In the case of indirect and shared management, the persons, entities or designated bodies implementing Union funds should make available information on recipients and final recipients. In the case of shared management, the information should be published in accordance with sector-specific rules. ⇨ Member States that receive and implement Union funds under direct management should make available information on their recipients in accordance with this Regulation. ⇦ The Commission should make available information about a single website, including a reference to its address, where the information on recipients and final recipients can be found.

🡻 2018/1046 recital 21 (37)In the interest of increased readability and transparency of data on financial instruments implemented under direct and indirect management, it is appropriate to merge all reporting requirements into one single working document to be attached to the draft budget. ⇩ new (38)In order to ensure transparency, avoid duplication and align the timing of reporting with the availability of the relevant data, the information on budgetary guarantees, the common provisioning fund and contingent liabilities should be regrouped under these three categories and presented in a comprehensive way in the respective reports. (39)In order to increase transparency and accuracy in reporting, the information on financial instruments presented in the working document attached to the draft budget should include information on realised losses from assets. (40)In order to ensure synchronisation with the timeline for the adoption of the statement of estimates, the working document on the building policy of the Commission should be attached to the draft budget. 🡻 2018/1046 recital 22 (adapted) (41)In order to promote best practices in the implementation of the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund, the European Agricultural Fund for Rural Development (EAFRD), and the European Maritime, and Fisheries ⌦ and Aquaculture ⌫ Fund (EMFF ⌦ EMFAF ⌫ ), as well as the European Agricultural Guarantee Fund (EAGF), the Commission should, for information purposes, be able to make available to bodies responsible for management and control activities a non-binding methodological guide setting out its own control strategy and approach, including checklists, and examples of best practice. That guide should be updated whenever necessary. ⇩ new (42)It is necessary to allow deducting from the revenue of the general budget of the Union any interest or other charge due, on the amounts of cancelled or reduced fines, other penalties or sanctions, including any negative return related to those amounts. In order to comply with the general principle of restoration to the prior state (restitutio in integrum) applicable to fines, other penalties or sanctions imposed by Union institutions that are later cancelled or reduced by the Court of Justice, it is necessary to provide that any negative return on the provisionally collected amount of such fines, other penalties or sanctions imposed by Union institutions is not deducted from the amount to be repaid. To compensate for the loss of enjoyment of monies from the date the undertaking provisionally paid the fine to the Commission until the date of repayment, the amount to be repaid should be increased by an interest at the rate applied by the European Central Bank to its principal refinancing operations increased by one and a half percentage points as an adequate compensation for the undertaking in such situations, which excludes the need to apply any other interest rate on that amount. Furthermore, that rate corresponds to the interest rate applicable in relation to the debtor when the debtor chooses to defer the payment of a fine, another penalty or a sanction, and provides a financial guarantee instead of payment. In order to secure sufficient cash flow to compensate the concerned third parties for the loss of enjoyment of monies in the cases referred to in Article 109(4), it is necessary to allow for the amounts received by way of fines, other penalties or sanctions and any accrued interest or other income generated by them to be entered in the budget by the end of the following financial year. (43)In view of the increased volume of borrowing and lending operations carried out by the Commission on behalf of the Union to finance the recovery from the COVID-19 pandemic, transparency regarding those operations should be further enhanced. To address the increased complexity of those operations and in order to ensure better visibility of their content, a comprehensive overview of borrowing and lending operations carried out by the Commission should be added to the document annexed to the section of the budget relating to the Commission. 🡻 2018/1046 recital 23 (44)It is appropriate to provide for the possibility for Union institutions to conclude service-level agreements with each other in order to facilitate the implementation of their appropriations and also for the possibility to conclude such agreements between departments of Union institutions, Union bodies, European offices, bodies or persons entrusted with implementation of specific actions in the common foreign and security policy (CFSP) pursuant to Title V of the Treaty on European Union (TEU) and the Office of the Secretary-General of the Board of Governors of the European schools for the provision of services, supply of products or execution of works or of building contracts. ⇩ new (45)For reasons of legal certainty, it is necessary to clarify that the applicable law, under which any appropriate actions are to be taken with regard to conflict of interests, includes EU and national law relating to conflict of interests.

(46)In order to increase inclusiveness, private or EU-law bodies established in a Member State and eligible to be entrusted, in accordance with sector-specific rules, with the implementation of Union funds or budgetary guarantees, should be added to the list of entities under point (c) of the first subparagraph of article 62 (1) insofar as they are controlled by public law bodies or private law bodies with public service mission eligible under indirect management, and are provided with adequate financial guarantees. Where such private or EU-law bodies do not benefit from financial backing provided by a Member State, adequate financial guarantees should take the form of joint and several liability by the controlling bodies or equivalent financial guarantees. 🡻 2018/1046 recital 24 (47)It is appropriate to lay down the procedure for setting up new European offices and to distinguish between obligatory and non-obligatory tasks of such offices. A possibility for Union institutions, Union bodies and other European offices to delegate the powers of the authorising officer to the director of a European office should be introduced. European offices should also have the possibility to conclude service-level agreements for the provision of services, supply of products or execution of works or of building contracts. It is appropriate to set out specific rules for the drawing-up of accounting records, provisions authorising the accounting officer of the Commission to delegate some of his or her tasks to staff in those offices and operating procedures for bank accounts which the Commission should be able to open in the name of a European office. 🡻 2018/1046 recital 25 (48)In order to improve the cost-effectiveness of executive agencies and in light of the practical experience gained with other Union bodies, it should be possible to entrust the accounting officer of the Commission with all or part of the tasks of the accounting officer of the executive agency concerned. 🡻 2018/1046 recital 26 (49)For reasons of legal certainty, it is necessary to clarify that directors of executive agencies act as authorising officers by delegation when managing operational appropriations of programmes delegated to their agencies. To achieve the full effect of efficiency gains resulting from a global centralisation of certain support services, the possibility for executive agencies to implement administrative expenditure should be explicitly provided for. 🡻 2018/1046 recital 27 (50)It is necessary to establish rules on the powers and responsibilities of financial actors, in particular authorising officers and accounting officers. 🡻 2018/1046 recital 28 (51)The European Parliament, the Council, the Court of Auditors and the accounting officer of the Commission should be informed of the appointment or termination of the duties of an authorising officer by delegation, internal auditor and accounting officer within two weeks of such appointment or termination. 🡻 2018/1046 recital 29 (52)Authorising officers should be fully responsible for all revenue and expenditure operations executed under their authority, and for internal control systems, and should be held accountable for their actions, including, where necessary, through disciplinary proceedings.

🡻 2018/1046 recital 30 (53)The tasks, responsibilities and principles of the procedures to be observed by the authorising officers should also be laid down. Authorising officers by delegation should ensure that the authorising officers by subdelegation and their staff receive information and training concerning the control standards and the respective methods and techniques and that measures are taken in order to ensure the functioning of the control system. The authorising officer by delegation should report to his or her Union institution on the performance of the duties in the form of an annual report. That report should include the required financial and management information to support that officer’s declaration of assurance on the performance of his or her duties, including the information on the overall performance of the operations carried out. The supporting documents relating to the operations carried out should be kept for at least five years. The various forms of negotiated procedure for the award of public contracts should be the subject of a special report from the authorising officer by delegation to the Union institution concerned and of a report from that Union institution to the European Parliament and to the Council, since those procedures represent derogations from the usual award procedures. 🡻 2018/1046 recital 31 (54)The double role of Heads of Union delegations, and of their deputies in their absence, as authorising officers by subdelegation for the European External Action Service (EEAS) and, as regards operational appropriations, for the Commission should be taken into account. 🡻 2018/1046 recital 32 (55)The delegation of powers of budget implementation by the Commission concerning the operational appropriations of its own section of the budget to the deputy Heads of Union delegations should be restricted to situations where the performance of those tasks by the deputy Heads of Union delegations is strictly necessary in order to ensure business continuity during the absence of Heads of Union delegations. The deputy Heads of Union delegations should not be allowed to exercise those powers on a systematic basis or for reasons of internal work division. 🡻 2018/1046 recital 33 (56)The accounting officer should be responsible for the proper implementation of payments, the collection of revenue and the recovery of amounts receivable. The accounting officer should manage the treasury, bank accounts and third-party files, keep the accounts and be responsible for drawing up the financial statements of Union institutions. The accounting officer of the Commission should be the only person who is entitled to lay down the accounting rules and the harmonised charts of accounts, while the accounting officers of all other Union institutions should lay down accounting procedures applicable in their institutions. 🡻 2018/1046 recital 34 (57)The arrangements for the appointment and termination of the duties of the accounting officer should also be established. 🡻 2018/1046 recital 35 (58)The accounting officer should set up procedures to ensure that the accounts opened for the requirements of treasury management and imprest accounts are not in debit. ⇩ new (59)It is appropriate to align the means of payment authorised for treasury management with modern payment methods, including credit cards and electronic wallets.

(60)Considering that payments by Union delegations through the standard rules for budgetary, treasury and accounting operations (“budgetary procedures”) are increasingly executed through the central treasury and, as a consequence, the number of transactions and the amounts paid through imprest accounts decrease, it is appropriate to simplify the rules on the creation, administration and control of imprest accounts. 🡻 2018/1046 recital 36 (61)The conditions for the use of imprest accounts, a system of management which constitutes an exception to normal budgetary procedures and only concerns limited amounts, should be laid down, and the tasks and responsibilities of the imprest administrators, as well as those of the authorising officer and the accounting officer in connection with the control of imprest accounts, should be set out. The Court of Auditors should be informed of any appointment of an imprest administrator. For reasons of efficiency, imprest accounts should be set up in Union delegations for appropriations from both the sections of the budget relating to the Commission and to the EEAS. It is also appropriate to allow, under specific conditions, for the use of imprest accounts in the Union delegation for payments of limited amounts by budgetary procedures. As regards the appointment of imprest administrators, it should be possible to select them also from personnel employed by the Commission in the field of crisis-management aid and humanitarian aid operations whenever there is no available Commission staff covered by the Staff Regulations of Officials of the European Union and the Conditions of Employment of Other Servants of the Union, laid down in Council Regulation (EEC, Euratom, ECSC) No 259/68 (‘Staff Regulations’). 🡻 2018/1046 recital 37 (62)In order to take into account the situation in the field of crisis-management aid and humanitarian aid operations whenever there are no Commission staff covered by the Staff Regulations available and the technical difficulties to have all legal commitments signed by the authorising officer responsible, it should be allowed for the personnel employed by the Commission in that field to enter into legal commitments of a very low value up to EUR 2500 which are linked to the payments executed from imprest accounts, and for Heads of Union delegations or their deputies to enter into legal commitments on the instruction of the authorising officer responsible of the Commission. 🡻 2018/1046 recital 38 (63)Once the tasks and responsibilities of financial actors have been defined, it is only possible to hold them liable under the conditions laid down in the Staff Regulations. Specialised financial irregularities panels have been set up in Union institutions pursuant to Regulation (EU, Euratom) No 966/2012. However, due to the limited number of cases submitted to them and for reasons of efficiency, it is appropriate to transfer their functions to an interinstitutional panel established pursuant to this Regulation (‘the panel’). The panel should be set up to assess requests and issue recommendations on the need to take decisions on exclusion and imposition of financial penalties referred to it by the Commission or other Union institutions and bodies, without prejudice to their administrative autonomy in respect of members of their staff. That transfer also aims to avoid duplication and to mitigate the risks of contradictory recommendations or opinions, in cases where both an economic operator and a member of staff of a Union institution or body are involved. It is necessary to maintain the procedure by which it is possible for an authorising officer to seek confirmation of an instruction which that officer considers to be irregular or contrary to the principle of sound financial management, and thus be released from any liability. The composition of the panel should be modified when it fulfils this role. The panel should have no investigative powers. 🡻 2018/1046 recital 39 ⇨ new (64)As regards revenue, it is necessary to address negative adjustments of own resources covered by Council Regulation (EU, Euratom) No 609/2014 ⇨ , Council Regulation (EU, Euratom) No 2021/770 and Council Regulation (EU, Euratom) [XXX] on the methods and procedure for making available own resources based on the Emissions Trading System, the Carbon Border Adjustment Mechanism and reallocated profits and on the measures to meet cash requirements ⇦ . Except in the case of own resources, it is necessary to maintain the existing tasks and controls falling within the responsibility of the authorising officers at the different stages of the procedure: establishment of the estimate of amounts receivable, issuing of recovery orders, dispatch of the debit note informing the debtor that the amount receivable has been established and the decision, where necessary, to waive an entitlement subject to criteria guaranteeing compliance with sound financial management in order to ensure an efficient collection of revenue. 🡻 2018/1046 recital 40 (65)The authorising officer should be able to waive totally or partially the recovery of an established amount receivable when the debtor has entered into any of the insolvency proceedings as defined in Regulation (EU) 2015/848 of the European Parliament and of the Council, in particular in cases of judicial arrangements, compositions and analogous proceedings. 🡻 2018/1046 recital 41 (66)Specific provisions on procedures for the adjustment or the reduction to zero of an estimate of the amount receivable should be laid down.

🡻 2018/1046 recital 42 (67)It is necessary to clarify the timing of the entry in the budget of amounts received by way of fines, other penalties and sanctions, and of any accrued interest or other income generated by them. 🡻 2018/1046 recital 43 (68)Due to the recent developments on the financial markets and the interest rate applied by the European Central Bank (ECB) to its principal refinancing operations, it is necessary to review the provisions concerning the interest rate for fines or other penalties and to provide for rules in the case of a negative interest rate. 🡻 2018/1046 recital 44 (69)To reflect the specific nature of amounts receivable consisting in fines or other penalties imposed by Union institutions under the TFEU or the Treaty establishing the European Atomic Energy Community (the Euratom Treaty), it is necessary to introduce specific provisions on the interest rates applicable to amounts due but not yet paid, in the event that such amounts are increased by the Court of Justice of the European Union. 🡻 2018/1046 recital 45 (70)The rules on recovery should be both clarified and strengthened. In particular, it should be specified that the accounting officer is to recover amounts by offsetting them also against amounts owed to the debtor by an executive agency when it implements the budget. 🡻 2018/1046 recital 46 (71)In order to guarantee legal certainty and transparency, rules regarding the deadlines within which a debit note is to be sent should be laid down. ⇩ new (72)In order to ensure sound financial management and to guarantee the efficient recovery of Union claims, it is necessary for the accounting officer of the Commission to be able to rely on the assistance from Member States for the notification and recovery of Union claims. Such assistance should be conducted in a similar way to the one between Member States for the notification and recovery of their claims pursuant to Council Directive 2010/24/EU. The purpose of the assistance should not only be to allow to recover whenever the debtor has sizeable assets, but also to provide sufficient and reliable information to the accounting officer in cases of insolvency of the debtor so that a waiver decision to waive a recovery, can be adopted in cases where the debtor is insolvent or cannot be located. The assistance regarding notification to the debtor by the Member State should be done in accordance with the applicable national procedures. It should include not only the enforceable decisions pursuant to Article 299 of the Treaty on the Functioning of the European Union (TFEU) but also the preparatory acts prior to the adoption of such a decision, including the notification of debit notes, reminders and letters of formal notice and precautionary measures to safeguard the rights of the Union in cases where enforceable decisions have been adopted but either have not yet been notified or are waiting for the order for its enforcement to be appended pursuant to Article 299 TFEU. The details of such assistance should be laid down in an agreement between the Commission and Member States either bilaterally or multilaterally. Nevertheless, the obligation to provide such assistance shall exist even if no such agreement is signed. 🡻 2018/1046 recital 47

(73)In order to secure the management of assets whilst also aiming at yielding a positive return, it is necessary to have amounts relating to fines, other penalties or sanctions imposed under the TFEU or the Euratom Treaty, such as competition fines which are being contested, provisionally collected and invested in financial assets, and to determine the assignment of the return on them. Since the Commission is not the only Union institution which is entitled to impose fines, other penalties or sanctions, it is necessary to lay down provisions concerning such fines, other penalties or sanctions imposed by other Union institutions and to lay down rules for their recovery which should be equivalent to those applicable to the Commission. 🡻 2018/1046 recital 48 (74)In order to ensure that the Commission has all the necessary information for the adoption of financing decisions, it is necessary to lay down the minimum requirements for the contents of financing decisions on grants, procurement, Union trust funds for external actions (‘Union trust funds’), prizes, financial instruments, blending facilities or platforms and budgetary guarantees. At the same time, in order to give a longer-term perspective to the potential recipients, it is necessary to allow for financing decisions to be adopted for more than one financial year while specifying that the implementation is subject to the availability of budget appropriations for the respective financial years. Furthermore, it is necessary to reduce the number of the elements required for the financing decision. In line with the aim of simplification, the financing decision should at the same time constitute an annual or multiannual work programme. Since contributions to the Union bodies referred to in Articles 70 and 71 are already established in the budget, there should be no requirement to adopt a specific financing decision in that respect. 🡻 2018/1046 recital 49 (75)As regards expenditure, the relationship between financing decisions, global budgetary commitments and individual budgetary commitments as well as the concepts of budgetary and legal commitment should be clarified in order to establish a clear framework for the different stages of budget implementation. 🡻 2018/1046 recital 50 (76)In order to take into account in particular the number of legal commitments entered into by Union delegations and Union representations and the exchange-rate fluctuations experienced by them, provisional budgetary commitments should be possible also in cases where the final payee and the amount are known. ⇩ new (77)In order to align the European Agricultural Guarantee Fund (EAGF) with the general accounting and budgetary procedures as soon as it is technically possible, it should be allowed to proceed with individual budgetary commitments to make the payments, without the need to first make a global provisional commitment to make the payments followed by individual commitments within a period of up to two months, or, under certain conditions, a longer period. Furthermore, to be able to proceed with individual budgetary commitments and payments for the first month of the financial year in December, routine management expenditure for the EAGF should be added to the types of expenditure for which payments made in advance are authorised. 🡻 2018/1046 recital 51 (78)As regards the typology of payments which it is possible for authorising officers to make, clarification of the various types of payments should be provided, in accordance with the principle of sound financial management. The rules for clearing of pre-financing payments should further be clarified, in particular for situations where no interim clearing is possible. To that effect, appropriate provisions should be included in legal commitments entered into. 🡻 2018/1046 recital 52 (79)This Regulation should stipulate that payments are to be made within specified time limits and that, in the event of failure to respect such time limits, creditors will be entitled to default interests to be charged to the budget, except in the case of Member States, the European Investment Bank (EIB) and the European Investment Fund (EIF).

⇩ new (80)The core elements of electronic invoices in public procurement should be based on the rules set out in Directive 2014/55/EU. (81)For the sake of clarity, the definition of unsuitable tenders in public procurement should be revised to include tenders where the economic operator does not have access to procurement referred to in Articles 180,181 and 183. (82)It is necessary to clarify that specific contracts under framework contracts concluded with a single economic operator may be awarded and modified within the limits of the terms foreseen in the framework contract. (83)In order to take account of the specific characteristics of the real estate market and to simplify procurement procedures for buildings, the requirement of having a minimum number of candidates participating in the procedures should be removed. (84)Considering that the ex ante publicity measures are the same for open, restricted and competitive procedures with negotiation, the use of a negotiated procedure without prior publication of a contract notice following an unsuccessful competitive procedure with negotiation should be allowed under certain conditions. (85)It is necessary to exclude from the scope of the procurement rules of this Regulation the document certification and authentication services provided by notaries, provided that the procedures governing these services in the Member State concerned are not open to competition. (86)It is appropriate to provide for the possibility of having negotiated procedures without prior publication for services provided by Member State organisations which cannot participate in competitive procedures. (87)In order to ensure compliance with the case law of the Court of Justice (judgment of the General Court in Case T-661/18, Securitec v Commission), the authorising officer should request the evidence for exclusion and selection criteria to be submitted before the award decision. 🡻 2018/1046 recital 53 (88)It is appropriate to integrate the provisions concerning validation and authorisation of expenditure in one article and to introduce a definition of ‘decommitments’. Since the transactions are carried out in computerised systems, the signing of a ‘passed for payment’ voucher in order to express the validation decision should be replaced by an electronically secured signature, except in a limited number of cases. It is also necessary to clarify that the validation of expenditure applies to all eligible costs, including, as is the case for the clearing of pre-financing, costs which are not associated with a payment request. 🡻 2018/1046 recital 54 (89)In order to reduce complexity, streamline existing rules and improve the readability of this Regulation, rules common to more than one budget implementation instrument should be established. For those reasons, certain provisions should be regrouped, the wording and scope of other provisions should be aligned and unnecessary repetitions and cross-referencing should be removed. 🡻 2018/1046 recital 55 (90)Each Union institution should establish an internal audit progress committee tasked with ensuring the independence of the internal auditor, monitoring the quality of the internal audit work and ensuring that internal and external audit recommendations are properly taken into account and followed up by its services. The composition of that internal audit progress committee should be decided by each Union institution, taking into account its organisational autonomy and the importance of independent expert advice. 🡻 2018/1046 recital 56

(91)More emphasis should be put on performance and results of projects financed from the budget. It is thus appropriate to define an additional form of financing not linked to costs of the relevant operations in addition to the forms of Union contribution already well established (reimbursement of the eligible costs actually incurred, unit cost, lump sums and flat-rate financing). The additional form of financing should be based on the fulfilment of certain conditions ex ante or on the achievement of results measured by reference to previously set milestones or through performance indicators. 🡻 2018/1046 recital 57 (92)Where the Commission carries out assessments of the operational and financial capacity of recipients of Union funds or of their systems and procedures, it should be able to rely on the assessments already conducted by itself, other entities or donors such as national agencies and international organisations, in order to avoid duplicating assessments of the same recipients. The possibility for cross-reliance on assessments conducted by other entities should be used where such assessments were made in compliance with conditions equivalent to those set out in this Regulation for the applicable method of implementation. Therefore, in order to foster cross-reliance on assessments among donors, the Commission should promote the recognition of internationally accepted standards or international best practices. 🡻 2018/1046 recital 58 (93)It is also important to avoid situations in which recipients of Union funds are audited several times by different entities on the use of those funds. It should therefore be possible to rely on audits already carried out by independent auditors provided that there is sufficient evidence of their competence and independence and provided that the audit work is based on internationally accepted audit standards providing reasonable assurance, and that they have been conducted on the financial statements and reports setting out the use of the Union contribution. Such audits should then form the basis of the overall assurance on the use of Union funds. To that end, it is important to ensure that the report of the independent auditor and the related audit documentation is made available on request to the European Parliament, the Commission, the Court of Auditors and the audit authorities of Member States. 🡻 2018/1046 recital 59 (94)For the purpose of relying on assessments and audits and in order to reduce the administrative burden on persons and entities receiving Union funds, it is important to ensure that any information already available at Union institutions, managing authorities or other bodies and entities implementing Union funds, is reused to avoid multiple requests to recipients or beneficiaries. 🡻 2018/1046 recital 60 (95)In order to provide for a long-term cooperation mechanism with recipients, the possibility of signing financial framework partnership agreements should be provided for. Financial framework partnerships should be implemented through grants or through contribution agreements with persons and entities implementing Union funds. For that purpose, the minimum content of such contribution agreements should be specified. Financial framework partnerships should not unduly restrict access to Union funding. 🡻 2018/1046 recital 61 (96)The conditions and procedures for suspending, terminating or reducing a Union contribution should be harmonised across the different budget implementation instruments such as grants, procurement, indirect management, prizes, etc. The grounds for such suspension, termination or reduction should be defined. 🡻 2018/1046 recital 62 (97)This Regulation should establish standard periods for which documents relating to Union contributions should be kept by recipients so as to avoid divergent or disproportionate contractual requirements while still providing the Commission, the Court of Auditors and the European Anti-Fraud Office (OLAF) with sufficient time to obtain access to such data and documents and perform the ex post checks and audits. In addition, any person or entity receiving Union funds should be obliged to cooperate in the protection of the financial interests of the Union.

🡻 2018/1046 recital 63 (98)In order to provide adequate information to participants and recipients and to ensure that they have the possibility to exercise their right of defence, participants and recipients should be allowed to submit their observations before adoption of any measure adversely affecting their rights and they should be informed of the means of redress available to them for challenging such a measure. ⇩ new (99)In the context of an award procedure, it is not necessary for the authorising officer responsible to provide an opportunity to a participant to submit observations where that participant has been rejected from an award procedure. In order to ensure legal certainty, this should also be specified in the provision on adversarial procedures and means of redress. (100)Considering the increasingly challenging geopolitical environment with rapidly evolving hybrid and cyber threats, as well as the need for a digital transformation with its inherent exposure to technical vulnerabilities, the Union needs to ensure the protection of the security and the public order of the Union or its Member States, as reflected in public policy and law. This concerns the preservation of fundamental interests of society such as ensuring the security of energy supply, combating organized crime and fraud. Whilst respecting any international agreements of the Union, the award of Union funds in relation to strategic assets and interests, such as digital or space infrastructure, communication and information systems and services, may require the application of specific conditions to ensure such protection including for the integrity of communication and information systems, and related supply chains. The types of conditions and requirements for applying them should be clarified. 🡻 2018/1046 recital 64 (101)In order to protect the financial interests of the Union, a single early-detection and exclusion system should be set up by the Commission. 🡻 2018/1046 recital 65 (102)The early-detection and exclusion system should apply to participants, recipients, entities on whose capacity the candidate or tenderer intends to rely, subcontractors of a contractor, any person or entity receiving Union funds where the budget is implemented under indirect management, any person or entity receiving Union funds under financial instruments implemented under direct management, participants or recipients on which entities implementing the budget under shared management have provided information, and sponsors. ⇩ new (103)In order to enhance the protection of the Union financial interests the early-detection and exclusion system should be reinforced. It is important to avoid that a person or entity in an exclusion situation is able to apply to, or to be selected for implementing funds, or to receive such funds under a programme in shared management. Where there is a final judgment or a final administrative decision, the authorising officer responsible should be able to exclude a person or entity, provided that the latter is in an exclusion situation and deemed as not reliable by having engaged in certain serious misconducts referred to in Article 139(1). In the absence of a final judgment or a final administrative decision, the authorising officer responsible should be able to exclude, on the basis of a preliminary classification in law made by the panel referred to in Article 146, having regard to facts and findings established in the context of audits or investigations carried out by European Anti-fraud Office (OLAF), European Public Prosecutor Office (EPPO), the European Court of Auditors (ECA) or any other check, audit or control performed under the responsibility of the authorising officer. Such exclusion should be registered in the early-detection and exclusion system database established under Article 138(1). Member States’ authorities should take it into account by rejecting such persons or entities from being selected to implement Union funds or from receiving such funds. Payment applications from Member States under shared management, including expenditure related to a person or entity that has been excluded, should not be reimbursed. Where funds are disbursed to Member States under performance-based frameworks, specific rules shall apply, as set out in sector-specific legislation. (104)It is important to underline that the EDES system should only apply in respect of Union funds disbursed to the Member States under direct management, such as those under Regulation (EU) 2021/241 of the European Parliament and of the Council, where Member States have the responsibility to take all the appropriate measures to protect the financial interests of the Union, to the extent that the Commission has relevant responsibilities under the respective legal framework and with due regard to the sui generis nature of the funds. Therefore, the responsibilities of the Commission should be limited to the obligation to refer a case to the panel for the purpose of excluding a person or entity if the authorising officer becomes aware of serious misconducts through final judgments and administrative decisions or facts and findings established in the context of audits or investigations carried out concerning those funds by the European Anti-fraud Office (OLAF), the European Public Prosecutor Office (EPPO), the European Court of Auditors (ECA) or any other check, audit, or control performed under the responsibility of the authorising officer. Without prejudice to these responsibilities of the Commission, the Member States remain responsible to verify the information on decisions of exclusion registered in the EDES database, to enforce such decisions and to ensure that no payment application is submitted related to a person or entity that is in such an exclusion situation. 🡻 2018/1046 recital 66 (105)It should be clarified that, where a decision to register a person or entity in the early-detection and exclusion system database is taken on the basis of an exclusion situation relating to a natural or legal person that is a member of the administrative, management or supervisory body of that person or entity, or that has powers of representation, decision or control with regard to that person or entity, or to a natural or legal person that assumes unlimited liability for the debts of that person or entity or to a natural person who is essential for the award or for the implementation of the legal commitment, the information registered in the database is to include the information concerning those persons.

🡻 2018/1046 recital 67 (106)The decision on the exclusion of a person or entity from participation in award procedures or the imposition of a financial penalty on a person or entity and the decision on the publication of the related information should be taken by the authorising officers responsible, in light of their autonomy in administrative matters. In the absence of a final judgment or final administrative decision and in cases related to a serious breach of contract, the authorising officers responsible should take their decision on the basis of a preliminary classification in law, having regard to the recommendation of the panel. The panel should also assess the duration of an exclusion in cases where the duration has not been set by the final judgment or the final administrative decision. 🡻 2018/1046 recital 68 (107)The role of the panel should be to ensure the coherent operation of the exclusion system. The panel should be composed of a standing chair, two representatives of the Commission and a representative of the requesting authorising officer. ⇩ new (108)In order to align the early-detection and exclusion system to public procurement rules and to enhance its effectiveness, attempting to influence the award of Union funds or unduly obtaining Union funds including in relation to conflicts of interests should be explicitly included as a specific situation of exclusion under the ground of grave professional misconduct with a proportionate penalty, consistent with the seriousness of the misconduct. (109)Having due regard to the principle of proportionality, the authorising officer responsible should exclude a person or entity when it has shown lack of integrity by having engaged in any wrongful conduct that is incompatible with the values enshrined in Article 2 of the Treaty on European Union and the Charter of fundamental rights of the European Union, such as incitement to discrimination, hatred or violence against a group of persons or a member of a group, where the conduct may negatively affect the performance of the contract. (110)An autonomous ground of exclusion with a proportionate penalty, consistent with the seriousness of the misconduct, should be added in the case of unjustified lack of cooperation in the context of investigations, checks or audits carried out by an authorising officer, OLAF, EPPO or the European Court of Auditors as this may have severe implications on the protection of the Union’s financial interests. 🡻 2018/1046 recital 69 (111)The preliminary classification in law does not prejudge the final assessment of the conduct of the person or entity concerned by the competent authorities of Member States under national law. The recommendation of the panel, as well as the decision of the authorising officer responsible, should therefore be reviewed following the notification of such a final assessment. 🡻 2018/1046 recital 70 ⇨ new (112)A person or entity should be excluded by the authorising officer responsible where it has been established by a final judgment or a final administrative decision that the person or entity is guilty of grave professional misconduct, of non-compliance, whether intentional or not, with the obligations relating to the payment of social security contributions or taxes, of the creation of an entity in a different jurisdiction with the intent to circumvent fiscal, social or any other legal obligations, of fraud affecting the budget, of corruption, of conduct related to a criminal organisation, of money laundering or terrorist financing, of terrorist offences or offences linked to terrorist activities, of child labour or other offences concerning trafficking in human beings or of the commitment of an irregularity. A person or entity should also be excluded in the event of a serious breach of a legal commitment or of bankruptcy ⇨ or in cases of refusal to co-operate in inverstigations, checks or audits. In assessing these grounds for exclusion, unreasonably injurious acts condemned in international trade law could be considered a relevant factor, where they involve grave professional misconduct. ⇦ 🡻 2018/1046 recital 71 (113)When taking a decision on the exclusion of a person or entity, or the imposition of a financial penalty on a person or entity, and on the publication of the related information, the authorising officer responsible should ensure compliance with the principle of proportionality, in particular by taking into account the seriousness of the situation, its budgetary impact, the time which has elapsed since the relevant conduct, the duration of the conduct and its recurrence, whether the conduct was intentional or the degree of negligence shown and the degree of collaboration of the person or entity with the relevant competent authority and the contribution of that person or entity to the investigation.

🡻 2018/1046 recital 72 (114)The authorising officer responsible should also be able to exclude a person or entity where a natural or legal person assuming unlimited liability for the debts of the economic operator is bankrupt or in a similar situation of insolvency or where that natural or legal person fails to comply with its obligations to pay social security contributions or taxes, where such situations have an impact on the financial situation of that economic operator. ⇩ new (115)In order to further enhance the protection of the Union’s financial interests, it should be possible for the authorising officer to exclude or impose a financial penalty on beneficial owners and affiliated entities of the excluded entity that were involved in the misconduct of the excluded entity. The possibility to exclude beneficial owners and affiliated entities is intended to prevent that a person or entity that has been excluded from being selected to implement Union’s funds could continue to participate in procurement and award procedures, through a new company or existing affiliated entities. (116)In order to increase its effectiveness, the early-detection and exclusion system should also apply to natural persons who are deemed responsible for the misconduct of an entity, so that they are unable to participate in award procedures or selected to implement Union funds either in a personal capacity or through a new corporate identity, without prejudice to the right to be heard. (117)At the request of the authorising officer, the panel of the early-detection and exclusion system should have the ability to issue its recommendations by means of an expedited procedure, without prejudice to the right to be heard. Such procedure should be used when the circumstances or the nature of the case requires so, for instance where a final judgment or a final administrative decision has bee