Special Report Implementing the EU 
budget through financial 
instruments  – lessons to be 
learnt from the 2007-2013 
programme periodEN 2016  NO 19
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Implementing the EU 
budget through financial 
instruments  – lessons to be  
learnt from the 2007-2013 
programme period
(pursuant to Article 287(4), second subparagraph, TFEU)Special ReportEN 2016  NO 19
02
 Audit team
The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or 
management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks 
to performance or compliance, the level of income or spending involved, forthcoming developments and political and 
public interest.
This performance audit was produced by Audit Chamber II — headed by ECA Member Henri Grethen — which spe -
cialised in structural policies, transport and energy spending areas. The audit was led by the Reporting Member Iliana 
Ivanova, supported by Tony Murphy, Head of private office and Mihail Stefanov, Attaché; Niels-Erik Brokopp, Principal 
Manager; Rares Rusanescu, Head of Task and Agathoclis Argyrou, Marcel Bode, Viorel Cirje and Maria Ploumaki, Auditors.
From left to right:  M. Stefanov, I. Ivanova, N.-E. Brokopp, R. Rusanescu, T. Murphy, A. Argyrou.

03
 Contents
Paragraph
 Abbreviations
 Glossary
I - VIII Executive summary
1 - 22 Introduction
1 - 4 What are financial instruments?
5 - 22 Use of financial instruments in implementing the EU budget since 2007
23 - 26 Audit scope and approach
27 - 145 Observations
27 - 61 Were financial instruments appropriately sized in view of market needs?
29 - 45 Excessive capital endowment led to low disbursement rates, avoidance of de -commitment and potential 
reimbursement at closure
46 - 54 Market needs were not always properly assessed by managing authorities before funds were allocated to 
ERDF and ESF financial instruments
55 - 61 Regional focus contributed to Member States setting up a large number of small sized financial instruments 
in the 2007-2013 programme period
62 - 91 Did financial instruments succeed in attracting private capital?
64 - 72 Commission’s measure of leverage for financial instruments does not properly take into account the extent 
to which public financing mobilises additional funds
73 - 91 Difficulties of attracting private sector investors to financial instruments in both shared and central 
management
04 Contents 
92 - 105 Were financial instruments providing revolving financial support?
93 - 95 Delays in the implementation significantly shortened the actual investment period of several ERDF and ESF 
financial instruments
96 - 105 Limited revolving effect of ERDF and ESF financial instruments during implementation and uncertain after 
closure of the 2007-2013 programmes
106 - 146 Did financial instruments prove to be a cost -efficient method to implement the EU budget?
108 - 110 High level of management costs and fees compared to actual level of disbursement to final recipients
111 - 120 No reimbursement from the EU budget of management costs and fees above the regulatory ceilings at 
closure
121 - 131 Commission’s assessment of management costs and fees does not take due account of differences in types 
of instruments and actual level of support provided to final recipients
132 - 140 Limitations in reporting of management costs and fees by Member States
141 - 146 Management costs and fees are incurred in addition to the administrative cost of implementing ERDF and 
ESF OPs
147 - 163 Conclusions and recommendations
 Annex I —  Financial instruments in shared management – how do they work (2014-2020 
programme period)
 Annex II —  Definition of the term ‘financial instruments’ in the legal basis (2014-
2020  and  2007 -2013 programme period)
 Annex III —  Overview of the ERDF financial instruments in the 28 EU Member States: number 
of funds and endowment (2007-2013 programme period)
 Annex IV —  Overview of the ESF financial instruments in the 28 EU Member States: number of 
funds and endowment (2007-2013 programme period)
 Annex V —  Summary of ex -ante assessment requirements (2014-2020 programme period)
 Reply of the Commission
 Reply of the Marguerite Fund
05
 Abbreviations
CEF : Connecting Europe Facility
CF: Cohesion Fund
COCOF : Coordination Committee of the Funds
CPR : Common provisions regulation
EAFRD : European Agricultural Fund for Rural Development
EaSI : European Union Programme for Employment and Social Innovation
EEEF : European Energy Efficiency Fund
EEPR : Programme to aid economic recovery by granting Community financial assistance to projects in the field of 
energy
EFF : European Fisheries Fund
EFSI : European Fund for Strategic Investments
EGESIF : Expert group on European Structural and Investment Funds
EIB: European Investment Bank
EIF: European Investment Fund
EPMF : European Progress Microfinance Facility for employment and social inclusion
ERDF : European Regional Development Fund
ESF : European Social Fund
ESIF : European Structural and Investment Funds
GBER : General Block Exemption Regulation
JEREMIE : Joint European Resources for Micro to Medium Enterprises
LGTT : Loan Guarantee Instrument for Trans -European Transport Network Projects
Marguerite Fund : The 2020 European fund for Energy, Climate Change and Infrastructure
MFF : Multiannual financial framework
06 Abbreviations 
OP: Operational programme
PBI: Project Bond initiative
PFLP : Portfolio First Loss Piece
SICAV : Société d’investissement à capital variable
SICAR : Société d’investissement en capital à risque
SME : Small and medium -sized enterprises
SoA : Statement of assurance
TEN -E/T: Trans -European Networks  – Energy/Transport
TFEU : Treaty on the Functioning of the European Union
07
 Glossary
Capital endowment  refers to the amount of funding paid to a financial instrument (from the EU budget, the 
national budget or private investors) to support its operations. It should reflect its capacity for investment and be 
commensurate to the market that the instrument targets.
CEF Regulation : Regulation (EU) No 1316/2013 of the European Parliament and of the Council of 11 December 2013 
establishing the Connecting Europe Facility, amending Regulation (EU) No 913/2010 and repealing Regulations (EC) 
No 680/2007 and (EC) No 67/20101.
Cohesion policy  in the 2007-2013 programme period covered the European Regional Development Fund and the 
European Social Fund (i.e. the two ‘structural funds’) and the Cohesion Fund. In the 2014-2020 programme period, 
the coordination between Cohesion policy and the other EU policies contributing to regional development, namely 
rural development and fisheries and maritime policy, was improved by the establishment of common provisions for 
the European Structural and Investment Funds.
The Coordination Committee of the Funds (COCOF)  is a standing monitoring committee of the Commission. Its 
function is to discuss issues relating to the implementation of the regulations governing the European Regional 
Development Fund, European Social Fund and Cohesion Fund.
Common Provisions Regulation (CPR)  for the 2014-2020 period: Regulation (EU) No 1303/2013 of the European 
Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional 
Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural 
Development and the European Maritime and Fisheries Fund and laying down general provisions on the European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/20062.
Contingent credit line  is a credit line which could be drawn provided that a previously defined event occurred.
Delegated Regulation : Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on 
the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural 
Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions 
on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European 
Maritime and Fisheries Fund3.
The European Fund for Strategic Investments (EFSI)  aims to mobilise at least 315 billion euros in private and 
public long -term investment across the EU over the 2015-2017 period, and to guarantee the funding of projects in 
subsequent years. The EFSI is established within the European Investment Bank (EIB) as a trust fund with unlimited 
duration to finance riskier parts of projects. A guarantee of up to 16 billion euro, backed by the EU budget, will 
compensate the additional risk taken by the EIB. Member States can contribute additional funds to the EFSI.
1 OJ L 348, 20.12.2013, p. 129.
2 OJ L 347, 20.12.2013, p. 320.
3 OJ L 138, 13.5.2014, p. 5.
08 Glossary 
The Expert group on European Structural and Investment Funds (EGESIF)  was created in the Commission with 
the aim to provide advice to the Commission on issues in relation with the implementation of programmes adopted 
and implemented in accordance with the European Structural and Investment Funds regulations. It is one of the two 
groups replacing Coordination Committee of the Funds (the second one being COESIF - Coordination Committee 
for European Structural and Investment Funds).
The aim of the European Regional Development Fund (ERDF)  is to reinforce economic and social cohesion within 
the European Union by redressing the main regional imbalances through financial support for the creation of 
infrastructure and productive job -creating investments, mainly for businesses.
The aim of the European Social Fund (ESF)  is to strengthen economic and social cohesion within the European 
Union by improving employment and job opportunities, mainly through training measures, encouraging a higher 
level of employment and the creation of more and better jobs.
The European Structural and Investment Funds (ESIF)  cover five separate funds that aim to reduce regional 
imbalances across the Union during the 2014-2020 programme period. The funds include: European Regional 
Development Fund; European Social Fund; Cohesion Fund; European Agricultural Fund for Rural Development; and 
the European Maritime & Fisheries Fund.
Equity investment  means the provision of capital to a firm, invested directly or indirectly in return for total or 
partial ownership of that firm and where the Equity investor may assume some management control of the firm and 
may share the firm’s profits.
A financial intermediary  is an entity acting as an intermediary between the managing authority or the holding 
fund and the final recipients of funds channelled through financial instruments in shared management.
A final recipient  is any legal or natural person, other than a holding fund or financial intermediary, receiving 
funding from a financial instrument.
Financial Regulation : Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 
of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council 
Regulation (EC, Euratom) No 1605/20024.
General Regulation  for the 2007-2013 programme period: Council Regulation (EC) No 1083/2006 of 11 July 2006 
laying down general provisions on the European Regional Development Fund, the European Social Fund and the 
Cohesion Fund and repealing Regulation (EC) No 1260/19995.
4 OJ L 298, 26.10.2012, p. 1.
5 OJ L 210, 31.7.2006, p. 25.
09 Glossary 
A Guarantee  is a commitment by a third party, called the guarantor, to pay the debt of a borrower when the latter 
cannot pay it themselves. The guarantor is liable to cover any shortfall or default on the borrower’s debt under the 
terms and conditions as stipulated in the agreement between the guarantor, the lender and/or the borrower.
Guarantee cap rate  is a percentage of a total loan portfolio value actually covered by the guarantee.
A holding fund  is a fund set up to invest in several venture capital funds, guarantee funds, loan funds, urban 
development funds, funds or other incentive schemes providing loans, guarantees for repayable investments, 
or equivalent instruments, for energy efficiency and use of renewable energy in buildings, including in existing 
housing.
Hurdle rate  is the minimum rate of return on a project or investment required by a manager or investor.
Implementing Regulation : Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for 
the implementation of Council Regulation (EC) No 1083/2006 and of Regulation (EC) No 1080/2006 of the European 
Parliament and of the Council on the European Regional Development Fund6.
Joint European Resources for Micro to Medium Enterprises (JEREMIE)  is an initiative of the Commission 
developed together with the European Investment Fund. It promotes the use of financial engineering instruments 
to improve access to finance for SMEs through the Structural Funds.
Legacy funding  is the part of the capital endowment which reached the final recipients, was subsequently 
returned to the financial instrument and it is thus available for a new round of investments.
A loan  means an agreement which obliges the lender to make available to the borrower a sum of money for the 
agreed amount and time. The borrower is obliged to repay the loan after a certain period. Usually the borrower is 
obliged to pay interest on the loan amount.
A managing authority  is a national, regional or local public authority, or any other public or private body, which 
has been designated by a Member State to manage an operational programme. Its tasks include selecting projects 
to be funded, monitoring how projects are implemented and reporting to the Commission on financial aspects and 
results achieved.
An operational programme (OP)  sets out a Member State’s priorities and specific objectives and how funding 
will be used during a given period, generally seven years, to finance projects. These projects must contribute to 
achieving one or more of a certain number of objectives specified at the level of the OP’s priority axis. Programmes 
have to be in place for each of the funds in the area of Cohesion policy, i.e. the European Regional Development 
Fund; European Social Fund or Cohesion Fund. OPs are prepared by Member States and must be approved by the 
Commission before any payments from the EU budget can be made. They can only be modified during the period 
covered if both parties agree.
Portfolio First Loss Piece (PFLP) : When a portfolio of loans is divided in several risk tranches, the PFLP is the 
tranche which absorbs the first losses of the portfolio (which could be for example the result of loan defaults).
6 OJ L 371, 27.12.2006, p. 1.
10 Glossary 
Priority axis : One of the priorities of the strategy in an Operational Programme comprising a group of operations 
which are related and have specific measurable goals.
A Société d’investissement en capital à risque  (SICAR) is a structure designed for private equity and venture 
capital investments with no investment diversification rules, nor lending or leverage restrictions.
A Société d’investissement à capital variable  (SICAV) is a type of open -ended investment fund for which the 
value of its capital changes based the number of investors and on the value of its underlying investments. Shares in 
the fund are bought and sold based on the fund’s latest net asset value.
Specific funds  are funds which are not holding funds.
State aid  is any form of direct or indirect financial support provided by public authorities to private sector 
undertakings. The Treaty on the Functioning of the European Union (TFEU) generally prohibits state aid within 
the common market unless it is duly justified. The EU State aid rules set out when this support does not distort (or 
does not threaten to distort) competition. The European Commission has the exclusive competence to assess the 
compatibility of state aid granted by Member States with these rules. Procedural decisions and actions taken by the 
European Commission are subject to review by the General Court and the European Court of Justice.
11
 Executive  
summary
I
The European Union is currently facing serious challenges such as the economic and financial recovery and the 
management of the refugee crisis. Therefore, the EU decision makers are seeking ways to maximise the effec -
tiveness and efficiency of the available EU budget which accounts for less than 1 % of the EU’s gross domestic 
product (GDP).
II
Financial instruments are a delivery tool to provide financial support from the EU budget. Financial support 
provided to final recipients through financial instruments may take the form of loans, guarantees and equity 
investments.
III
If properly implemented, financial instruments provide two specific benefits compared to grants:
— the possibility of leveraging the public funds (i.e. mobilising additional private and public funds to complement 
the initial public funding); and
— the revolving nature of their capital endowment (i.e. the use of the same funds in several cycles).
The fact that loans have to be paid back, guarantees have to be released or in the case of equity investments 
returned should in principle also have an impact on the behaviour of final recipients, leading to a better use of pub -
lic funds and reducing the likelihood that the final recipients will become dependent on public support.
IV
During the 2007-2013 programme period financial instruments set up under the European Regional Development 
Fund (ERDF) and the European Social Fund (ESF) were used by 25 out of 28 EU Member States: in total, 972 ERDF and 
53 ESF financial instruments had been set up across the EU. By the end of 2014, around 16 billion euro have been 
paid as contributions from the ERDF and ESF Operational Programmes (OP) to these instruments. This represents 
a significant increase compared to around 1.3 billion in the 2000-2006 programme period and 0.6 billion euro in the 
1994-1999 programme period allocated to such instruments. During the same period, 2007-2013, the overall contri -
bution from the EU budget to the 21 financial instruments managed directly or indirectly by the Commission was 
about 5.5 billion euro. These centrally -managed financial instruments operate across all EU Member States.
12 Executive summary  
V
Through this audit, we examined whether financial instruments were an efficient mechanism to implement the EU 
budget during the 2007-2013 programme period. Our audit was carried out between October 2014 and March 2016 
and focused on the areas of regional, social, transport and energy policy. Our analysis covers all 1 025 ERDF and ESF 
financial instruments set up during the 2007-2013 programme period under shared management, as well as six cen -
trally managed financial instruments in these areas. The data presented in this report is based on the latest available 
information provided by the Commission in September 2015 reflecting the situation at the end of 2014.
VI
Our audit identified a number of significant issues that limited the efficiency of financial instruments as a mecha -
nism to implement the EU budget during the 2007-2013 programme period:
— a significant number of ERDF and ESF financial instruments were oversized and by the end of 2014 continued to 
face significant problems to disburse their capital endowments (on average, around 57 % of all capital endow -
ment paid from the OPs to the financial instruments had been used). A contributing factor to the excessive ini -
tial capital endowments was the Member States’ intention to avoid de -commitments throughout the 2007-2013 
programme period;
— overall, financial instruments in both shared and central management were not successful in attracting private 
capital;
— so far, only a limited number of ERDF and ESF financial instruments have been successful in providing revolving 
financial support; and
— for ERDF and ESF financial instruments, high levels of management costs and fees compared to the actual fi -
nancial support to final recipients which also appear to be significantly higher than those of centrally -managed 
instruments or private -sector investment funds;
VII
At the same time, we also note that improvements were made in the legal framework for the 2014-2020 programme 
period as regards financial instruments based on the expertise gained during the 2007-2013 programme period, but 
certain issues remain.
13 Executive summary  
VIII
In our report, we recommend that
— The Commission’s ex -ante assessment for centrally managed instruments should systematically include an 
analysis of the ‘lessons learnt’ to date;
— The Commission, in addition to the ‘lessons learnt’, should also assess the effect of major socio -economic 
changes on the rationale of the instrument and the corresponding contribution required from the EU budget in 
the context of their respective mid -term reviews for all centrally managed financial instruments;
— The Commission and the Member States should aim at optimizing the size of specific ERDF and ESF funds to 
take, wherever possible, advantage of the significant economies in the cost of operating funds. Additional guid -
ance should be provided to Member States on how to set up such financial instruments within Member States 
or at Union level (which are managed directly or indirectly by the Commission);
— The Commission should provide in the Financial Regulation (and subsequently in sectorial Regulations) a defini -
tion for the leverage of financial instruments applicable across all areas of the EU budget, which clearly distin -
guishes between the leverage of private and national public contributions under the OP and/or of additional 
private or public capital contributions, and takes into account the type of instrument involved;
— For ERDF and ESF financial instruments under the 2007-2013 programme period, the Commission should ensure 
at closure that Member States provide complete and reliable data on private contributions on capital endow -
ments, both through the OPs and in addition to them;
— For ERDF and ESF financial instruments, the Commission should provide additional guidance to Member States 
on how best to apply the provisions on preferential treatment to attract more private capital without allocating 
excessive risks to public contributors to the financial instruments’ endowments;
— For centrally -managed financial instruments, the general risk -sharing principles which may have an impact on 
the EU budget should be defined in the legislation governing the instrument concerned;
— For all financial instruments funded from the EU budget during the 2014-2020 programme period, the Com -
mission should ensure that only structures which are in line with its own recommendations and actions with 
regards to tax arrangements are implemented by Member States, the Commission itself and the EIB group;
— The Commission should take appropriate measures to ensure that Member States maintain the revolving nature 
of the funds during the required eight -year period after the end of the eligibility period for the 2014-2020 pro -
gramme period;
14 Executive summary  
— The Commission should provide guidance in respect of the provisions allowing financial instruments to con -
tinue to be used into the following programme period, in particular for cases where fund managers are selected 
on the basis of public procurement;
— The Commission should ensure that Member States report comprehensive information on management costs 
and fees incurred and paid by March 2017 in view of the upcoming closure of the 2007-2013 programme period;
— The Commission should clarify that the ceilings for management costs and fees need to be applied to the actual 
capital endowment used by the financial instrument, i.e. the contribution from the OP that has been used to 
provide financial support to final recipients;
— As regards the performance -based remuneration of fund managers in the 2014-2020 programme period the 
Commission should make a legislative proposal aiming at a revision of the existing provisions in the CPR to 
strengthen the incentive effect of these arrangements;
— Member States’ managing authorities should make extensive use of the existing performance -based elements 
of the remuneration for fund managers when negotiating funding agreements;
— The Commission should carry out a comparative analysis of the implementation costs of grants and repayable 
financial support, mainly through financial instruments, for the 2014–2020 programme period with a view to 
establishing their actual levels. Such information would be particularly relevant for preparing legislative propos -
als for the post-2020 period and determining an adequate level of technical assistance.
15
 Introduction
What are financial instruments?
01 
The European Union is currently facing serious challenges such as the economic 
and financial recovery and the management of the refugee crisis. Therefore, the 
EU decision makers are seeking ways to maximise the effectiveness and efficien -
cy of the available EU budget which accounts for less than 1 % of the EU’s gross 
domestic product (GDP).
Financial instruments7 are a delivery tool to provide financial support from the EU 
budget through loans, guarantees and equity (or quasi -equity) investments for the 
implementation of projects (see Table 1 )8.
Annex I  provides an illustration of how the different types of financial instruments 
operate.7 During the 2007-2013 
programme period, the 
legislation governing the 
ERDF and the ESF made 
reference to ‘financial 
engineering instruments’. In 
this report, the terms ‘financial 
engineering instrument’ and 
‘financial instrument’ are used 
synonymously.
8 According to International 
Accounting Standard 32, 
a financial instrument is ’[…]
any contract that gives rise to 
a financial asset of one entity 
and a financial liability or 
equity instrument of another 
entity.Table 1Main types of financial instruments supported by the EU budget
Source:  European Commission, EIB, ‘FI Compass – Financial Instrument products. Loans, guarantees, equity and quasi -equity’, p. 3.Loan
‘Agreement which obliges the lender to make available to the borrower an 
agreed sum of money for an agreed period of time and under which the borrower is obliged to repay that amount within the agreed time’ . Under a /f_inancial instrument, a loan can help where banks are unwilling to lend on terms acceptable to the borrower. They can oﬀer lower interest rates, longer repayment periods or have lower collateral requirements.
Equity
‘Provision of capital to a /f_irm, invested directly or indirectly in return for 
total or partial ownership of that /f_irm and where the equity investor may assume some management control of the /f_irm and may share the /f_irm’s pro/f_its’ . The /f_inancial return depends on the growth and pro/f_itability of the business. It is earned through dividends and on the sale of the shares to another investor (‘exit’), or through an initial public oﬀering (IPO).Guarantee
‘Written commitment to assume responsibility for all or part of a third 
party’s debt or obligation or for the successful performance by that third party of its obligations if an event occurs which triggers such guarantee, such as a loan default*’ .Guarantees normally cover /f_inancial operations such as loans.
* European Commission (2015). Guidance for Member States on Financial 
 Instruments – Glossary.
Quasi-equity
‘A type of /f_inancing that ranks between equity and debt, having a higher 
risk than senior debt and a lower risk than common equity.Quasi equity investments can be structured as debt, typically unsecured and subordinated and in some cases convertible into equity, or as preferred equity’ .The risk return pro/f_ile typically falls between debt and equity in company’s capital structure.
16 Introduction 
02 
Compared to grants (which are the traditional way of providing funding from 
the EU budget), financial instruments, if properly implemented, can provide two 
specific benefits:
 ο the possibility of leveraging the public funds (i.e. mobilising additional pri -
vate and public funds to complement the initial public funding); and
 ο the revolving nature of their capital endowment (i.e. the use of the same 
funds in several cycles) allows each euro of funding through financial instru -
ments in principle to be used more than once.
03 
The fact that loans have to be paid back, guarantees have to be released or in 
the case of equity investments returned should in principle also have an impact 
on the behaviour of final recipients, leading to a better use of public funds and 
reducing the likelihood that the final recipients will become dependent on public 
support.
04 
A common definition for financial instruments was first provided in the revision 
of the Financial Regulation in 2012; this definition has since been applied in the 
sectorial regulations for the 2014-2020 programme period (see Annex II ).
Use of financial instruments in implementing the EU 
budget since 2007
Use of financial instruments funded from the EU budget
05 
The EU budget can be implemented through shared management (i.e. in coop -
eration with Member States such as in Cohesion policy), through direct manage -
ment (i.e. by its departments or through executive agencies) or through indirect 
management (i.e. by entrusting budget implementation tasks to third countries 
or to different entities)9. The latter two are collectively referred to as centralised 
management.9 Article 58 of the Financial 
Regulation.
17 Introduction 
06 
Financial instruments are used in different parts of the EU budget:
 ο shared management financial instruments in the area of cohesion are set 
up mainly under the European Regional Development Fund (ERDF), and to 
a lesser extent under the European Social Fund (ESF). Since the 2014-2020 
programme period, financial instruments can also be used for the Cohesion 
Fund (CF). Each instrument has to be implemented within the framework of 
an operational programme (OP) which is decided by the managing authori -
ties responsible for that programme, together with its size and design10. 
Financial instruments are also used under the European Agricultural Fund for 
Rural Development (EAFRD) and the European Fisheries Fund (EFF).
 ο centrally -managed financial instruments are financed from various budget -
ary areas such as research, enterprise and industry, education and culture, 
etc. For these instruments the Commission, together with its partners, is 
directly involved in their design and in developing their investment strategy 
and endowment. The decision to set up these instruments is taken by the 
budgetary authorities (i.e. the European Parliament and the Council) on the 
basis of a Commission proposal.
Rules for selecting the fund manager of financial instruments
07 
In shared management, financial instruments can be set up as standalone 
funds or as sub -funds of a holding fund, later referred to as specific funds 
(see  Figure 1 ). A holding fund, sometimes also referred to as a ‘fund of funds’, is 
a fund set up with the objective of managing different types of instruments. It 
also allows making contributions from one or more OPs to one or several finan -
cial instruments.
08 
Financial instruments are generally managed by private or public -sector banks or 
other financial intermediaries rather than public administrations. For ERDF and 
ESF instruments, the selection of a fund manager has to comply with EU and na -
tional public procurement rules if the management of the fund is tendered out. 
In situations where public procurement rules do not apply (i.e. in case the fund 
management contract is not a public service contract), the managing authority 
can designate the fund manager subject to complying with the relevant State aid 
rules (see paragraphs 10 to 12).
09 
The EIB group (which comprises the European Investment Fund (EIF) and the Eu -
ropean Investment Bank (EIB)), benefit from a special status since they can be ap -
pointed as fund managers without a public procurement procedure11. They also 
manage most of the centrally -managed instruments for which the fund manager 
is designated in the legislative proposal.10 European Parliament, 
Directorate -General for 
Internal Policies, ‘Financial 
Engineering Instruments in 
Cohesion policy - Study’, 2013, 
p. 46.
11 Article 44(c) of the General 
Regulation.
18 Introduction 
Source:  ECA.Figure 1Simplified overview of a holding fund structure for ERDF or ESF financial 
instruments
Additional public or private
contribution to the capital 
endowment
Contribution to the capital endowment  from OP (EU and national public and private funds)
Contribution to the capital endowment from HF
Financial support throughloans, guarantees, equity stakesRepayment of /f_inancial supportRestitution at winding down of sub-fund, plus dividends/interest payments, etc during implementationRestitution of unused capitalendowment to OP at closure
Final recipientFinancial intermediaryFinancial intermediaryManaging authority
Sub fund (’beneﬁciary’)Holding fund (HF)ERDF or ESF operational programme
(OP)
19 Introduction 
Financial instruments and the EU State aid rules
10 
EU funds under shared management are considered part of the national or 
regional budgets and as such are potentially subject to State aid control. When 
implementing the financial instrument, managing authorities must therefore en -
sure compliance with State aid rules12. The relevant State aid rules are contained 
in the new General Block Exemption Regulation (GBER)13 and the Commission’s 
new Guidelines for risk finance14 which both came into effect in July 2014.
11 
For each ERDF and ESF financial instrument, the managing authority has to pro -
vide evidence that it is either15:
 ο conforming with normal market practice (which in practice means that the 
management of the fund has been selected following an open, transparent 
and non -discriminatory process); or
 ο covered by the ‘de minimis’ Regulation16; or
 ο an exempted aid, because it falls under the GBER or falls under a notified aid 
scheme in accordance with the Commission’s Guidelines for risk finance.
12 
Centrally -managed financial instruments (which do not use national or regional 
resources, and thus are not part of Member State budgets) fall outside of the 
scope of the EU’s State aid rules, because the main condition of Article 107 TFEU 
‘[…] granted by a Member State or through state resources’ is not fulfilled.
Background information on the number of financial instruments 
and their capital endowment since 2007
2007-2013 programme period
13 
During the 2007-2013 programme period financial instruments were used by 25 
out of 28 EU Member States. Only Croatia, Ireland and Luxembourg did not use 
this funding mechanism17. Annex III and IV give an overview of the ERDF and ESF 
instruments per Member State.12 Article 37(1) of the Common 
Provision Regulation (CPR): 
‘When applying this Title (Title 
IV, Financial Instruments), the 
managing authorities, the 
bodies implementing funds of 
funds, and the bodies 
implementing financial 
instruments shall comply with 
applicable law, in particular on 
State aid and public 
procurement.’
13 Commission Regulation (EU) 
No 651/2014 of 17 June 2014 
declaring certain categories of 
aid compatible with the 
internal market in application 
of Articles 107 and 108 of the 
Treaty (OJ L 187, 26.6.2014, 
p. 1).
14 European Commission, 
‘Guidelines on State aid to 
promote risk finance 
investments’ (OJ C19, 
22.1.2014, p. 4).
15 Article 37 of the CPR.
16 Council Regulation (EU) 
2015/1588 of 13 July 2015 on 
the application of Articles 107 
and 108 of the Treaty on the 
Functioning of the European 
Union (TFEU) to certain 
categories of horizontal State 
aid (codification) (OJ L 248, 
24.9.2015, p. 1).
17 Nevertheless 
centrally -managed financial 
instruments have been set -up 
in Luxembourg. Moreover 
they have provided EU 
financing to projects in Ireland 
and Croatia.
20 Introduction Table 2Implementation of ERDF and ESF financial instruments (2007-2013)  
as of 31 December 2014
Amounts committed in funding 
agreements to financial instruments  
(amounts in million euro)Amounts paid from OPs to financial 
instruments  
(amounts in million euro)Amounts paid from financial instru ‑
ments to final recipients  
(amounts in million euro)
OP1EU EU/OP % OP EU EU/OP % OP EU EU/OP %
ERDF17 06110 946n.a.15 189 10 452 69 % 8 871 5 594 63 %
ESF 472 829 462 56 % 318 207 65 %
Total 17 061 11 418 67 % 16 018 10 914 68 % 9 189 5 801 63 %
Source:  ECA, based on the most recent Commission data as of September 20152.
1  For the OP amounts committed no separation between ERDF and ESF financial instruments is presented in the Commission’s implementation 
report.
2  EGESIF_15-0027-00, Summary of data on the progress made in financing and implementing financial engineering instruments reported by 
the managing authorities in accordance with Article 67(2)(j) of Council Regulation (EC) No 1083/2006, Programme period 2007-2013, Situation 
as at 31 December 2014, pp. 21 and 54.14 
As shown in Table 2 , by the end of 2014, around 15.2 billion euro have been 
paid as ERDF OPs contributions and 0.8 billion euro through ESF OPs contribu -
tions. This represents a significant increase compared to around 1.3 billion in the 
2000-2006 programme period and 0.6 billion euro in the 1994-1999 programme 
period18.
15 
During the 2007-2013 programme period, the EU contribution paid to financial 
instruments corresponds to 5 % of the total EU funding for the ERDF and 1 % of 
the total EU funding for the ESF for the entire period. The EU budget accounts for 
69 % and 56 % of the total contribution to the capital endowments of the ERDF 
and ESF 2007-2013 financial instruments, respectively (see Table 2 ). In terms of 
financial support to final recipient, the EU contribution accounts for 63 % (ERDF) 
and 65 % (ESF).18 European Commission, EIB, 
‘FI Compass: Financial 
Instruments - A sustainable 
way of achieving EU economic 
and social objectives’, p. 3.
21 Introduction Table 316 
According to the latest data reported by the Commission, 972 ERDF financial 
instruments and 53 ESF instruments had been set up across the EU. Out of these 
903 are specific ERDF funds and 49 are ESF funds (see Table 3 ). 31 of the ERDF 
instruments are managed by the EIB group (see paragraph 9).
17 
In addition, there were 14 instruments funded through the EAFRD and 6 instru -
ments funded by the EFF. For the 2007-2013 programme period, these two funds 
did not require Member States to report on financial instruments, so there is no 
official data in this respect19. However, based on data compiled by the Court, at 
the end of 2013, the capital endowment of funds co -financed by EAFRD can be 
estimated at around 700 million euro and around 72 million euro for EFF (in both 
cases including the national contributions to the programmes).19 See Special Report No 5/2015 
‘Are financial instruments 
a successful and promising 
tool in the rural development 
area?’, paragraph 82  
(http://eca.europa.eu ).
ERDF and ESF financial instruments per type of specific fund (2007-2013)  
as of 31 December 2014
ERDF ESF
Number of 
fundsEndowment  
(in million euro)Number of 
fundsEndowment  
(in million euro)
Specific funds  out of which:
 - loan instruments 371 5 637 31 417
 - guarantee instruments 171 2 215 7 196
 - equity instruments 162 2 006 1 70
 -  mixed instruments (combination of loans, 
guarantees, equity or other instruments)110 2 496 5 59
 - other instruments 6 65 0 0
 - type not reported 83 770 5 74
Total 903 13 189 49 816
Source: ECA, based on the most recent Commission data as of September 2015.
22 Introduction 
18 
For the centrally -managed instruments, the EU’s overall contribution allocated to 
2007-2013 instruments in all budgetary areas was about 5.5 billion euro20 spread 
over 21 financial instruments21. These instruments operate across all EU Member 
States.
2014-2020 programme period
19 
Within the EU budget, the European Structural and Investment Funds (ESIF) are 
the main source of funding for capital investment and infrastructure, with a total 
budget of around 450 billion euro for the 2014-2020 programme period.
20 
Since 2011 the European Parliament and European Council has encouraged an in -
creased use of financial instruments22. This political commitment is also reflected 
in the Common Provisions Regulation (CPR) which provides for an extended use 
of financial instruments to deliver all five ESIF (i.e. also the Cohesion fund) and all 
thematic objectives for the programmes23.
21 
At the end of 2015 the Commission estimates that, for the 2014-2020 programme 
period as a whole, approximately 21 billion euro will be allocated to financial in -
struments from the five ESIF24. Since the average EU contribution to the total en -
dowments of such instruments for the 2007-2013 programme period was around 
68 % by the end of 201425, we estimate that the 21 billion euro amount coming 
from the EU budget will probably correspond to approximately 31 billion euro in 
total allocations (not taking account of additional national and private financing 
that may be provided to the funds outside the ESIF programmes).
22 
In comparison, the European Fund for Strategic Investments (EFSI) aims to mobi -
lise at least 315 billion euros in private and public long -term investment across 
the EU over the period 2015 to 2017 and the funding of projects in subsequent 
years.20 COM(2015) 565 final of 
13 November 2015 ‘Report 
from the Commission to the 
European Parliament and the 
Council on financial 
instruments supported by the 
general budget according to 
Article 140.8 of the Financial 
Regulation as at 
31 December 2014’,p. 4.
21 SWD(2015) 206 final of 
13 November  2015 ‘Activities 
relating to financial 
instruments’,pp. 6-12.
22 European Parliament, 
5th Cohesion Report and 
strategy for the post-2013 
Cohesion policy; EUCO 169/13, 
Conclusions of the European 
Council, 25 October 2013, 
p. 10.
23 Regulation (EU) No 1303/2013.
24 European Parliament, 
Commission, The 2014 
budgetary discharge to the 
Commission – Answers to the 
European Parliament’s written 
questions to Commissioner 
Crețu, hearing on 
7 December 2015, p. 34.
25 EGESIF_15-0027-00, Summary 
of data on the progress made 
in financing and 
implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programme period 2007-2013, 
Situation as at 
31 December 2014, pp. 21 
and 54.
23
 Audit scope  
and approach
23 
Through this audit, the Court examined whether financial instruments were an 
efficient mechanism to implement the EU budget during the 2007-2013 pro -
gramme period. In that context our report addresses the following main audit 
questions:
 ο were financial instruments appropriately sized in view of market needs?
 ο did financial instruments succeed in attracting private capital?
 ο were financial instruments providing revolving financial support?
 ο did financial instruments prove to be a cost -efficient method to implement 
the EU budget?
For each of these questions, we examined which lessons could be learnt from the 
main shortcomings identified. We also assessed to what extent they had been ad -
dressed in the regulations applicable to the 2014-2020 programme period.
24 
Our audit covers the period from 2009 to 2015. We focused on the areas of 
regional, social, transport and energy policy. In particular, our review covers all 
ERDF and ESF financial instruments, as well as six centrally -managed financial 
instruments in the areas of social, transport and energy policy. Several issues 
identified in this report may, however, also affect other areas of the EU budget 
where such instruments are used.
25 
The audit work consisted of the following elements:
 ο a review of various Commission, EIB, EIF and third -party analyses and 
publications;
 ο the analysis of the most recent annual monitoring report published by the 
Commission in September 2015, covering all 1 025 ERDF and ESF financial 
instruments. This analysis, based on data reported by the Commission in 
November 2015, was also made for six26 of the 21 instruments under central 
management (accounting for an EU contribution of 789 million euro, or 14 % 
of the total amount of all 21 instruments)27;
 ο an examination of 10 case studies of financial instruments implemented in 
the area of the EU budget covered by this report28, including a field visit to 
one Member State (Slovakia);26 One of these six financial 
instruments, the 2020 
European Fund for Energy, 
Climate Change and 
Infrastructure (‘Marguerite 
Fund’), is managed under the 
direct management mode 
(see paragraph 6).
27 SWD(2015) 206 final.  
European Commission, 
‘Summary of data on the 
progress made in financing 
and implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programme period 2007-2013, 
Situation as at 
31 December 2014’, Brussels, 
September 2015.
28 Loan Guarantee Instrument 
for Trans -European Transport 
Network Projects (LGTT), 
Project Bond Initiative (PBI), 
Marguerite Fund, European 
Energy Efficiency Fund (EEEF), 
European Progress 
Microfinance Facility (EPMF), 
JESSICA Greece, JEREMIE 
Slovakia, Entrepreneurship 
Fund Greece, Venture Finance 
Hungary (JEREMIE Hungary), 
JEREMIE Sicily.
24 Audit scope and approach  
 ο a follow -up review of 45 financial instruments audited in compliance audits 
carried out by the Court since 2009 (whose results were previously reported 
in our Annual Reports) and 54 financial instruments examined by our perfor -
mance audits since 2012;
 ο a survey of 85 managing authorities and fund managers involved in the 
implementation of financial instruments. Out of the 85 entities surveyed, 82 
relate to ERDF and ESF instruments under shared management and three 
to centralised management. There were 66 replies for shared management 
instruments and two for centrally -managed ones; and
 ο interviews with more than 40 officials from the Commission, the EIB and the 
EIF and more than 10 experts from organisations with expertise in the field29.
26 
The Court has already carried out numerous examinations of the use of finan -
cial instruments, and has reported since 2011 on the findings in several Annual 
Reports30 and Special Reports31. Moreover, the Commission itself, but also the EIB, 
the EIF, the European Parliament, national audit bodies and private -sector fund 
managers have identified a number of issues in recent years which collectively 
limited the effectiveness of financial instruments during the 2007-2013 pro -
gramme period. This report builds also on these assessments.29 Caisse des Dépôts, 
Kreditanstalt für 
Wiederaufbau (KfW) and 
OECD.
30 Paragraphs 4.30 to 
4.36 of 2010 Annual Report 
(OJ C 326, 10.11.2011); 
paragraph 5.34 of 2011 Annual 
Report (OJ C 344, 12.11.2012); 
paragraph 10.31 of 2012 
Annual Report (OJ C 331, 
14.11.2013); paragraphs 5.33 to 
5.36 of 2013 Annual Report 
(OJ C 398, 12.11.2014); 
paragraphs 6.46 to 
6.52 of 2014 Annual Report 
(OJ C 373, 10.11.2015).
31 Special Report No 4/2011 
‘Audit of the SME Guarantee 
Facility’; 2/2012 ‘Financial 
instruments for SMEs 
co-financed by the European 
Regional Development Fund’; 
Special Report No 5/2015 
‘Are financial instruments 
a successful and promising 
tool in the rural development 
area?’; Special Report 
No 8/2015 ‘Is EU financial 
support adequately 
addressing the needs of 
micro -entrepreneurs?’  
(http://eca.europa.eu ).
25
 Observations
32 See Annual Reports 
concerning the financial years 
2013 (paragraph 5.35) and 
2014 (paragraph 6.49); Special 
Report No 8/2015 
(paragraph 67).
33 European Commission, 
‘Summary of data on the 
progress made in financing 
and implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programme period 2007-2013, 
Situation as at 
31 December 2014’, p. 22.Were financial instruments appropriately sized in view 
of market needs?
27 
Financial instruments are not projects themselves but a delivery tool for funding 
from the EU budget. In Cohesion policy, the decision of a managing authority 
to deliver OP support through a financial instrument is not so much a decision 
whether to invest OP resources or not (this is already predefined in the OP) but 
rather how to invest: through a one -off grant or support through a financial 
instrument providing a repayable financial support.
28 
We have therefore examined to what extent the 1 025 ERDF and ESF instruments 
have used their capital endowment to provide different forms of financial sup -
port to final recipients and analysed several factors contributing to the instru -
ments’ low disbursement rates to final recipients during the 2007-2013 pro -
gramme period: the level of the initial capital endowments of the instruments, 
whether market needs were properly addressed by the Managing Authorities and 
specific difficulties faced by regional financial instruments. We also analysed how 
similar aspects were dealt with in the case of centrally -managed instruments.
Excessive capital endowment led to low disbursement rates, 
avoidance of de -commitment and potential reimbursement 
at closure
29 
The financial instruments disbursement rates have already been examined in 
several of the Court’s Annual and Special Reports32. In this report we analyse the 
latest available information reported by the Member States to the Commission as 
at 31 December 2014, published in September 2015. Our analysis of these most 
recent data shows that a significant number of them continue to face difficulties 
to use their capital endowments as planned.
30 
Table 4  shows the disbursement rates for each of the 25 Member States which 
implemented financial instruments during the 2007-2013 programme period33. 
The percentages presented are averages for all ERDF and ESF instruments in the 
Member State concerned. A significant number of financial instruments were 
established only in 2012 or afterwards.
26 Observations 
Implementation of ERDF and ESF financial instruments per Member State - as of 
31 December  2014
Member StateOP contri ‑
butions 
committed  
(in million 
euro)out of 
which EU 
contribution 
%OP contributions  
paid to  
financial instruments  
(in million euro)OP contributions  
paid to  
final recipients  
(in million euro)
Amount % of commitment amount% of 
payment% of commitment
Estonia 200 125 63 % 200 100 % 191 95 % 95 %
Poland 1 196 1 008 84 % 1 190 100 % 1 104 93 % 92 %
Slovenia 124 105 85 % 124 100 % 112 90 % 90 %
Hungary 916 778 85 % 897 98 % 751 84 % 82 %
Germany 1 629 1 025 63 % 1 554 95 % 1 265 81 % 78 %
Malta 12 10 83 % 12 100 % 10 81 % 81 %
Portugal 854 531 62 % 477 56 % 386 81 % 45 %
Czech Republic 278 171 62 % 278 100 % 223 80 % 80 %
Denmark 74 35 47 % 51 68 % 40 80 % 55 %
Romania 150 129 86 % 150 100 % 118 78 % 78 %
Sweden 161 74 46 % 157 97 % 121 77 % 75 %
Lithuania 507 409 81 % 444 87 % 331 75 % 65 %
France 460 240 52 % 419 91 % 310 74 % 67 %
Belgium 396 159 40 % 396 100 % 288 73 % 73 %
Finland 75 35 47 % 75 100 % 51 68 % 68 %
Latvia 216 160 74 % 216 100 % 145 67 % 67 %
United Kingdom 1 632 710 44 % 1 483 91 % 983 66 % 60 %
Cyprus 20 17 85 % 20 100 % 13 63 % 63 %
Bulgaria 388 330 85 % 388 100 % 228 59 % 59 %
Austria 27 10 37 % 27 100 % 13 49 % 49 %
Netherlands 75 20 27 % 67 90 % 32 47 % 42 %
Greece 1 789 1 477 83 % 1 589 89 % 695 44 % 39 %
Italy 4 538 2 809 62 % 4 460 98 % 1 427 32 % 31 %
Spain 1 233 954 77 % 1 234 100 % 330 27 % 27 %
Slovakia 112 95 85 % 112 100 % 23 21 % 21 %
Total 17 061 11 418 67 % 16 018 94 % 9 188 57 % 54 %
Note: Croatia, Ireland and Luxembourg are not listed, as they had no ERDF and ESF financial instruments during the 2007-2013 programme period.
Source:  ECA; based on 2015 Commission data.Table 4
27 Observations 
31 
By the end of 2014, with only one year before the end of the initial eligibility 
period (31 December 2015), only 57 % of ERDF and ESF instruments’ endowments 
had been disbursed to final recipients. Disbursements were low in particular for 
financial instruments in Slovakia (21 %), Spain (27 %) and Italy (32 %). Moreover, 
a further three Member States (Greece, Netherlands, Austria) had disbursed less 
than half of their initial endowments.
32 
Overall, 177 of the 972 ERDF financial instruments (18 %) and 16 of the 53 ESF 
financial instruments (30 %) had disbursed less than a third of their endowment 
by the end of 2014. For these 177 instruments, their total unused endowment 
amounts to 4.2 billion euro as at 31 December 2014. For these instruments, we 
consider it to be unlikely that the available funding will be used once, even 
though the Commission has extended the eligibility period until March 2017 (see 
paragraph 43). The final disbursement rate of the financial instruments can, how -
ever, only be assessed at the end of their life cycle, especially as regards those set 
up towards the end of the programme period.
Low disbursement rates due to excessive initial endowment of 
financial instruments
33 
During our interviews, it was often argued that the financial and economic 
crisis had had a major effect, and had negatively affected disbursement rates to 
final recipients. However, given the size of the problem, we consider that this is 
neither the only nor the main factor behind low disbursement rates. In fact, low 
disbursement rates are primarily due to an excessive endowment of the financial 
instruments in the first place.
34 
Our analysis of the data published by the Commission in 2015 showed that 
there is a positive correlation between ERDF and ESF absorption rates at Mem -
ber State level and financial instruments’ disbursement rates to final recipients 
(see  Figure 2a  and Figure 2b ). This analysis illustrates that those Member States 
which already face difficulties in absorbing the ERDF and ESF budget often have 
even more significant problems to disburse the capital endowment allocated to 
financial instruments.
28 Observations Figure 2aComparison between the ERDF overall absorption at Member State level and the 
financial instruments’ disbursement rate at the level of final recipientsFinancial instruments’ disbursement rates
to ﬁnal recipients - OP amounts
ERDF absorption at Member State levelAverage of ERDF absorption
at Member State level
(77 %)Trend line
Average of /f_inancial instruments’
disbursment rates to /f_inal recipients
58 %
100 % 95 % 90 % 85 % 80 % 75 % 70 % 65 % 60 % 55 % 50 %100 %
80 %
60 %
40 %
20 %
0 %United KingdomSweden
Finland
SlovakiaSlovenia
RomaniaPortugalPoland
AustriaNetherlandsMaltaHungary
Lithuania
Latvia Cyprus
ItalyFrance
SpainGreeceEstonia
Germany
DenmarkCzech Republic
BulgariaBelgium
Note:  The size of the circles corresponds to the total contribution from the OPs to financial instruments (see Table 4 ). Correlation coefficient: 0.5.
Source: ECA, based on 2015 Commission data.
29 Observations Figure 2bComparison between the ESF overall absorption at Member State level and the 
financial instruments’ disbursement rate at the level of final recipientsFinancial instruments’ disbursement ratesto ﬁnal recipients - OP amounts
ESF absorption at Member State levelAverage of ESF absorption at
Member State level
79 %Average of /f_inancial instruments’
disbursment rates to /f_inal recipients
38 %Trend line
100 % 95 % 90 % 85 % 80 % 75 % 70 %100 %
80 %
60 %
40 %
20 %
0 %PolandLithuaniaLatvia
Germany
ItalyEstonia
Denmark
Note:  The size of the circles corresponds to the total contribution from the OPs to financial instruments (see Table 4 ). Correlation coefficient: 0.9.
Source:  ECA, based on 2015 Commission data.
30 Observations 
Increase in capital endowments of financial instruments in 21 out 
of 25 Member States
35 
In 21 out of 25 Member States, we also found that the initial endowment had 
been increased since 2011. Overall, around 7.1 billion euro of additional funding 
from the 2007-2013 ERDF and ESF OPs had been allocated to financial instru -
ments since then.
36 
Most of these increases in the instruments’ capital endowment were made in 
Italy (2.5 billion euro), Spain (0.9 billion euro), Greece (0.9 billion euro), the United 
Kingdom (0.7 billion euro) and Hungary (0.5 billion euro). These five Member 
States alone account for 77 % of the total increase of capital endowment dur -
ing the entire period. Four of these five Member States (Italy, Spain, the United 
Kingdom and Hungary) have a below average ERDF absorption rate at the end of 
2014 (see Figure 2a ).
Provisions in the legal base for the 2007-2013 programme period 
created incentives for Member States to use financial instruments 
to circumvent the risk of de -commitment of EU funds
37 
The legal base for the 2007-2013 programme period made it possible for Member 
States to absorb the EU contribution to the ERDF and ESF OPs upfront through 
the use of financial instruments. These upfront contributions could be used by 
Member States as a mechanism to avoid the risk of de -commitment (‘n+2’ rule)34 
(see Box 1 ).34 The automatic 
de-commitment rule  
(n + 2 rule) helps to clear 
outstanding commitments. 
This rule requires automatic 
de-commitment of all funds 
not spent or not covered by 
a payment request by the end 
of the second year following 
the year of allocation.
Reimbursement the ERDF and ESF contribution to setting up the financial 
instruments as eligible cost during the 2007-2013 programme period
According to the General Regulation, the only condition for certifying amounts in the 2007-2013 programme 
period related to financial instruments as eligible expenditure under the OP was that the amounts concerned 
must have been used to establish or contribute to funds or holding funds. On that basis, ERDF and ESF con -
tributions are reimbursed from the EU budget to Member States and considered as temporarily absorbed. In 
other words, there was no requirement to link the contribution from the OP to the capital endowment of an 
instrument to final recipients. Interest generated by the capital also contributes to the instruments’ endow -
ment. It is only at the closure of the OP that the Commission will determine the total eligible expenditure on 
the basis of the actual amounts of loans, guarantees and equity investments provided to final recipients.Box 1
31 Observations 
38 
This arrangement has created an incentive for Member States to ‘park’ at least 
part of the EU’s contribution to the OPs in the accounts of the banks and financial 
intermediaries managing the funds, without it being actually used for its intend -
ed purposes (see Box 2 ).
Case study  – Excessive endowment of a financial instrument in Italy (Fondo 
regionale di cogaranzia e controgaranzia per le PMI operanti in Sardegna)
In December 2009, the regional government decided to set up a guarantee fund with a capital endowment of 
233 million euro. This corresponded to 14 % of the total budget of the OP for the entire programme period.
The total endowment was intended to guarantee loans of around 2.3 billion euro.
Our audit in 2010 of this Italian guarantee fund found that there had been no market needs analysis which 
justified such an allocation. Moreover, several other mandatory elements (such as the investment strategy and 
planning, the description of an exit policy and the winding -up provisions) were not in place when the funding 
agreement was signed by the regional government and the regional agency implementing the fund.
Only in June 2010 was a business plan finally prepared and approved; however, it was based on unrealistic 
assumptions.
Our audit also showed that a significant part of the OP’s funding committed by the managing authorities in 
2007 had not been spent by this point. Allocating a high endowment to the financial instrument made it pos -
sible to circumvent the n+2 rule in place at the time, according to which unused funds must be de -committed 
after 2 years.
By the end of 2014, the managing authority reported that 45 million euro out of a total endowment of 233 mil -
lion euro had been provided as guarantees to final recipients. This gives a disbursement rate of 19 %.
The guarantees made correspond to loans of 460 million euro.Box 2
32 Observations 
39 
On the other hand, we found one case where the endowment of financial instru -
ments had been reduced to take into account market conditions and projected 
disbursement rates, which is considered good practice. (see Box 3 ).
Case study – Downward adjustment of the JEREMIE fund’s endowment in line with 
changing market needs in Lithuania
A JEREMIE (Joint European Resources for Micro to Medium Enterprises) instrument was set up in Lithuania in 
2008, and its endowment increased progressively to 210 million euro by the end of 2009. The endowment had 
been based on an assessment of market needs carried out in September 2007.
However, at a later stage, after analysing the effects of the economic crisis on the Lithuanian economy, the 
managing authority decided to reduce the fund’s endowment. By 2012 the fund’s endowment was reduced to 
170 million euro and the money returned to the OP .
Out of the reduced fund capital of 170 million euro, 121 million euro had been disbursed by the end of 2014, 
resulting in a disbursement rate for the JEREMIE fund of 71 %, instead of 58 % which would have been the 
disbursement rate in the absence of the capital reduction. Without this change, the overall disbursement rate 
for all Lithuanian financial instruments would have been 68 % rather than 75 % (see Table 4 ).Box 3
40 
Excessive endowments of financial instruments have a negative impact on man -
agement costs and fees, where these are determined on the basis of the capital 
paid into the fund rather than the fund manager’s performance. Oversizing the 
endowment provides a means of generating income for the fund managers with -
out them actually providing the services expected (see paragraphs 116 to 125).
Particularly low disbursement rates for financial instruments 
managed by the EIB group
41 
Our analysis also showed that the average disbursement rate for the 31 ERDF 
and ESF instruments manged by the EIB and the EIF was particularly low: 43 % as 
compared to 60 % for the instruments managed by other fund managers.
33 Observations 
Extension of eligibility period for financial instruments in shared 
management until March 2017 through Commission guidance only
42 
The EU contribution corresponding to the unused endowments (i.e. funds not 
paid or guaranteed to final recipients by the end of the eligibility period) must be 
returned to the EU budget at closure. Given the low average disbursement rates, 
the Court stated already in its 2014 Annual Report that financial instruments 
could not all be expected to have used the available funds in full by the end of 
201535.
43 
In April 2015, the Commission published revised guidelines on closure which 
extended the eligibility period for financial instrument -related expenditure from 
31 December 2015 until 31 March 201736. The general eligibility period is however 
established by Article 56(1) of the General Regulation. In its 2014 Annual Report, 
the Court considered that a legal provision can only be modified by legislation 
of equal or superior legal value so that the hierarchy of norms is duly respected37. 
Thus it was concluded that a Commission guideline could not alter rules adopted 
by the legislative procedure of the European Parliament and the Council.
44 
Based on our analysis, and making a linear projection of the disbursement in 
previous years, we estimate that more than 5.0 billion euro of funds allocated to 
ERDF and ESF instruments would remain unused by the end of 2015 without any 
extension of the eligibility period. 3.9 billion euro of these are contributions from 
the EU budget to the OPs. Actual figures of the amounts used between January 
2015 and March 2017 will be available only by the end of 2017, at the earliest.
Addressed in the 2014-2020 programme period?
45 
Because the contributions from the OPs are now made through staggered pay -
ments, financial instruments should be more appropriately sized, resulting in 
improved disbursement rates (see Box 4 ).35 Paragraph 6.50 of 2014 Annual 
Report.
36 C(2015) 2771 final of 
30 April 2015 ‘Annex to the 
Commission Decision 
amending Decision C(2013) 
1573 on the approval of the 
guidelines on the closure of 
operational programmes 
adopted for assistance from 
the European Regional 
Development Fund, the 
European Social Fund and the 
Cohesion Fund (2007-2013)’, 
p. 7.
37 Paragraph 6.52 of 2014 Annual 
Report.
34 Observations 
Market needs were not always properly assessed by 
managing authorities before funds were allocated to ERDF 
and ESF financial instruments
46 
We also examined whether market needs had been properly assessed before set -
ting up of financial instruments and allocating funds to it. The market needs or 
ex-ante assessments should make it possible to understand the needs of the mar -
ket and what type of support (loans, guarantees or equity investment) is most ap -
propriate to address the identified market gaps. They should also determine the 
funding needs, and ultimately assess whether the intended policy objective can 
be achieved best by a financial instrument. This has also been highlighted in our 
previous Special Reports and in other studies as a pre -condition for the success 
of such instruments38.
Assessment of market needs was not mandatory for financial 
instruments during the 2007-2013 programme period
47 
During the 2007-2013 programme period, the only explicit regulatory reference 
to market needs assessments (also referred to as a ‘gap assessment’) relates to 
holding funds39.Arrangements for reimbursement of the endowment of ERDF and ESF financial 
instruments from the EU budget (2014-2020 programme period)
According to Article 41(1) of the CPR, each application for interim payment submitted during the eligibility 
period may not exceed 25 % of the total amount of programme contributions committed to the financial 
instrument under the relevant funding agreement. Second, third and subsequent payments are made when 
certain spending thresholds relating to previous payments are reached.Box 4
38 Special Reports No 8/2015 
(paragraph 21), No 2/2012 
(paragraph 118) and No 5/2015 
(paragraph 27); European 
Commission, EIB, ‘Financial 
Instruments: A Stock -taking 
Exercise in Preparation for the 
2014-2020 Programme period’, 
study carried out by Mazars/
Ecorys/EPRC, pp. 52, 66, 73.
39 For holding funds, the gap 
analysis is addressed in Article 
44(1)(a) of the Implementing 
Regulation: ‘[…] The funding 
agreement [between Member 
State or managing authority 
and holding fund] shall, where 
appropriate, take account of 
the following: (a) as regards 
financial engineering 
instruments supporting 
enterprises, primarily SMEs, 
including micro -enterprises, 
the conclusions of an 
evaluation of gaps between 
supply of such instruments, 
and demand for such 
instruments [...]’.
35 Observations 
48 
For all other specific funds, until 2009, it was possible to infer an indirect obliga -
tion to carry out such an assessment from the need to provide a business plan for 
each instrument40. However, the September 2009 amendments to the legal basis 
introduced lighter requirements concerning these business plans41. Since then, 
while it was still mandatory to submit a business plan, almost all specific require -
ments were removed (such as the targeted enterprises or urban projects, the 
criteria, the terms and conditions for financing them and the justification for, and 
intended use of, the contribution from the OP). We consider that the added value 
of a business plan in the absence of such information is limited.
49 
The obligation to perform a market needs assessment did also not exist for the 
centrally -managed financial instruments set up in the 2007-2013 programme 
period. For the six centrally -managed instruments covered in this report, we 
observed different practices. Even though a legal requirement did not exist, we 
generally saw that some degree of market needs assessment, such as impact as -
sessments, market analysis studies, public consultation, etc., was performed for 
all of them.
In nearly half of the cases examined, market needs had been 
assessed too high
50 
In previous Special Reports, we have already identified significant shortcomings 
in the robustness of market needs assessments42. In particular, assessments of 
market needs should be based on underlying assumptions which are rational and 
realistic. Otherwise, the instruments may not address actual market needs, result -
ing in overcapitalisation of the instrument and/or little or no real impact on the 
ground.
51 
Assessing market needs serves a number of purposes, including the identification 
of a market failure and determination of the market size. In this regard our overall 
analysis shows that the assessment of market needs has not been sufficiently ro -
bust during the 2007-2013 programme period. While the majority of respondents 
to our survey (82 %) indicated that they had carried out a market needs assess -
ment, this did not prevent oversizing: nearly half of the financial instruments (19 
out of 41) managed by those of our respondents which had carried out a market 
needs assessment still exhibited disbursement rates of less than 50 % of the 
instruments’ total endowment by the end of 2014. Only five instruments (12 %) 
have used their initial endowment in full (see Figure 3 ).40 Article 43(2) of the 
Implementing Regulation, 
initial version.
41 Article 1 of Commission 
Regulation (EC) No 846/2009 
of 1 September 2009 
amending Regulation (EC) No 
1828/2006 setting out rules for 
the implementation of Council 
Regulation (EC) No 1083/2006 
laying down general 
provisions on the European 
Regional Development Fund, 
the European Social Fund and 
the Cohesion Fund and of 
Regulation (EC) No 1080/2006 
of the European Parliament 
and of the Council on the 
European Regional 
Development Fund (OJ L 250, 
23.9.2009, p. 1).
42 Special Reports No 8/2015 
(paragraphs 21 to 22), 
No 2/2012 (paragraphs 33 to 
37 and 116 to 118) and No 
5/2015 (paragraphs 27 and 96).
36 Observations 
52 
In a previous Special Report we have already pointed out that, during the 2007-
2013 programme period, the methodology applied to carry out market needs 
assessment and the plausibility of the underlying assumptions were not subject 
to any checks by a body which is independent from the managing authority. This 
weakness may have contributed to overoptimistic assessments being made by 
a large number of managing authorities 43.43 See Special Report No 2/2012, 
paragraph 118.Figure 3Analysis of disbursement rates for financial instruments indicating in survey that 
market needs assessment was performed
Disbursement rate: 30-50 %
Number of funds: 8 (20 %)Disbursement rate: 0-30 %
Number of funds: 11 (26 %)
Disbursement rate: 50-80 %Number of funds: 8 (20%)Disbursement rate: 80-100 %
Number of funds: 9 (22 %)Disbursement rate: 100 %
Number of funds: 5 (12 %)
Note:  Survey sent to the managers/managing authorities of the 50 largest ERDF financial instruments, response rate was 80 %.
Source: ECA, based on survey results.
37 Observations 
Addressed in the 2014-2020 programme period?
53 
During the 2014-2020 programme period, a detailed ex -ante assessment is man -
datory for shared management instruments to establish evidence of market fail -
ures (or suboptimal investment situations) and to estimate the level and scope of 
public investment needs. This assessment must also set out the types of financial 
instrument most suited to the situation. Moreover, the ex -ante assessment must 
be submitted to the OP’s monitoring committee for information, and its sum -
mary findings and conclusions must be published within three months of being 
finalised (see Annex V ). However, there is still no requirement to carry out an in -
dependent check of the ex -ante assessment and the plausibility of its underlying 
assumptions before deciding on the instrument’s initial capital endowment.
54 
Since the entry into force of the new Financial Regulation on 1 January 2013, car -
rying out an ex -ante evaluation is also mandatory for all new centrally -managed 
instruments (see Annex V ). Nevertheless, the ex -ante assessment includes neither 
an analysis of the lessons learnt, nor the possibility of review in case of major 
socio -economic changes, as is the case for shared management. A mid -term 
review (which could address such aspects) is undertaken for most, but not all, 
centrally -managed financial instruments..
Regional focus contributed to Member States setting up 
a large number of small sized financial instruments in the 
2007-2013 programme period
ERDF and ESF financial instruments significantly smaller than 
centrally -managed funds or private investment funds
55 
ERDF and ESF OPs are implemented under shared management by national or 
regional authorities, meaning that financial instruments set up to deliver national 
or regional programmes are to follow the programmes’ demarcations in terms 
of geography and eligibility. In order to be eligible, projects must be located in 
a region eligible for the OP from which the financial instrument has received its 
endowment44.44 Article 35 of the General 
Regulation.
38 Observations 
56 
Within the EU, 952 ERDF and ESF specific funds have been set -up during the 
2007-2013 programme period (see Table 3 ). This implies that for most regions 
several funds have been put in place. Our analysis shows that ERDF and, in par -
ticular ESF, financial instruments are relatively small. The average EU contribution 
to an ERDF instrument is 80 million euro for holding funds and 10 million euro 
for specific funds. The average EU contribution to an ESF instrument is 10 mil -
lion euro for holding funds and 9 million euro for specific funds. In contrast, by 
the end of 2014, according to data reported by the Commission, the contribution 
from the EU budget to the centrally -managed funds, which theoretically cover 
all Member States, is up to 1.2 billion euro. Private equity funds are operating on 
average with 150-500 million euro.
57 
However, implementing funds with a higher capital endowment can result in 
significant economies of scale and efficiency gains. This is because the overhead 
costs and the associated risks can be spread over a sufficiently large number of 
final recipients. In other words, the individual ERDF and ESF specific funds often 
do not have the size which in the fund industry is considered appropriate to 
operate them efficiently.
Addressed in the 2014-2020 programme period?
58 
During the 2014-2020 programme period Member States enjoy greater flexibility 
in setting up financial instruments. For instance, OPs may combine one or more 
complementary investment priorities from the ERDF, the CF and the ESF under 
a single thematic objective45.
59 
Moreover, the legal prerequisites for establishing instruments with significantly 
larger capital endowments were introduced46. In particular, the possibility of set -
ting up shared management instruments at EU level has been introduced for the 
2014-2020 programme period47 (see Box 5 ).45 Article 96(1) of the CPR.
46 Article 38(1) of the CPR.
47 Within this option there is 
a special case whereby ERDF 
OPs can contribute to the SME 
initiative, which is directly 
managed by the Commission. 
In this case, specific rules 
apply, as set in Article 39 of 
the CPR.
39 Observations 
60 
There are also considerable financial incentives for Member States to set up in -
struments with a larger capital endowment or which extend beyond the regional 
level. If the entire priority axis of an OP is delivered through a financial instru -
ment, an incentive of a 10 % top -up of the maximum co -financing rate can be 
applied. If a separate priority axis is set up to be delivered through a financial 
instrument at EU level and managed directly or indirectly by the Commission, the 
axis qualifies for a 100 % co -financing rate48.
61 
The Commission and the Member States should use the possibilities provided by 
legal basis to set up larger specific ERDF and ESF financial instruments, wherever 
possible, in order to take advantage of the significant economies in the cost of 
operating these instruments. However, with more regions and bodies involved, 
the legal structure may be more complex, which in turn could mean new risks 
of delay that need to be considered by Member States when designing the most 
appropriate funding structure. The 2007-2013 regulatory basis already allowed for 
contributions from more than one programme to the same financial instrument49. 
However, such constructions have not proven popular to date due to their per -
ceived additional complexity. Based on the responses to our survey, additional 
Commission guidance on how to set up EU -level instruments during the 2014-
2020 is needed.48 Articles 120(5) and 120(7) of 
the CPR.
49 Commission, COCOF 
(10-0014-05), Note on 
Financial Engineering 
Instruments under Article 44 
of the General Regulation.Arrangements for setting up financial instruments at EU level (2014-2020 
programme period) 
Article 38(1)(a) of the CPR makes it possible for a financial contribution to be provided to an instrument set up 
at Union level, managed directly or indirectly by the Commission, although in principle the ‘[…] funds [must] 
be implemented within the framework of shared management between the Member States and the Commis -
sion, in accordance with Article 59 of the Financial Regulation […]’.Box 5
40 Observations 
Did financial instruments succeed in attracting private 
capital?
62 
One of the key advantages of financial instruments is the fact that additional 
funds can be leveraged, i.e. additional private and public funds can contribute to 
the funds’ capital endowment. The leverage effect measures the extent to which 
public financing mobilises additional funds. It should inform about the ability of 
an instrument to attract additional funding, depending on its type, location and 
final recipients, but also on the choices made by the Commission, the managing 
authority and/or the fund manager when setting up the instrument. For com -
parable instruments, a higher leverage would then indicate a better performing 
instrument in terms of attracting additional funding.
63 
We therefore reviewed the way in which the Commission defines and monitors 
this leverage effect for both shared and centrally -managed instruments and as -
sessed whether the instruments were successful in attracting additional private 
capital. We also analysed the use made of preferential and risk sharing arrange -
ments with private partners and of tax agreements in this regard.
Commission’s measure of leverage for financial instruments 
does not properly take into account the extent to which 
public financing mobilises additional funds
Need for more differentiated leverage ratios to obtain meaningful 
measurements
Difficulties in identifying leverage of additional private and public capital 
for shared management instruments
64 
The 2007-2013 legislation did not specify how leverage should be measured for 
instruments in shared management. In 2011, the Commission took first steps 
towards addressing this issue by suggesting a first definition of the ’leverage ef -
fect’, and two years later in the Financial Regulation (see Box 6 ).
41 Observations 
65 
We consider, however, that counting all public national funding as leveraged 
amounts, as proposed by the Commission in the case of shared management 
instruments, is inappropriate: the co -financing rates are already specified at the 
level of the OP’s priority axis, and the national contribution to the financial instru -
ments’ endowments generally remains within these rates. In that sense, there 
is no distinction between the ‘normal’ national co -financing and an ‘additional’ 
national contribution (which goes above the OP rates). However, only the latter 
could be considered as having been attracted by the EU contribution. We have 
already noted in a previous report that the Commission’s practice of excluding 
national public funding through the OPs from the denominator leads to an artifi -
cial increase in the measured leverage rate52.Definition of ‘leverage effect’ for financial instruments in shared and central 
management
In August 2011, in its Common Audit Framework, the Commission provided a definition of the leverage as 
the ‘[…] additional resources made available down to the level of final recipients - beyond Structural Funds 
contribution usually by financial instruments and other private or public investors’50.According to this defini -
tion (which is however not legally binding), the leverage corresponds to the total financial support provided 
to final recipients (covering all resources invested in final recipients, irrespective whether they are part of the 
OP , or whether they are additional private or public funds) divided by the EU contribution to the instrument 
(via the OP).
For centrally -managed instruments, leverage has been defined in the Financial Regulation since 2013 as ‘[…] 
the amount of finance to eligible final recipients divided by the amount of the Union contribution.’51
50 European Commission, Directorate -General for Regional and Urban Policy, ‘Common Audit Framework’, July 2011 (Part 2), p. 7.
51 Article 223 of the rules of application of the Financial Regulation.Box 6
52 Special Report No 2/2012, 
Box 5 .
42 Observations 
66 
Moreover, the leverage should serve as an indicator for the performance of 
a financial instrument in terms of attracting additional private or public funds 
(again, above those already considered for the OP as a whole). Obviously, an as -
sessment of performance needs to take account of the differences in implement -
ing such an instrument. In particular, the risk sharing and preferential arrange -
ments for private sector partners play a determining role in this (see paragraphs 
74 to 78). Moreover, the leverage rate should also vary between different types 
of financial support (for example, for guarantees the leverage should be higher 
than for loans), between types of investment (for riskier investments, it should 
be lower), between the development stages of final recipients supported (for 
example, start -up companies are more risky) and between geographical markets 
(for example, lower in less developed regions).
67 
In its current form, the Commission’s ‘leverage effect’ calculation cannot provide 
a reliable indication of actual performance in attracting additional private or 
public funds. It therefore does not allow making a distinction between successful 
and less successful financial instruments in attracting additional private or public 
contributions to the instrument’s capital endowment.
Inconsistent measurement of leverage for centrally -managed instruments
68 
For centrally -managed financial instruments, our analysis shows that the Com -
mission uses various ways to calculate the leverage effect for different instru -
ments, as illustrated in Table 553.
69 
As a result, the leverage ratios reported by the Commission for centrally managed 
instruments are not comparable between themselves, and also not comparable 
with those for shared management instruments.53 SWD(2015) 206 final.
43 Observations 
Leverage effect for centrally -managed financial instruments as reported by 
the Commission
Instrument Type of instrument Method of calculationLeverage ratio as of 
31 December  2014
LGTT GuaranteeTotal amount of finance attracted by the project divided by the EU 
contribution paid to the facility57
PBI Guarantee Similar to the LGTT 9
EEEF EquityTotal amount of finance attracted at fund level divided by the EU 
contribution2
Marguerite Fund EquityTotal amount of finance mobilised by the instrument (both equity 
and debt) at the project level divided by the EU contribution paid157
EPMF Guarantee Facility GuaranteeValue of new microloans supported by the guarantee divided by 
the guarantee cap7
EPMF FCP -FIS LoansValue of new microloans supported by the guarantee divided by 
the EU contribution paid2
Source:  ECA, based on 2015 Commission data1.
1 SWD(2015) 206 final.
54 OECD, ‘Methodologies to 
measure amounts mobilised 
from the private sector by 
official development finance 
interventions’, DCD/DAC/
STAT(2015)8, 24 February 2015.Table 5
Not only sources of finances which are the result of the EU and/or national 
contribution to the financial instrument are taken into account
70 
Not all sources of finances attracted by a project are the result of the EU and/or 
national contribution. However, no attention is paid to this in the Commission’s 
calculation of the ‘leverage ratio’. In 2015, the OECD’s Development Assistance 
Committee has proposed an alternative methodology, with calculations depend -
ing on the type of instrument (loans, guarantees or equity)54. The differences 
between these two approaches are illustrated in the example in Box 7 .
44 Observations 
According to the Commission’s methodology, the leverage effect is 39 (total financ -
ing of 7 846 million euro divided by the EU guarantee of 200 million euro).
We consider that it is unrealistic to assume that the national grants, accounting for 
the largest part of the project financing, were triggered by the limited EU guarantee. 
This issue affects the Commission’s reporting on financial instruments in both central 
and shared management, although it is more visible for centrally -managed financial 
instruments, as private co -investment is involved to a lower extent in projects under 
shared management.Example of a financing structure for a transport project and the differences in the 
calculation of leverage according to the Commission and OECD methodology
This revenue -generating transport infrastructure project, a high -speed railway line in France, received contri -
butions from multiple funding sources, of which the national grants accounted for 52 % and the commercial 
debt for 39 %. The EU contribution, in form of a guarantee for up to 200 million euro of the commercial debt, 
accounts for 2.5 % of the total funding.
In this example, based on the OECD methodology, the leverage effect would however be only 1, as there is 
only one loan of 200 million euro guaranteed by the EU in the project financing structure.Box 7
Types of funding sources million euro % of total financing
Commercial debt 3 038 39 %
National grants 4 050 52 %
Equity 758 9 %
Total financing 7 846 100  %
Maximum EU guarantee on the commercial debt 200 2.5 %
45 Observations 
Addressed in the 2014-2020 programme period?
71 
For the 2014-2020 programme period, as regards instruments in shared manage -
ment, the CPR does not explicitly refer to the definition of the leverage effect in 
the EU’s Financial Regulation. However, the concept defined in Article 37(2)(c) of 
the CPR is essentially identical: ‘[…] an estimate of additional public and private 
resources to be potentially raised by the financial instrument down to the level of 
the final recipient (expected leverage effect)’. The Commission therefore contin -
ues to consider national co -financing as leveraged by the EU’s funding of the OP . 
There are also no changes to the way in which the amounts mobilised from the 
private sector are to be measured. In our view the Commission should reconsider 
its methods of calculating the leverage effect of EU and national public funding 
through financial instruments, taking into account the alternative methodology 
proposed by the OECD in 2015.
72 
We also note that Member States are now required to specify each instrument’s 
‘expected leverage effects’ (see Box 8 ). These elements will provide the Commis -
sion with data to monitor how actual leverage compares with the target lever -
age rate. However, in the absence of a consistent Commission methodology on 
how to calculate the leverage effect, it is doubtful that this exercise will result in 
meaningful data which could be used for comparisons.
‘Expected leverage rates’ to be specified for each financial instrument (2014-2020 
programme period)
The compulsory ex -ante assessment for financial instruments must include an estimate of additional public 
and private resources that may be generated by the financial instruments at all levels down to the final recipi -
ent. The funding agreement between a managing authority and a ‘fund of funds’ (or the strategy document, 
where the managing authority implements the fund directly) must specify this ‘expected leverage effect’ of 
the instrument.
Each year, the managing authority is required to provide an annex to the annual implementation report on 
operations comprising financial instruments 55.
55 Annex I to Commission Implementing Regulation (EU) No 821/2014 of 28 July 2014 laying down rules for the application of Regulation (EU) No 
1303/2013 of the European Parliament and of the Council as regards detailed arrangements for the transfer and management of programme 
contributions, the reporting on financial instruments, technical characteristics of information and communication measures for operations and 
the system to record and store data (OJ L 223, 29.7.2014, p. 7) establishes numerous sections to be used as the basis for this reporting, which 
includes information about the sources of financial instruments funding.Box 8
46 Observations 
Difficulties of attracting private sector investors to financial 
instruments in both shared and central management
73 
One of the stated aims of financial instruments is to attract additional private 
sector funding to complement the available public funds since it allows more 
projects to benefit from the same level of public investment. We have there -
fore sought to determine for both shared management and centrally -managed 
instruments the extent to which additional private financing has been effectively 
mobilised by public contributions to the instruments.
Specific arrangements for private investors in financial 
instruments during the 2007-2013 programme period did not 
succeed in attracting significant additional financing
74 
Our interviews and literature review confirm that during the 2007-2013 pro -
gramme period the private sector remained reluctant to invest in financial instru -
ments since these instruments were considered to be too strictly regulated (e.g. 
specific EU and national regulations, State aid, public procurement). It should be 
recalled that the goals of the two parties differ: while the public sector aims to 
implement specific policy and investment objectives, the private sector must be 
oriented towards profitable activities. Moreover, there may be a lack of knowl -
edge on both sides. The public sector is not necessarily equipped with advanced 
financial background, while the private sector is not necessarily familiar with 
EU legislation. The Commission considers that one of the ways to attract private 
capital is to offer preferential treatment and/or ‘risk premiums’ to private inves -
tors. We therefore examined the specific arrangements for private -sector inves -
tors to see whether risks were shared between the public and private in a reason -
able manner.
47 Observations 
Lack of Commission guidance on how to set out arrangements on 
preferential treatment for ERDF and ESF instruments
75 
For the 2007-2013 ERDF and ESF instruments, the legislation provided a possibil -
ity for returns on investments to be allocated preferentially to investors operat -
ing under the market economy investor principle56. Preferential treatment may be 
exercised, for example, through contracts that do not grant the public funding 
partner the same repayment rights as private partners, or through an unequal 
share in profit and loss between private and public partners.
76 
Preferential treatment can be justified if it is needed to attract private investment 
in failing markets, where private funding can contribute to the achievement of 
public policy objectives. If unjustified, preferential treatment may result in a drain 
on the initial capital endowment of the financial instrument and thus reduce the 
legacy funding available for the next investment cycle after the instrument is 
wound up. However, neither the legal basis for the 2007-2013 programme period 
nor the Commission’s guidance notes provide any indication as to how risk shar -
ing arrangements should be set out in the funding agreement or how the appro -
priateness of preferential treatment is to be checked.
Despite Commission assuming higher risks, only limited private 
contributions to the capital of centrally managed instruments
77 
As a general practice, for centrally -managed instruments, the governing legisla -
tion approved by the European Parliament and the Council includes only general 
terms in relation to the risk sharing and/or preferential treatment. The detailed 
arrangements related to the Commission’s contribution in these instruments 
(including the risk sharing percentages) come only later as part of a separate 
agreement which does not need to be approved by the budgetary authority (see 
Box 9 ).56 Article 43(5) of the 
Implementing Regulation.
48 Observations 
Risk sharing between the Commission and its partners  – case study of the ‘Loan 
Guarantee Instrument’ (LGTT) and the Project Bond Initiative (PBI)
The LGTT was jointly established in 2008 by the Commission and the EIB through a cooperation agreement, 
with each party bearing 50 % of the loan default risk (expected and unexpected losses).
The instrument provides a guarantee in the form of a contingent credit line, which may be drawn upon by 
the project provider during the first five to seven years of operation, if the revenues generated by a project 
are not sufficient to ensure repayment of the senior debt (i.e. in case the actual revenues from the project fall 
below the forecasted level).
As a result of a change in the legal basis, a first loss portfolio approach was introduced in 2013, leading to the 
risk taken by the Commission of 95 % of the losses on the Portfolio First Loss Piece (‘PFLP’).
In the 2012 amendment to Regulation No 680/2007, the PBI was introduced as a new instrument. The PBI 
provides credit enhancement in the form of a subordinated instrument – either a loan or contingent facility – 
to support senior project bonds issued by a project company. The risk -sharing arrangements between the 
Commission and the EIB are the same as for LGTT, i.e. the Commission takes 95 % of the losses whereas the EIB 
bears the risk for the remaining 5 %.
The PFLP for the LGTT/PBI portfolio was set at such a level that it is unlikely that actual losses would go be -
yond the PFLP . As a consequence, the Commission effectively bears the largest part of the effective risk.
The legal basis provides that the risk -sharing will be based ‘on a first -loss basis’, but it does not provide any 
details on the way the first loss portfolio should be determined or on the level of risk exposure resulting from 
this approach. A Commission Staff Working Paper57 states that the first loss percentage would ‘typically be set 
at just above the historical average loss’. The EIB determined the ceiling however in such a way that its expect -
ed net risk exposure remained within its standard risk (less than 2 % of the expected loss) and not on historic 
data.
57 SEC(2011) 1237 final of 19 October 2011 ‘Commission Staff Working Paper - Impact assessment accompanying the document ‘Communication 
from the Commission to the European Parliament, the Council, the European Economic and Social committee and the Committee of the Regions 
- A pilot for the Europe 2020 Project Bond Initiative’’,p. 53.Box 9
49 Observations 
Case study - Risk sharing between the Commission and its partners - EEEF
The EEEF invests in energy efficiency, renewable energy projects, and clean urban transport. Its shareholders 
are the Commission, the EIB, and two banks. The EEEF is organised as a public limited liability company and its 
shares are divided in three classes (A, B and C) depending on the risk taken and the rights to returns, with the 
A class being the most advantageous, and class C being the least.
The Commission is the only shareholder of class C shares, the first to bear losses and the last to benefit from 
gains. Its shares will be redeemed upon maturity. The redemption is subject to the availability of sufficient 
cash in the fund.
The company’s losses are first allocated to the Commission. These losses do not affect the value of class A and 
B shares, as long as the value of class C shares is still positive. Only after the value of class C shares is reduced 
to zero will losses be allocated to class A and B shares. Future income and gains do not necessarily lead to 
write -backs of the class C shares since they would first be used for the target dividends of class A and class 
B shares.
Moreover, the C class shares cannot be redeemed before the other two classes.Box 1078 
For some centrally -managed financial instruments, we found that nearly all effec -
tive risks are shifted to the Commission (see Box 10 ). However, despite the Com -
mission taking more risk than its partners in this type of instruments, our analysis 
shows that there was no significant private -sector contribution to them.
Tax rulings used in some cases to make financial instruments more 
attractive for private sector investors
79 
A tax ruling is a written decision by a national tax authority on how a particu -
lar aspect of an entity’s activities is treated under the applicable tax law of that 
Member State. Such a procedure can be used in several EU Member States to 
obtain certainty on how activities will be taxed. Generally, individuals or under -
takings subject to taxation submit their interpretation of how the tax law applies 
to them or to a particular transaction or activity, and the tax authority responds 
with a positive or negative decision. Such tax agreements are also standard 
practice in the fund industry. While tax rulings can be perfectly legitimate, and 
they are used in a number of jurisdictions, they have also been used to facilitate 
aggressive tax planning.
50 Observations 
80 
Already in 2012 the Commission had issued a recommendation on aggressive 
tax planning addressed to the Member States58. In essence, Member States are 
encouraged to change their national legislation in order to address ‘[…] artificial 
arrangements’ and ‘[…] treat these arrangements for tax purposes by reference 
to their economic substance’. This has been followed by a series of specific meas -
ures in this regard:
 ο since 2014, the Commission has opened several investigations to examine 
whether decisions of tax authorities in the Member States with regard to the 
corporate income tax to be paid by corporations comply with the EU rules on 
State aid59.
 ο in March 2015 the Commission presented a package of measures to boost 
tax transparency and to introduce the automatic exchange of information 
between Member States on their tax rulings60.
 ο in June 2015, the Commission adopted an action plan for fair and efficient 
corporate taxation in the EU61. This document discusses, among a number 
of taxation topics, measures to combat tax avoidance and aggressive tax 
planning.
81 
However, we identified financial instruments for which tax rulings have been 
obtained (see Box 11 ).
Case study - Tax rulings for financial instruments in central management  – the 
‘Marguerite Fund’
In 2013, the ‘Marguerite Fund’ has obtained a Luxembourg advance tax agreement (commonly known as a ‘tax 
ruling’) and an advance pricing agreement for Marguerite Holdings and its Luxembourg subsidiaries in 2013. 
The latter is an agreement between a taxpayer and the tax authorities specifying the pricing method that the 
taxpayer will apply to its related -company transactions.
The specific structure employed by the Marguerite Fund results in a situation whereby withholding tax on 
dividend payments from holding companies to the fund itself is reduced, by transforming dividend payments 
into interest payments by using hybrid instruments between the Luxembourg entities62. It is also possible that 
other taxes, such as withholding taxes in the countries of the operating companies or capital gains taxes at 
the time of divestment are avoided through the use of this structure.
62 Hybrid instruments are instruments which can be treated differently for tax purposes within and/or across jurisdictions, for example as debt in 
one country and as equity in another country, (see OECD, ‘Hybrid Mismatch Arrangements - Tax Policy and Compliance Issues’, March 2012, p. 7).Box 1158 Commission 
Recommendation of 
6 December 2012 on 
aggressive tax planning, 
C(2012) 8806.
59 See for instance IP/14/663 – 
Press release of 11 June 2014.
60 COM(2015) 135 final of 
18 March 2015, ‘Proposal for 
a Council Directive amending 
Directive 2011/16/EU as 
regards mandatory automatic 
exchange of information in 
the field of taxation’.
61 COM(2015) 302 final of 
17 June 2015, ‘A fair and 
efficient corporate tax system 
in the European Union: 5 key 
areas for action’.
51 Observations 
82 
We also note that a number of 2007-2013 ERDF and ESF instruments have used 
SICAV63 or SICAR64 entities in their set up structures. For these structures, tax 
rulings are common practice. Member States do, however, not report to the 
Commission whether their instruments made or will make use of advance tax 
agreements.
Private contributions to the capital endowment of ERDF and ESF 
financial instruments account for around 2 % of the total
83 
In previous reports we noted that the private -sector leverage rate was limited 
during the 2007-2013 programme period65. According to the latest data reported 
by Member States to the Commission, only 154 out of 1 025 ERDF and ESF finan -
cial instruments in 11 Member States attracted private funding in their financing 
structure as part of the OP contribution..
84 
For the private funds contributed through OPs which are reported by the Mem -
ber States, there is also a risk of double counting since it is possible that the 
private funding presented at the level of the specific funds is simply a transfer 
of funds made by the holding fund. If the analysis is restricted to holding funds 
only, thus eliminating the risk of double counting, only 9 out of the 73 existing 
holding funds in four of the 18 Member States where such funds exist benefited 
from private contributions. For these 9 holding funds the share of private funding 
in the instrument’s endowment varies from 5 % to 50 %. Overall, 325 million euro 
in private capital was attracted to holding funds through OPs. In the same time 
we note that irrespective of the information reported, there is a legal obligation 
stemming from State aid rules for the equity investments in SMEs to have a mini -
mum level of private co -financing of 30 % or 50 % depending on the region66.
85 
Moreover, based on the information provided by 11 Member States on a volun -
tary basis, the resources paid to financial instruments in addition to those from 
the OPs (private or public) amount to 342 million euro67. Member States are, 
however, not required to provide such information, and the data reported on 
a voluntary basis is also not verified by the Commission.63 A SICAV is a type of 
open -ended investment fund 
for which the value of its 
capital changes based the 
number of investors and on 
the value of its underlying 
investments. Shares in the 
fund are bought and sold 
based on the fund’s latest net 
asset value.
64 A SICAR is a structure 
designed for private equity 
and venture capital 
investments with no 
investment diversification 
rules, nor lending or leverage 
restrictions.
65 See Special Reports No 2/2012 
(paragraphs 105 to 115 and 
124), No 8/2015 (paragraphs 34 
to 35), No 5/2015 (paragraphs 
66 to 67 and Box 7).
66 Community guidelines on 
State aid to promote risk 
capital investments in small 
and medium -sized 
enterprises, paragraph 4.3.4 
(OJ C 194, 18.8.2006, p. 2).
67 European Commission, 
‘Summary of data on the 
progress made in financing 
and implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programme period 2007-2013, 
Situation as at 
31 December 2014’, p. 25.
52 Observations 
86 
We also note that the legislation for the 2007-2013 programme period did not 
stipulate that funding agreements between managing authorities and fund man -
agers should specify expected leverage rates for additional private contributions. 
Moreover, fees were generally not linked the fund managers’ success in attract -
ing private investors (see paragraph 136)68. Hence, there was little incentive for 
the fund manager to get private investors on board.
87 
For centrally -managed instruments, and in particular for equity financial instru -
ments, attracting private -sector investments as contributors has proven to be 
difficult, as illustrated by the case studies in Box 12 .68 Article 43(4) of the 
Implementing Regulation.
Case study - Difficulties of attracting private sector investors in publicly funded 
equity instruments  – Marguerite Fund and EEEF
Examples of limited private co -financing for two centrally -managed instruments are provided below69:
 ο In addition to the Commisson, the Marguerite Fund has eight sponsors, all of them publicly controlled 
banks. These sponsors have committed a total amount of 710 million euro. No money from private inves -
tors have yet been attracted to reach the target of 1.5 billion euro in total commitments70.
 ο the EEEF has also relied mainly on public funds, the Commission being its largest contributor so far 
(125 million euro out of total 265 million euro committed). The only private contributor – Deutsche Bank – 
has made only a limited commitment to the instrument (5 million euro). The total amount committed at 
this stage is less than half of the instrument’s target (700 million euro).
69 SWD(2015) 206 final.
70 Commission Decision of 25 Frbruary 2010 on European Union participation in the 2020 European Fund for Energy, Climate Change and 
Infrastructure (the Marguerite Fund), C(2010) 941.Box 12
53 Observations 
Addressed in the 2014-2020 programme period?
88 
For instruments under shared management, the provisions in the legislation for 
the 2014-2020 programme period continue to allow preferential treatment, but 
also ask for risk to be shared appropriately between the public and the private 
partners (see Box 13 ).
Provisions in relation to preferential treatment and risk sharing (2014-2020 
programme period)
Article 44 of the CPR requires an ‘[…] appropriate sharing of risk and profit’ between public and private inves -
tors, and the Delegated Regulation stipulates that the level of preferential treatment should be proportionate 
to the risks taken by investors, and be limited to the minimum necessary to attract them’71. In particular, in the 
ex-ante assessment, the Member State must include ‘[…]an assessment of the need for, and level of, preferen -
tial remuneration to attract counterpart resources from private investors and/or a description of the mecha -
nisms which will be used to establish the need for, and extent of, such preferential remuneration […]’72.
This preferential remuneration may be financed through resources paid back to the instrument, or from gains 
and other earnings or yields attributable to the support from the EU funds. The concept of preferential treat -
ment also applies to public investors operating under the market economy principle73.
Moreover, we note that for cases falling under the GBER ‘in the case of asymmetric loss -sharing between 
public and private investors, the first loss assumed by the public investor shall be capped at 25 % of the total 
investment’74.
Otherwise it has to be conform with market conditions or undergo a State aid notification process.
71 Article 6(1)(d) of Commission Delegated Regulation (EU) No 480/2014.
72 Article 37(2)(c) of the CPR.
73 Article 44(1) of the CPR.
74 Article 21(13)(c) of Commission Regulation (EU) No 651/2014.Box 13
54 Observations 
89 
The obligation for Member States to assess the need for preferential treatment 
and the risk sharing arrangements, and to provide some justification for these 
arrangements, can clearly be regarded as progress towards the more efficient 
management of financial instruments. Based on our interviews, we consider 
however that there is a need for the Commission to provide guidance to Member 
States on how best to use preferential treatment to attract more private capital 
while not allocating excessive risk to the public contributors to the instruments’ 
endowments.
90 
For some of the centrally -managed instruments, the possible extent of risk shar -
ing between the Commission and its partners has also been addressed in the 
legislation. Here, the Regulation specifies that the ‘[…] risk -sharing pattern [must] 
be reflected in an appropriate sharing between the Union and the entrusted 
entity’, while ‘[…] the maximum risk covered by the Union budget [must] not 
exceed 50 % of the risk of the target debt portfolio under the debt instrument’75. 
It remains to be seen whether these modified provisions will be sufficient to at -
tract more private -sector contributions than in the 2007-2013 programme period. 
As mentioned already in a previous report, we consider that the main aspects 
of the risk -sharing arrangements between the Commission and its partners (e.g. 
the EIB) should be defined in the specific legislation for each centrally -managed 
instrument76.
91 
Finally, as regards tax rulings, the situation remains unchanged to the 2007-2013 
programme period. We consider that a continued use of advance tax agreements 
during the 2014-2020 programme period for centrally -managed and/or shared 
management financial instruments could pose a reputational risk since they may 
be perceived to go against the Commission’s own recommendations and actions 
concerning tax arrangements.75 Annex I to the CEF Regulation, 
part III, section 6.
76 See Special Report No 2/2013, 
Recommendation 7.
55 Observations 
Were financial instruments providing revolving 
financial support?
92 
One of the main reasons for using public funds through financial instruments is 
the fact that the money can be used multiple times: it can ‘revolve’. For instance, 
if a disbursed loan was repaid after three years, the cash could then be used to 
provide a new loan. We therefore examined whether this revolving effect had ac -
tually materialised. The extent to which funds can revolve in practice depends on 
the type of financial support, but also on the instruments’ investment period. We 
therefore analysed whether the instrument’s investment periods correspond to 
normal market practice and what factors contributed to limiting the instruments’ 
actual investment period.
Delays in the implementation significantly shortened the 
actual investment period of several ERDF and ESF financial 
instruments
93 
At the start of the 2007-2013 programme period, public authorities in most 
Member States had only limited experience of structuring and running revolving 
instruments in partnership with financial intermediaries. Following our audits, we 
have noted that most delays were caused by the time -consuming internal struc -
turing of financial instruments, lengthy negotiations with financial intermediaries 
at various levels (often due to negotiations of management costs and fees), com -
plex public procurement procedures, uncertainty about compliance with State 
aid rules, and difficulties in obtaining private -sector contributions.
94 
In many cases the various bodies involved experienced a steep learning curve, 
and it took a good deal of time to reconcile the interests and views of numerous 
stakeholders in order to reach agreement on the instrument’s investment strate -
gies. Several of these issues were also identified by other studies77. Our audits 
over the last years also indicate that more and earlier Commission guidance could 
have prevented these problems at least in part.77 European Parliament, 
Directorate General for 
Internal Policies, ‘Financial 
Instruments under Cohesion 
policy 2007-13: How have 
Member States and Selected 
Financial Institutions 
Respected and Preserved EU 
Financial Interests?’, p. 16; 
Commission & EIB, ‘Financial 
Instruments: A Stock -taking 
Exercise in Preparation for the 
2014-2020 Programme 
period’  – study carried out by 
Mazars/Ecorys/EPRC, p. 62.
56 Observations 
95 
The low disbursement rates in many Member States and, as a consequence, the 
limited capacity of instruments to revolve funds, are an obvious result of these 
difficulties. In some cases, delays in implementation lasted several years, thus 
significantly reducing the time period during which the financial instrument’s 
endowment could then be disbursed to final recipients (see Box 14 ).
Case study – Delays in setting up the JEREMIE holding fund in Slovakia
The memorandum of understanding between the EIF and the Slovak government for the national JEREMIE 
holding fund was signed in 2006, i.e. before the start of the 2007-2013 programme period. After the funds’ 
market needs analysis (‘gap analysis’) was conducted, a framework agreement was signed in 2008, and the 
funding agreements between the various ministries and the EIF in 2009.
It then took another year before the two final agreements were signed (holding fund agreement and share -
holders agreement) which are also legal preconditions for starting the actual operation of the fund. The capi -
talisation of the holding fund itself finally took place in 2011. Overall, it took therefore five years (2006 to 2011) 
until the JEREMIE holding fund was operational.
Calls for expression of interest for hiring financial intermediaries were launched in 2011, 2012 and 2013. It then 
took another two to three years until the agreements with the financial intermediaries were only concluded in 
2013 (for the guarantee instrument) and 2014 (for the loan and the equity instruments). Only then the financial 
support to final recipients started to flow.
The disbursement rate at the end of 2014 was 12 % at the holding fund level, and even lower as regards the 
disbursements to final recipients from the sub -funds.Box 14
57 Observations 
Limited revolving effect of ERDF and ESF financial 
instruments during implementation and uncertain after 
closure of the 2007-2013 programmes
Less than a third of all ERDF and ESF financial instruments had 
used their funds more than once by the end of 2014
96 
Overall, our analysis showed that there are 316 ERDF and ESF instruments (in the 
vast majority specific funds) in 19 Member States which had managed to disburse 
their full endowment to final recipients by 31 December 2014. However, even for 
these instruments, the revolving effect came very late in the programme period. 
As a result, only a limited share of the initial endowment will be used more than 
once until the end of the extended eligibility period (i.e. March 2017). Moreover, 
in none of the 25 Member States implementing financial instruments the aggre -
gated disbursement rate reached 100 % (see Table 4 ).
Time constraints caused particular problems for equity instruments
97 
Our analysis also shows that equity instruments experienced particular prob -
lems to attain a revolving effect. In Europe the average holding period for equity 
investments (e.g. the time between the acquisition and the sale of shares) was 
around six years in 201478. Most of ERDF and ESF equity instruments were how -
ever operational for no more than eight years (2009 to 2017). Even if, for instance, 
operations began at the beginning of 2009 and the exit took place at the end of 
2014, there would be only less than three years left before the OP closure to make 
a new round of equity investments. Therefore, after taking into account the years 
needed to set up the instrument, it is unlikely that OP contributions to equity 
instruments will be used again within a programme period.
98 
By contrast, centrally -managed equity instruments have much longer durations, 
better reflecting the nature of equity instruments79 (e.g. Marguerite Fund has 
a term of 20 years with the possibility of a two years extension).78 Preqin, Private Equity Spotlight , 
May 2015, p. 8.
79 SWD(2015) 206 final,  
pp. 151, 159.
58 Observations 
The high degree of discretion in the reutilisation of funds for ERDF 
and ESF financial instruments may cause the revolving effect to 
disappear once OPs are closed
99 
The 2007-2013 legal framework for the shared management financial instruments 
stipulates that any resources used at least once by the time of closure can be kept 
by the Member State, but must be re -used for the benefit of the target group80. 
The Commission guidance notes on financial instruments81 and on the closure for 
the 2007-2013 OPs82 suggest that resources from the ERDF and ESF instruments 
ought to be reinvested indefinitely.
100  
We consider however that the 2007-2013 General Regulation in relation to indefi -
nite reinvestments cannot be interpreted in this way83. For example, the provi -
sions also allow the instrument’s capital to be reduced and resources of financial 
instruments to be used in the form of grants. Moreover, legally speaking, any 
activity after the closure of the programmes which does not concern the EU 
budget is the exclusive responsibility of the Member State and no longer subject 
to Commission supervision, unless provided otherwise in the legal base.
Addressed in the 2014-2020 programme period?
101  
For the 2014-2020 programme period, a number of issues regarding the reutilisa -
tion of funds for ESIF instruments after the end of the eligibility period in 2023 
have been clarified in articles 44 and 45 of the CPR.
102  
Moreover, the legislation governing the 2014-2020 programme period explicitly 
recognises the intended revolving nature of financial instruments after the eligi -
bility period by including provisions for the re -use of resources paid back during 
a period of at least eight years after end of the eligibility period84. Through this 
provision, the CPR sets a minimum period for earmarking the funds allocated 
to financial instruments, but provides no further details on how this should be 
done. In our view, the Commission should clarify this aspect.80 Article 78(7) of the General 
Regulation.
81 European Commission, 
‘Revised Guidance Note on 
Financial Engineering 
Instruments under Article 44 
of Council Regulation (EC) 
No 1083/2006’, 
COCOF(10-0014-05), 
10 February 2012, 
paragraph 5.2.5.
82 C(2015) 2771 of 30 April 2015, 
‘Annex to the Commission 
Decision amending Decision 
C(2013) 1573 on the approval 
of the guidelines on the 
closure of operational 
programmes adopted for 
assistance from the European 
Regional Development Fund, 
the European Social Fund and 
the Cohesion Fund 
(2007-2013)’, p. 7.
83 Article 108 the General 
Regulation in connection with 
Articles 152(1) and 153 CPR.
84 Article 45 of the CPR.
59 Observations 
103  
A critical factor for avoiding the mistakes of the past is standardisation: the op -
tion for managing authorities to design financial instruments in accordance with 
standard terms and conditions laid down by the Commission should significantly 
streamline and facilitate the set -up process.
104  
The legal basis for the 2014-2020 programme period also allows financial instru -
ments to continue to be used during the following programme period, rather 
than requiring that they be wound up and replaced with new ones85. This may 
save both time and money, since the financial instruments are ready and opera -
tional at the start of the programme period and the endowment of the instru -
ment could be increased in accordance with the ex -ante needs assessment. 
However, in cases where the fund manager was chosen through an open compet -
itive procedure, time savings may be limited, since a new open procedure would 
be needed in any case to select the new fund manager. Based on the responses 
to our survey (see Box 15 ), additional Commission guidance on how to transfer 
instruments to the 2014-2020 would be most welcome by fund managers.85 Article 38(3)(b) of the CPR.
Survey responses: issues for which additional Commission guidance is needed 
(2014-2020 programme period)
Issue Response rate1
Transfer of instruments set up in the previous programme period to the new one (2014-2020) 27 %
Exit policy and winding -up provision 21 %
Rules to be applied in relation to the selection of fund managers 18 %
Reuse of funds returned to the financial instrument after the end of the eligibility period 17 %
Setting up instruments at EU level 9 %
Other 8 %
1 Survey sent to the managers/managing authorities of the 50 largest ERDF instruments, response rate was 80 %.
Source: ECA.Box 15
60 Observations 
105  
Finally, during the 2007-2013 programme period, the Commission started to 
organise a range of presentations and workshops to spread ‘good practices’ and 
to train Member State officials. In January 2015, one year after the start of the 
2014-2020 programme period, the Commission also launched a technical advi -
sory platform (‘ www.fi -compass.eu ’) to disseminate expertise about the EU legal 
requirements concerning financial instruments.
Did financial instruments prove to be a cost -efficient 
method to implement the EU budget?
106  
Financial instruments, unlike the traditional grants, are managed by fund manag -
ers (rather than public administrations). These are generally financial interme -
diaries, such as private or state owned banks. Managing financial instruments 
comes at a cost, and fund managers are entitled to be remunerated for their 
services rendered. The level of management costs (reimbursed against evidence 
of expenditure) and fees (agreed price or compensation for services rendered) for 
the fund manager are generally set out in the funding agreement for each of the 
financial instruments. The remuneration should cover the administration costs of 
the financial instrument (including expenses for investor relations, legal expenses 
and expenses for auditors) and, in the case of private -sector fund managers, 
allow for a profit margin. They should vary between different financial products 
(i.e. guarantees, loans or equity) and their level should be related to objective 
criteria (e.g. a large number of small loans usually involve higher administrative 
costs than a small number of large loans).
107  
Based on the most recent data reported by Member States to the Commission, 
we have analysed the level of actual management costs and fees for both shared 
management and centrally -managed instruments during the 2007-2013 pro -
gramme period and examined whether they were sufficiently linked to the fund 
manager’s performance. Moreover, as regards the 2014-2020 programme period, 
we have assessed whether the increased share of funding allocated to financial 
instruments (and therefore generally not managed by national or regional ad -
ministrations) has been reflected in setting the level of technical assistance which 
is paid to Member States for implementing the ESIF.
61 Observations 
High level of management costs and fees compared to actual 
level of disbursement to final recipients
Cumulative management costs exceeding actual disbursements to 
final recipients for around 2 % of the instruments
108  
For some instruments, the management costs and fees even exceeded the actual 
amounts disbursed to final recipients. Our analysis of the 1 025 ERDF and ESF 
financial instruments identified 23 such cases (2.2 %) in 8 Member States (Bul -
garia, Czech Republic, Germany, Spain, France, Italy, Poland, United Kingdom). 
Taken together, these instruments charged 28 million euro in management costs 
and fees in order to disburse 4 million euro to final recipients. At the same time, 
there are similar instruments where no management costs or fees at all are paid 
to financial intermediaries (see Box 16 ).
Case study  – fund managers implementing financial instruments free of charge  – 
‘Entrepreneurship fund’ in Greece and JEREMIE holding fund in Hungary
(a) Entrepreneurship Fund in Greece
The Entrepreneurship Fund in Greece does not pay management costs and fees to the banks acting as finan -
cial intermediaries. Instead the fund and the banks co -finance the loans provided to final recipients. They 
share the risk of loan default as well. The primary motivation of the banks to take part in the instrument is risk 
sharing. Therefore they participate in the instrument without charging any management cost and fee.
(b) JEREMIE Hungary
JEREMIE Hungary does not pay any management cost and fees to financial intermediaries for loan instruments 
either. Instead loans to financial intermediaries are provided at a very low interest rate compared to the mar -
ket. The very low interest rate does not represent remuneration of the fund manager as it is counter -balanced 
by the higher risk the financial intermediaries assume compared to the EU financed fund. In case the loans 
default, the financial intermediaries generally assume the highest part of the loss.Box 16
62 Observations 
Cumulative management costs and fees reach up to 75 % of 
the financial support disbursed to final recipients
109  
We have furthermore carried out our own analysis of the Commission’s data 
whereby we put the management costs and fees in relation to the amounts ef -
fectively paid to final recipients. Our results, at Member State level, are presented 
in Table 6 .
110  
For 274 of the 1 025 ERDF and ESF instruments in 10 of the 25 Member States 
(Sweden, Austria, Latvia, Malta, Finland, Lithuania, Romania, Greece, Hungary, 
Cyprus), we found that the data on management costs and fees reported to the 
Commission was comprehensive for all financial instruments. For another six 
Member States (Poland, Portugal, Germany, Slovakia, Bulgaria and the United 
Kingdom) such information was provided for 392 financial instruments represent -
ing 84 % to 98 % of the total capital endowment to financial instruments. For 
all other Member States plausible information on management costs and fees 
was reported for instruments representing two thirds or less of the total endow -
ment86. For a number of financial instruments data was either not reported at all 
or was not plausible (such as reported management costs and fees which were 
ten times higher than the actual amount disbursed). Moreover, when manage -
ment costs and fees were reported as ‘zero’ it could be that this was actually the 
case, or that the data was not reported. This data was eliminated from our further 
analysis.86 Slovenia (66 %), Spain (63 %), 
France (37 %), Italy (28 %), 
Denmark (18 %), Czech 
Republic (16 %), Netherlands 
(10 %), Belgium (1 %) and 
Estonia (0 %).
63 Observations 
Analysis of the cumulative management costs and fees per Member State for ERDF 
and ESF financial instruments as of 31  December  2014
Member StateTotal  
management 
costs reported  
(in million euro)Number of 
instruments  
(incl. sub‑funds)Management costs and fees
% of paid to instrument % of paid to final recipients
CumulativeAverage per 
annumCumulativeAverage per 
annum
Slovakia 9 7 9 % 2 % 75 % 16 %
Czech Republic 4 5 9 % 3 % 47 % 16 %
France 14 120 9 % 2 % 19 % 4 %
Sweden 21 11 13 % 2 % 17 % 3 %
Cyprus 2 5 10 % 2 % 16 % 3 %
United Kingdom 124 74 10 % 2 % 16 % 3 %
Spain 43 16 6 % 1 % 16 % 2 %
Austria 2 2 6 % 1 % 12 % 3 %
Latvia 17 15 8 % 2 % 12 % 2 %
Bulgaria 20 10 6 % 1 % 11 % 3 %
Italy 51 128 4 % 1 % 11 % 2 %
Malta 1 2 8 % 2 % 10 % 2 %
Poland 110 248 9 % 2 % 10 % 2 %
Denmark 1 9 9 % 2 % 10 % 2 %
Lithuania 29 36 7 % 1 % 9 % 2 %
Finland 4 1 6 % 1 % 9 % 1 %
Germany 105 45 7 % 1 % 9 % 1 %
Netherlands 0 11 6 % 1 % 8 % 1 %
Romania 8 4 5 % 1 % 6 % 1 %
Portugal 18 56 4 % 1 % 5 % 1 %
Greece 29 32 2 % 0 % 4 % 1 %
Slovenia 3 3 3 % 1 % 4 % 1 %
Belgium 0 9 4 % 1 % 4 % 1 %
Hungary 17 170 2 % 0 % 2 % 0 %
Estonia 0 6 0 % 0 % 0 % 0 %
Total 631 1 025
Source: ECA, based on 2015 Commission data.Table 6
64 Observations 
87 Article 78(6) of the General 
Regulation.
88 Article 43(4) of the 
Implementing Regulation.
89 Commission Regulation (EC) 
No 448/2004, rule 8, point 2.7 
and rule 9, point 2.6.No reimbursement from the EU budget of management costs 
and fees above the regulatory ceilings at closure
Management costs and fees were in principle limited to 
a maximum of 4 % per annum of the total endowment of the 
financial instrument
111 
In the legal base for the 2007-2013 programme period, the provisions on the 
remuneration of fund manager were succinct in the main regulation87, but ceil -
ings for management costs and fees were already specified in the Commission’s 
Implementing Regulation88. In particular, the following annual ceilings were set:
 ο 2 % p.a. of the capital contributed from the OP to holding funds for guaran -
tee funds;
 ο 4 % p.a. of the capital contributed from the OP or the holding fund for 
micro -credit instruments directed at micro -enterprises; and
 ο 3 % p.a. of the capital contributed from the OP or the holding fund for all 
other cases.
The Commission established these ceilings in its legislative proposal, taking account 
of the experience of the 2000-2006 programme period. Then, there was an overall 
ceiling for management costs and fees of 5 % for equity funds and 2 % for guarantee 
funds89.
112  
In shared management, when determining the fund manager’s remuneration, 
managing authorities have to comply with both the Structural funds and the 
State aid legal frameworks. Moreover, managing authorities must take care that 
the provisions on remuneration are in line with the instrument’s investment strat -
egy to ensure that the fund manager has a financial incentive to act in accord -
ance with the stated objectives of the OP . Negotiating the funding agreement 
therefore is not a trivial task and, during our interviews, many managing authori -
ties stated that they did not have the necessary expertise to do so at the begin -
ning of the 2007-2013 programming period.
65 Observations 
90 Article 42 (1)d of Regulation 
(EU) No 1303/2013.
91 Article 78(6)(d) of the General 
Regulation, within the limits 
set out in the Article 43(4) of 
the Implementing Regulation.
92 COCOF (10-0014-05), 
8 February 2012, section 2.6.113  
Under certain conditions the regulatory ceilings for management costs and fees 
can be exceeded (e.g. if management costs and fees are conform to market terms 
and do not exceed those payable by private investors or if the fund manager has 
been selected through a public procurement procedure). Based on the Member 
States’ reporting to the Commission, information on how often the ceilings were 
exceeded does not exist.
114  
Management costs and fees are paid out of the capital endowment of the 
financial instrument; they are not charged to the final recipient. These costs 
are considered eligible until the winding -up of the fund which in most cases is 
the closure of the programme90. The eligibility of management costs and fees 
claimed for the ERDF and ESF funds set up during the 2007-2013 programme 
period will be checked by the Commission only when analysing the closure docu -
ments in 2017 and 2018.
Cumulative management costs likely to exceed the regulatory 
ceilings in some cases at closure
115  
Management costs or fees incurred and paid by 31 March 2017 can be declared 
as an eligible cost of the ERDF and ESF OP under which the financial instrument 
has been set up91. The Regulation specifies that the ceilings for management 
costs and fees are related to ‘the capital contributed from the operational pro -
gramme’. According to the Commission the ceilings referred to in Article 43 of the 
Implementing Regulation are applicable to the total capital contribution to the 
financial instrument, rather than the actual contribution used to provide financial 
support to final recipients. The existing guidance for the 2007-2013 programme 
period on management costs and fees confirms this view92.
116  
In our view, the Commission should have interpreted the provisions on ceilings 
for management costs and fees set out in the Regulation as applying to the 
actual used capital endowment contributed from the OP to the financial instru -
ment, i.e. the actual endowment that has been used to provide financial support 
to final recipients. Fund managers should not be remunerated for not making use 
of the instruments’ capital endowment.
66 Observations 
93 During the 2007-2013 
programming period, the 
Commission has issued three 
COCOF guidance notes on 
financial engineering 
instruments: COCOF 
(07/0018/01), COCOF 
(08/0002/03) and COCOF 
(10-0014-05).
94 European Commission, 
Revised Guidance Note on 
Financial Engineering 
Instruments under Article 44 
of Council Regulation (EC) No 
1083/2006, COCOF (10-0014-
05), 10 February 2012, 
paragraph 2.6.12.Performance -based remuneration was not a legal 
requirement during the 2007-2013 programme period
117  
During the 2007-2013 programme period, the sound financial management of 
financial instruments and the actual performance of the fund manager were only 
referred to in the Commission’s guidance notes, but not in any regulatory basis, 
as a factor for determining management costs and fees93.
118  
Based on our performance and compliance audits of financial instruments, we 
found that performance -linked remuneration schemes were the exception rather 
than the rule: only one out of nine instruments examined in the period from 
2013 to 2015 had a performance -based remuneration of the fund manager in 
place.
119  
Where the remuneration of fund managers is not performance -based, there is 
little incentive for fund managers to actually transfer the funds to final recipients. 
This may have adversely affected the performance of financial instruments dur -
ing the 2007-2013 programme period. Moreover, managing ERDF and ESF instru -
ments becomes then also quite attractive for inexperienced fund managers (see 
also paragraph 86).
120  
In 2012, the Commission recommended to managing authorities that the fund 
manager’s remuneration be linked to the quality of investments actually made, as 
measured by their contribution to the achievement of the strategic OP objectives 
and to the value of the resources returned to the operation from investments 
undertaken by the instrument94. However, this recommendation was made in 
a COCOF guidance note and is not legally binding.
67 Observations 
95 European Commission, 
‘Summary of data on the 
progress made in financing 
and implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programme period 2007-2013, 
Situation as at 
31 December 2014’, p. 29.Commission’s assessment of management costs and 
fees does not take due account of differences in types of 
instruments and actual level of support provided to final 
recipients
Commission’s estimate of cumulative management costs of 
631  million  euro since 2007 likely to be understated
121  
In December 2015, based on the data reported by Member States for the year 
2014, the Commission estimated a cumulative management costs and fees of at 
least 631 million euro for ERDF and ESF instruments since the start of the pro -
gramme period95.
122  
According to the Commission, this represents 4.7 % of the OP contributions paid 
to the relevant instruments in the 2007-2013 programme period.
123  
If the amounts paid between holdings funds and the specific funds below are 
not included in the calculation, having already been included as OP contributions 
to holding funds, this overall management costs and fee rate increases to 6.2 %. 
In addition, fund managers can also charge fees to final recipients, but may not 
have reported these fees to the Commission. Therefore, as the Commission’s 
calculation is based only on partial data, the actual figures (both for the absolute 
amounts and the share of the OP contributions) are likely to be higher.
Management costs and fees significantly above the levels reported 
by the Commission if calculated on the basis of the financial 
support provided to final recipients
124  
Overall, based on the 764 ERDF and ESF instruments in Table 6 , we found that the 
cumulative management costs and fees account for up to 75 % of the financial 
support provided to final recipients, giving an annual average of up to 16 %.
125  
For those 10 Member States which have reported robust data for all their 274 
ERDF and ESF funds, we found that the cumulative management costs and fees 
are between 2 % and 17 % of the financial support provided to final recipients. 
This gives an annual average between 1 % and 3 %.
68 Observations 
Significant differences in the management costs and fees between 
the different types of financial instruments
126  
The level of management costs and fees is also related to the type of instrument. 
Taking into consideration the plausible data reported by the Commission, we 
found the average values presented in Table 7 . On average the guarantee instru -
ments have the lowest percentage of management costs and fees, while the 
equity instruments have the largest percentage.
Average cumulative management costs and fees per type of  
financial instrument as a percentage of fund endowment
Financial instrument typeAverage cumulative percentage of manage ‑
ment costs and fees as of 31 December 2014
Loan 4.2 %
Guarantee 2.7 %
Equity 11.0  %
Source: ECA,  based on 2015 Commission data1.
1  European Commission, ‘Summary of data on the progress made in financing and implementing financial engineering instruments reported 
by the managing authorities in accordance with Article 67(2)(j) of Council Regulation (EC) No 1083/2006, Programme period 2007-2013,  
Situation as at 31 December 2014’Table 7
127  
Moreover, as a general rule, financial instruments implemented with a holding 
fund are more costly to implement since management costs and fees are payable 
at both levels (i.e. holding fund and specific fund). We also note that the ceilings 
for management costs and fees during the 2007-2013 programme period do not 
depend on the scale of the financial instrument investments because they are 
paid as a percentage of the OP contribution (see paragraph 108).
69 Observations 
96 See Special Report No 8/2015, 
paragraph 63.
97 Lane Clark & Peacock, 
’Investment management fee 
survey’, 2015 and Morningstar, 
’Fee Study: Investors Are 
Driving Expense Ratios Down’, 
2015.
98 KfW Economic Research  No 18, 
’You get what you pay 
for – The remuneration 
structure of VC funds and its 
consequences’, 7 March2013.
99 See Special Report No 8/2015, 
paragraphs 62 and 72.Based on the financial support provided, management costs and 
fees for ERDF and ESF instruments are significantly higher than for 
centrally -managed financial instruments or investment funds in 
the private sector
128  
Our analysis also showed that the average management costs and fees for 
centrally -managed financial instruments or private -sector investment funds were 
significantly lower than those for ERDF and ESF instruments when compared to 
the financial support provided to final recipients by the end of 2014:
 ο the cumulative operating cost charged by the EEEF since it started operating 
in 2011 are approximately 5 % of the total amounts invested. This results in an 
annual cost of 1.2 %.
 ο for EPMF (loans and guarantee instruments combined), the Commission es -
timates that the average annual cost payable from the EU budget is a maxi -
mum of 0.5 % to 0.7 % of the capital endowment96. This corresponds to an 
annual cost of 0.2 % of the amount of guarantees provided by the EPMF to 
final recipients.
129  
Our analysis also showed that even the EIB’s and the EIF’s management costs and 
fees for ERDF instruments were generally higher than those charged by them 
when they act as fund managers for instruments in ‘centralised management’.
130  
Our examination of two studies on fund manager remuneration in private -sector 
investment funds published in 2015 showed that the average annual manage -
ment fee across all types of funds (excluding holding funds) was between 0.6 % 
and 1 %97. Both studies also indicated that management fees have been reduced 
in recent years. Another study published in 2013 describes that annual manage -
ment fees for venture capital equity funds range between 2.0 % and 2.5 %98.
131  
Our analysis also shows significant differences in the management costs and fees 
charged between individual ERDF and ESF instruments. Based on information 
available on the actual implementation costs of individual ERDF and ESF financial 
instruments, the Commission is not in a position to assess whether such cost dif -
ferences are justified. We previously made similar observations in another special 
report99.
70 Observations 
100 Regulation (EU) No 1310/2011 
of the European Parliament 
and of the Council of 
13 December  2011 amending 
Council Regulation (EC) No 
1083/2006 as regards 
repayable assistance, financial 
engineering and certain 
provisions related to the 
statement of expenditure (OJ 
L 337, 20.12.2011, p. 1).
101 European Commission, 
‘Summary of data on the 
progress made in financing 
and implementing financial 
engineering instruments 
reported by the managing 
authorities in accordance with 
Article 67(2)(j) of Council 
Regulation (EC) No 1083/2006, 
Programming period 
2007-2013, Situation as at 
31 December 2014’, p. 27.Limitations in reporting of management costs and fees by 
Member States
Only around 60 % of all ERDF and ESF instruments provide 
information on their management costs and fees to the 
Commission
132  
In 2011, the Commission introduced an annual reporting obligation for Member 
States on shared -management instruments100. Managing authorities had to re -
port this information for the first time in their reports for the year 2011. The data 
requested by the Commission included, amongst others, information related to 
the management costs and fees which was optional for the ERDF and ESF manag -
ing authorities. For the year 2014 data on management costs and fees was pre -
sented only for instruments representing 63 % of the total amount of payments 
from the ERDF and ESF OPs to financial instruments (compared to 50 % in 2013)101.
133  
Moreover, we note that only the paid amounts are to be reported as manage -
ment costs and fees. However, there are also cases of costs and fees accrued 
but not yet paid. These are ‘de facto’ excluded from the reporting, affecting its 
completeness and contributing to an understatement of management costs and 
fees reported to the Commission.
Addressed in the 2014-2020 programme period?
In relation to the management costs and fees’ issues a number of measures have 
been taken for the 2014-2020 programme period.
71 Observations 
102 Article 46.1 and Article 111 of 
the CPR.
103 Article 46(2e) of Regulation 
(EU) No 1303/2013.
104 Article 13 of Commission 
Delegated Regulation (EU) 
No 480/2014.Reporting deadlines shortened for Member States and extended for the 
Commission
134  
In the 2014-2020 programme period the Member States are required to submit 
to the Commission the report on the implementation of financial instruments as 
part of their annual implementation report. This implies that the reporting takes 
place one month earlier (by 31 May, as compared to 30 June during the previous 
period, when the reporting was not part of the annual implementation report; 
for 2017 and 2019 the deadline remains the 30 June) 102. Moreover, the period for 
the Commission to review the data reported by the Member States was fixed at 
six months. This means that the Commission’s deadline to present the consoli -
dated implementation report of financial instruments was changed, except for 
2017 and 2019, from 1 October to 30 November. This results in a situation where 
important information on implementation of financial instruments will become 
available to the discharge authorities even later than is currently the case.
Managing authorities are required to report to the Commission on 
management costs and fees
135  
For 2014-2020 financial instruments, managing authorities are required to publish 
data on management costs and fees as an annex of the annual implementation 
report103. This is an important improvement which will allow the Commission to 
analyse and supervise the cost of implementing financial instruments much bet -
ter in the years to come.
Reduced ceilings for management costs and fees, differentiated according 
to the type of financial instruments
136  
As regards the ceilings for management costs and fees, we observe two main 
differences to the 2007-2013 programme period. First, ceilings for the fund man -
ager’s remuneration are differentiated according to the type of financial instru -
ments104 (see Table 8 ).
72 Observations 
Ceilings for management costs and fees of different types of financial instruments 
under shared management (2014-2020 programme period)
Ceilings Base remuneration p.a. Performance‑based remuneration p.a.
Holding Fund 7 %3 % first 12 months 0.5 %
1 % next 12 months 0.5 %
0.5 % following years 0.5 %
Loans 8 % 0.5 % 1 %
Guarantees 10 % 0.5 % 1.5 %
Equity 20 %2.5 % first 24 months12.5 %
1 % following years22.5 %
Micro credit 10 % 0.5 % 1.5 %
Other 6 % 0.5 % 0.5 %
1  This relates to the period after the signature of the funding agreement, the higher rate can be used only within this period but effectively 
only for the time from the effective payment of programme contributions to the holding fund.
2  For equity, the base remuneration is linked to amounts committed to the financial instrument. 
Source: European  Commission, Guidance for Member States on Article 42(1)(d) CPR– Eligible management costs and fees (EGESIF_15-0021-01), 
p. 8.Table 8
137  
Second, the ceilings (which are now on a cumulative rather than an annual 
basis) are significantly lower compared to those applicable in the 2007-2013 
programme period. Overall we consider the reduced ceilings imposed on the cu -
mulative amount of the fund manager’s remuneration to be an improvement, but 
the Commission did not justify how these ceilings were determined. Our analysis 
of actual data reported for the 2007-2013 programme period to date shows lower 
percentages in practice (see paragraph 120).
73 Observations 
105 Consideration 123 and Article 
42 of the CPR.
106 Articles 12, 13 and 14 of 
Commission Delegated 
Regulation (EU) No 480/2014.
107 European Commission, 
‘Guidelines on State aid to 
promote risk finance 
investments’, point 3.6.1.Performance -based elements of fund manager’s remuneration only have 
limited incentive effect
138  
For the 2014-2020 CPR also provides that the performance of the fund manager 
should serve as a criterion for the determination of management costs and fees. 
In particular, all management costs and fees to be declared as eligible at closure 
have to be based on a performance -based calculation methodology (see also 
Table 6 )105.
139  
Further details on the performance -based criteria to determine management 
costs and fees and the applicable ceilings are set out in a Delegated act106.
140  
In addition, according to the Commission’s guidelines on risk finance invest -
ments107, this performance -based component of the remuneration must be 
significant and designed to reward the attainment of the specific policy targets 
set in advance as well as the fund manager’s financial performance. The latter 
should be measured not only in terms of the successful disbursement of the 
initial endowment or the amount of private capital raised, but also on the basis of 
the actual returns on investments.
141  
We observe, however, that these new performance -based elements play a sec -
ondary role in determining the fund manager’s total remuneration which is to be 
reimbursed from the EU budget, for the following reasons:
 ο given the normal duration of a holding or specific fund, the ceilings specified 
in the Commission’s Delegated act are generally reached easily without re -
ceiving the performance -related part of the remuneration. As a consequence 
a highly performing fund manager will have reached the maximum remu -
neration already at an earlier stage than a less performing one, and will from 
then on no longer be paid for his services;
 ο there is no underperformance charge which would ensure that the fund man -
ager bears part of any financial losses that the financial instrument may incur. 
In fact, based on the current remuneration scheme, even fund manager’s 
which achieve negative returns can obtain the maximum remuneration;
74 Observations 
108 Article 45 of the General 
Regulation.
109 Article 46 of the General 
Regulation.
110 SEC(2011) 1141 final of 
6 October 2011 (see also 
Special Report No 8/2015, 
paragraph 56; Special Report 
No 16/2013, paragraphs 74 
to 75). ο the regulatory framework does not require that minimum performance 
benchmarks (or hurdle rates) are specified in advance by the managing 
authority which must be attained before the fund manager can receive the 
performance -related part of the remuneration.
Overall, we therefore consider that the performance -based part of the fund man -
ager’s remuneration co -financed from the EU budget currently provides only a very 
limited incentive effect and needs to be reconsidered.
Management costs and fees are incurred in addition to the 
administrative cost of implementing ERDF and ESF OPs
142  
The management, control, monitoring and evaluation of the ERDF and ESF OPs 
comes at a cost: this administrative cost for national authorities comprises staff 
remuneration, operational costs (such as travel and training costs) and costs 
related to information and communication activities. Member States have the 
possibility to use technical assistance under the ERDF and ESF OPs to cover these 
administrative costs108.
143  
During the 2007-2013 programme period, technical assistance could be up to 4 % 
of the total funding of an ERDF or ESF OP109. The same level has been kept for the 
2014-2020 programme period. It was established on a basis of a study carried out 
in 2010 on behalf of the Commission for its Impact Assessment for the 2014-2020 
programme period 110. On this basis, the Commission estimates that up to 13.6 bil -
lion euro can be spent by Member States on technical assistance during the 
entire period.
144  
However, during the 2014-2020 programme period, a significant larger share of 
the ERDF and ESF budget will be implemented through financial instruments (see 
paragraph 21). This implies that comparatively more technical assistance money 
will be available for the grant -based funding activities of the ERDF and ESF OPs 
since the main part of the administrative activity for financial instruments is 
performed by the fund manager. For these activities, management costs and fees 
are directly charged by fund managers to OPs (or to final recipients). Therefore, 
the increase in funding through financial instruments indirectly also adds to the 
total administrative cost to the EU budget since it raises the amount of technical 
assistance support given to Member States from the EU budget for the remaining 
grant -based funding activities.
75 Observations 
111 European Commission, 
’Co-financing salaries, 
bonuses, top -ups from 
Structural Funds during the 
2007-2013 programme period’, 
Final Report, 2014.
112 See Special Report 5/2015, 
paragraphs 58 and 71.
113 See Special Report No 8/2015, 
paragraphs 57, 63 to 64, 71 to 
72 and recommendation 4.145  
We also note that, as for the 2007-2013 programme period, there is no obliga -
tion for national administration to report in detail on how technical assistance 
has been spent111. In a previous report we already observed that the Commission 
does not have any comparative information available on the actual administra -
tive costs for each Member State, for each OP or for each funding mechanism (i.e. 
grants or financial instruments)112. This makes it difficult to assess whether the 
levels of technical assistance are justified in view of the actual costs incurred by 
Member States for implementing the ERDF and ESF OPs.
146  
We therefore maintain our previous recommendation that the Commission 
should carry out a comparative analysis of the implementation costs of grants 
and financial instruments (in central and shared management) for the 2014–2020 
programme period with a view to establishing their actual levels113. Such informa -
tion would be particularly relevant in view of preparing the legislative proposals 
for the post-2020 period.
76
 Conclusions and 
recommendations
147  
Overall, we note that financial support provided to final recipients through 
financial instruments offers significant advantages compared to grants since 
each euro of funding through financial instruments can in principle be used more 
than once. Moreover, the fact that loans have to be paid back, guarantees have 
to be released or in the case of equity investments returned should in principle 
also have an impact on the behaviour of final recipients, leading to a better use 
of public funds and reducing the likelihood that the final recipients will become 
dependent on public support.
148  
Our audit identified however a number of significant issues that limited the ef -
ficiency of financial instruments as a mechanism to implement the EU budget 
during the 2007-2013 programme period:
 ο a significant number of ERDF and ESF financial instruments were oversized 
and by the end of 2014 continued to face significant problems to disburse 
their capital endowments (on average, around 57 % of all capital endowment 
paid from the OPs to the financial instruments had been used). A contribut -
ing factor to the excessive initial capital endowments was the Member States’ 
intention to avoid de -commitments throughout the 2007-2013 programme 
period;
 ο overall, financial instruments in both shared and central management were 
not successful in attracting private capital;
 ο so far, only a limited number of ERDF and ESF financial instruments have 
been successful in providing revolving financial support; and
 ο for ERDF and ESF financial instruments, high levels of management costs and 
fees compared to the actual financial support to final recipients and also ap -
pear to be significantly higher than those of centrally -managed instruments 
or private -sector investment funds.
149  
At the same time, we also note that improvements were made in the legal frame -
work for the 2014-2020 programme period as regards financial instruments based 
on the expertise gained during the 2007-2013 programme period, but certain 
issues remain. Our main conclusions for the 2007-2013 and 2014-2020 programme 
periods are presented following the structure of the report, together with our 
recommendations.
77 Conclusions and recommendations 
Were financial instruments appropriately sized in view of market 
needs?
150  
We consider that significant number of financial instruments were oversized. This 
indicates that market needs have not always been properly assessed by manag -
ing authorities before allocating funds from the ERDF and ESF OPs to financial 
instruments. This led to excessive capital endowments when setting up the 
financial instruments, which resulted in low disbursement rates. A contributing 
factor to these excessive capital endowments was the Member State’s intention 
to circumvent the n+2 rule.
The introduction of mandatory ex -ante assessments during the 2014-2020 pro -
gramme period for financial instruments in both shared and centralised manage -
ment will contribute to preventing excessive endowments of financial instruments 
on a large scale. Nevertheless its success will depend on whether or not it was built 
on sound assumptions and analysis. For instruments in shared management the 
phased payments approach (which links the payments from the EU budget to the 
disbursement of funds to final recipients) is also aimed at addressing the issue of 
excessive endowment. Moreover, a regular review of the ex -ante assessment in cases 
of changes in the economic or market environment is foreseen as an option in the 
CPR, but not for the centrally -managed instruments. A mid -term review (which could 
address such aspects) is undertaken for most, but not all centrally -managed financial 
instruments. Finally, an independent review of ex -ante assessments is not foreseen in 
either case.
151  
The regional focus of financial instruments contributed to Member States setting 
up a large number of small -sized financial instruments in the 2007-2013 pro -
gramme period. Often, these individual ERDF and ESF specific funds did not have 
the size which in the fund industry is considered appropriate to operate them 
efficiently (see paragraphs 27 to 61).
78 Conclusions and recommendations 
Recommendation 1
As regards the ex -ante assessments for financial instruments:
(a) the Commission’s ex -ante assessment for centrally managed instruments 
should systematically include an analysis of the ‘lessons learnt’ to date.
Target implementation date: Whenever a new instrument is established.
(b) the Commission, in addition to the ‘lessons learnt’, should also assess the 
effect of major socio -economic changes on the rationale of the instrument 
and the corresponding contribution required from the EU budget in the con -
text of their respective mid -term reviews for all centrally managed financial 
instruments.
Target implementation date: As soon as mid -term reviews are carried out.
Recommendation 2
The Commission and the Member States should aim at optimizing the size of spe -
cific ERDF and ESF funds to take, wherever possible, advantage of the significant 
economies in the cost of operating funds. The Commission should provide ad -
ditional guidance to Member States on how to set up such financial instruments 
within Member States or at Union level (which are managed directly or indirectly 
by the Commission).
Target implementation date: By the end of 2016 (for the Commission), when es -
tablishing the financial instruments (for Member States).
Did financial instruments succeed in attracting private capital?
152  
We found that the Commission and Member States have faced significant difficul -
ties in attracting private sector investors to financial instruments in both shared 
and central management during the 2007-2013 programme period. In particular, 
the preferential treatment of private investors for financial instruments did not 
succeed in attracting significant additional financing. In addition, we consider 
that the Commission’s measure of leverage for financial instruments does not 
properly take into account the extent to which public financing from the EU 
budget mobilises additional funds. Moreover, Member States are not obliged 
to report to the Commission information on private contributions to the capital 
endowment of ERDF and ESF instruments.
79 Conclusions and recommendations 
153  
At this stage it seems unlikely that a significant amount of private funds will be 
attracted for the 2014-2020 programme period, through the OPs or as additional 
contributions. The guidance issued by the Commission in April 2014 does not suf -
ficiently draw on the ‘good practices’ observed during the 2007-2013 programme 
period on how best to apply the provisions on preferential treatment to attract 
more private capital without allocating excessive risks to the public sector.
154  
The use of advance tax agreements for financial instruments, which under certain 
conditions may result in tax avoidance, during the 2014-2020 programme period 
would go against the Commission’s own policy in this respect (see paragraphs 62 
to 91).
Recommendation 3
The Commission should provide in the Financial Regulation (and subsequently 
in sectorial Regulations) a definition for the leverage of financial instruments 
applicable across all areas of the EU budget, which clearly distinguishes between 
the leverage of private and national public contributions under the OP and/or of 
additional private or public capital contributions, and takes into account the type 
of instrument involved. This definition should clearly indicate how the amounts 
mobilised by the EU and national public contribution are determined, possibly 
following the OECD’s guidelines on the subject.
Target implementation date: At revision of Financial Regulation and for the secto -
rial regulation at mid -term review.
Recommendation 4
For ERDF and ESF financial instruments under the 2007-2013 programme period, 
the Commission should ensure that Member States provide complete and reliable 
data on private contributions on capital endowments, both through the OPs and 
in addition to them.
Target implementation date: By the end of 2017.
80 Conclusions and recommendations 
Recommendation 5
For ERDF and ESF financial instruments, the Commission should provide addi -
tional guidance to Member States on how best to apply the provisions on prefer -
ential treatment to attract more private capital without allocating excessive risks 
to public contributors to the financial instruments’ endowments.
Target implementation date: By the end of 2016.
Recommendation 6
For centrally -managed financial instruments, the general risk -sharing principles 
which may have an impact on the EU budget should be defined in the legislation 
governing the instrument concerned.
Target implementation date: When making its proposals for the establishment of 
new financial instruments or the revision of existing ones.
Recommendation 7
For all financial instruments funded from the EU budget during the 2014-2020 
programme period, the Commission should ensure that only structures which are 
in line with its own recommendations and actions with regards to tax arrange -
ments are implemented by Member States, the Commission itself and the EIB 
group.
Target implementation date: By the end of 2016.
Were financial instruments providing revolving financial support?
155  
For a large majority of ERDF and ESF instruments, no substantial revolving effect 
of funds had occurred by the end of 2014. This was due to the fact that imple -
mentation delays contributed to ERDF and ESF financial instruments’ difficulties 
in disbursing their endowments in full during the 2007-2013 programme period. 
The eligibility period needed to be extended from December 2015 to March 2017 
to increase the likelihood that most financial instruments would spend their 
initial endowments once. Furthermore, after closure in March 2017, the imple -
mentation of the financial instruments is at the discretion of Member States and 
it remains to be seen to what extent a revolving effect will be realised.
81 Conclusions and recommendations 
156  
For the 2014-2020 programme period, the provisions in the legal basis limit the 
risk of setting -up instruments with excessive capital endowments, and conse -
quently also help to increase the likelihood of achieving a revolving effect. This 
requires however that lessons have been learnt from the shortcomings observed 
during the 2007-2013 programme period, and managing authorities are more 
realistic about the share of the ESIF that can be implemented through financial 
instruments.
157  
Other changes have been made which should help to set up instruments more 
efficiently, but we found that additional guidance is required on two specific 
aspects (see paragraphs 92 to 105).
Recommendation 8
The Commission should take appropriate measures to ensure that Member States 
maintain the revolving nature of the funds during the required eight -year period 
after end of the eligibility period for the 2014-2020 programme period. This could 
be achieved by requiring the use of an explicit clause in the funding agreement 
to ensure that the funding is used for the intended purposes.
Target implementation date: By the end of 2016.
Recommendation 9
The Commission should provide guidance in respect of the provisions allowing fi -
nancial instruments to continue to be used into the following programme period, 
in particular for cases where fund managers are selected on the basis of public 
procurement.
Target implementation date: By the end of 2016.
82 Conclusions and recommendations 
Did financial instruments prove to be a cost -efficient method of 
implementing the EU budget?
158  
We found that a significant share of initial endowments of ERDF and ESF financial 
instruments was spent on management costs and fees. Moreover, the fee level 
was significantly higher than for centrally -managed instruments or private -sector 
investment funds when compared to the financial support actually provided to 
final recipients. In view of the high levels observed by the end of 2014, there is 
a significant risk that a large number of ERDF and ESF instruments will exceed 
the ceilings for management costs and fees specified in the 2007-2013 legal base. 
High levels of management costs and fees may point to a fundamental problem 
with the way in which this funding mechanism has been implemented during the 
2007-2013 programme period.
Management costs or fees incurred and paid by 31 March 2017 can be declared as 
an eligible expenditure of the ERDF and ESF programmes under which the financial 
instrument has been set up. The Regulation specifies that the ceilings for manage -
ment costs and fees are related to ‘the capital contributed from the operational 
programme’ to the instruments.
According to the Commission the ceilings referred to in Article 43 of the Implement -
ing Regulation are applicable to the total capital contribution to the financial instru -
ment, rather than the actual contribution used to provide financial support to final 
recipients. In our view, at closure, the ceilings set out in the Regulation should how -
ever be interpreted as applying to the actual used capital endowment contributed 
from the OP to the financial instrument, i.e. the one that has been used to provide 
financial support to final recipients. Fund managers should not be remunerated for 
not making use of the instruments’ capital endowment.
159  
The Commission does not have a comprehensive overview of the implementa -
tion costs of ERDF and ESF financial instruments, and how management costs 
and fees are determined and whether they are justified. Similarly, the Commis -
sion lacks information on the overall administrative costs for each Member State 
of implementing the ESIF during the 2014-2020 programme period, depending 
on how use is made of the alternative funding mechanisms (i.e. grants or repay -
able financial support, mainly through financial instruments).
83 Conclusions and recommendations 
160  
We also note that these management costs and fees are incurred in addition to 
the general administrative costs for the ERDF and ESF OPs. Since management 
costs are paid out of the instruments’ initial endowment, they reduce the level of 
funding from the EU budget which is available for final recipients.
161  
For the 2014-2020 programme period, the reporting deadlines for Member States 
have been reduced since the reporting on financial instruments is now part of 
the annual implementation report. This report is submitted to the Commission 
one month earlier than the previous reporting on financial instruments, except 
for the years 2017 and 2019. At the same time the Commission’s deadline for 
presenting its report to the discharge authorities has been fixed at six months. In 
comparison, during the 2007-2013 programme period, the Commission had three 
months to verify the data and present its consolidated implementation report on 
financial instruments. This means relevant information on the implementation of 
financial instruments and their related costs is available later than in the previous 
period.
162  
With regard to management costs and fees, the legislation was significantly im -
proved providing ceilings on cumulative amounts which are below those appli -
cable during the 2007-2013 programme period. However, the performance -based 
elements are not yet sufficiently strong and the Commission must provide addi -
tional clarification on how managing authorities should make use of these provi -
sions when negotiating the funding agreements (see paragraphs 106 to 145).
Recommendation 10
In view of the upcoming closure of the 2007-2013 programme period, the Com -
mission should:
(a) ensure that Member States report comprehensive information on manage -
ment costs and fees incurred and paid by March 2017,
Target implementation date: By the end of 2017.
(b) clarify that the ceilings for management costs and fees need to be applied to 
the actual capital endowment used by the financial instrument, i.e. the con -
tribution from the OP that has been used to provide financial support to final 
recipients.
Target implementation date: By the end of March 2017.
84 Conclusions and recommendations 
Recommendation 11
As regards the performance -based remuneration of fund managers in the 2014-
2020 programme period,
(a) the Commission should make a legislative proposal aiming at a revision of 
the existing provisions in the CPR to strengthen the incentive effect of these 
arrangements.
Target implementation date: By the end of 2016.
(b) Member States’ managing authorities should make extensive use of the exist -
ing performance -based elements of the remuneration for fund managers 
when negotiating funding agreements. This could be complemented by the 
use of additional elements on a voluntary basis.
Target implementation date: Immediately
Recommendation 12
The Commission should carry out a comparative analysis of the implementa -
tion costs of grants and repayable financial support, mainly through financial 
instruments, for the 2014–2020 programme period with a view to establishing 
their actual levels. Such information would be particularly relevant for preparing 
legislative proposals for the post-2020 period and determining an adequate level 
of technical assistance.
Target implementation date: By the end of 2017.
85 Conclusions and recommendations 
163  
Finally, during the 2014-2020 programme period, it will also be vital for the Com -
mission and the EIB to effectively coordinate the use of financial instruments 
in shared and centralised management funded from the EU budget with the 
European Fund for Strategic Investment (EFSI), also known as the ‘Juncker Plan’. 
Only then can the financial instruments under the EU budget contribute most ef -
fectively to the much needed infrastructure investments in the EU.
 Vítor Manuel da SILVA CALDEIRA
 PresidentThis Report was adopted by Chamber II, headed by Mr Henri GRETHEN, Member 
of the Court of Auditors, in Luxembourg at its meeting of 1 June 2016.
 For the Court of Auditors

86
 Annexes
Financial instruments in shared management  – how do they work  
(2014-2020 programme period)
(a) Loan instrumentsAnnex I
Source:  European Commission, EIB ‘FI Compass - Financial Instrument products. Loans, guarantees, equity and quasi -equity’, p. 5.
FUNDINGREPAYMENT
REPAYMENTLOAN
LOAN
REPAYMENT
RETURNS
INVESTMENT
REVENU ES 
   FINAL RECIPIENTS
   FINAL RECIPIENTS
   FINAL RECIPIENTS
   FINAL RECIPIENTS 
 CO-INVESTORS + FINANCIAL INTER MEDIARES ESIF Managing Autho rity (ESIF programme)    How does it work?   
REPAYMENTLOANLOAN
87 Annexes 
Financial instruments in shared management  – how do they work  
(2014-2020 programme period)
(b) Guarantee instrumentsAnnex IFUNDING
REPAYMENTLOAN
LOANPREMIUM
REPAYMENT
   FINAL RECIPIENTS
   FINAL RECIPIENTS
   FINAL RECIPIENTS
   FINAL RECIPIENTS GUARANT OR + CO-GUARANT OR
 In case of default PAYMENT ESIF Managing Autho rity (ESIF programme)   
 LEND ER   How does it work? 
RETURNSREPAYMENT
LOAN
REPAYMENT
LOAN
Source:  European Commission, EIB ‘FI Compass - Financial Instrument products. Loans, guarantees, equity and quasi -equity’, p. 9.
88 Annexes 
Financial instruments in shared management  – how do they work  
(2014-2020 programme period)
(c) Equity (or quasi -equity) instrumentsAnnex IFUNDING
RETURNS
 INVESTMENT
 FINAL RECIPIENTS   ACQUIRED
SHARES   ESIF Managing Autho rity (ESIF programme)   How does it work? 
  EXIT Co-Investors + FINANCI AL INTERM EDIARES
Source:  European Commission, EIB ‘FI Compass - Financial Instrument products. Loans, guarantees, equity and quasi -equity’, p. 14.
89 Annexes 
Definition of the term ‘financial instruments’ in the legal basis  
(2014-2020  and  2007 -2013 programme period)
Regional Policy  
(ERDF and ESF)Social Policy  
(EaSI)Transport and Energy Policy  
(CEF)
2014 ‑2020A definition of financial instruments is provided in the Financial Regulation, and is therefore applicable to all budgetary areas:
Article 2
‘(p) ‘financial instruments’ means Union measures of financial support provided on a complementary basis from the budget in order to 
address one or more specific policy objectives of the Union. Such instruments may take the form of equity or quasi -equity investments, 
loans or guarantees, or other risk -sharing instruments, and may, where appropriate, be combined with grants;’
Ne sectorial -specific definition.
CPR makes direct reference to the definition in 
the Financial Regulation.Despite the common definition in the 
Financial Regulation the the EaSI -Reg -
ulation makes reference to ‘loans’, 
‘guarantees’, ‘equity’ and ‘quasi- equity’.Despite the common definition in the 
Financial Regulation the CEF Regulation 
makes reference to:  
‘equity instruments’, ‘loans and/or guaran -
tees’, ‘risk -sharing instruments for project 
bonds’ .
Regional Policy  
(ERDF and ESF)Social Policy  
(EPMF)Transport and Energy Policy  
(TEN)
2007 ‑2013No formal definition exists.
 
Indirect definitions exist in the Implementing 
Regulation and in the COCOF Note.
Article 43 of the Implementing Regulation:
‘Articles 43 to 46 shall apply to financial en -
gineering instruments in the form of actions 
which make repayable investments, or pro -
vide guarantees for repayable  investments, or 
both, in the following:  
[…]’
COCOF Guidance Note:
‘1.2.12 To qualify as a financial engineering 
instrument under the SF Regulations, it is 
necessary therefore that the contributions 
from the operational programmes […] take 
the form of repayable investments, namely 
equity, loans and/or guarantees for such 
repayable investments in accordance with the 
specific provisions of Article 44 first paragraph 
(a), (b) or (c) of the General Regulation.
1.2.13 Repayable investments are distin -
guished from non -repayable assistance or 
grants, defined for the purpose of this note 
as ‘a direct financial contribution by way of 
donation’No formal definition exists.
Nevertheless, the EPMF decision makes 
reference to ‘guarantees and risk -shar -
ing instruments’ , ‘equity instruments’ 
and ‘debt instruments’No formal definition exists.
Nevertheless, the TEN Regulation makes 
reference to the ‘loan guarantee instru -
ment’, the ‘risk -sharing instrument for 
project bonds’ and to ‘risk capital participa -
tion for investment funds’.
The EEPR Regulation makes reference to 
a investment ‘facility’  in which the EU will 
be a shareholder.
Source:  European Commission.Annex II
90 Annexes Annex IIIOverview of the ERDF financial instruments in the 28 EU Member States:  
number of funds and endowment (2007-2013 programme period)
Source:  ECA, on the basis of the data from the Commission, situation as at 31 December 2014.
Cyprus
Total No of funds                       5  
Not reported
ERDF c ontributions*               17      
Share of ERDF b udget           6 %Holding
Loan
Guarantee
Equity
Mixed
Other1
2
2
-
-
-
-SPPTFR
ITBG
GRUK
DEFI SE
AT
RO
MTCYBEPL
CZ
HU
SLNLDKET
LV
LT
SK
Greece
Total No of funds                32 
Not reported
ERDF c ontributions*       1 308      
Share of ERDF b udget      6 %Holding
Loan
Guarantee
Equity
Mixed
Other4
17
2
4
5
-
-Italy
Total No of funds               108
Not reported
ERDF c ontributions*       2 526      
Share of ERDF b udget     12 %Holding
Loan
Guarantee
Equity
Mixed
Other18
2333
62
-
26Malta
Total No of funds                  2 
Not reported
ERDF c ontributions*          10      
Share of ERDF b udget      2 %Holding
Loan
Guarantee
Equity
Mixed
Other1
-
1
-
---Sweden
Total No of funds                11 
Not reported
ERDF c ontributions*          72    
Share of ERDF b udget      8 %Holding
Loan
Guarantee
Equity
Mixed
Other-
--
11
-
-
-Germany
Total No of funds                41
Not reported
ERDF c ontributions*         838      
Share of ERDF b udget      5 %Holding
Loan
Guarantee
Equity
Mixed
Other-
21
-
17
3
-
-Denmark
Total No of funds                  5 
Not reported
ERDF c ontributions*          13      
Share of ERDF b udget      5 %Holding
Loan
Guarantee
Equity
Mixed
Other-
2
-
-
3
--
Netherlands
Total No of funds                11
Not reported
ERDF c ontributions*         18      
Share of ERDF b udget      2 %Holding
Loan
Guarantee
Equity
Mixed
Other1
2
1
-
7
--United Kingdom
Total No of funds                74 
Not reported
ERDF c ontributions*         662     
Share of ERDF b udget     12 %Holding
Loan
Guarantee
Equity
Mixed
Other10
32
-
25
7
-
-
Belgium
Total No of funds                 9
Not reported
ERDF c ontributions*         159      
Share of ERDF b udget     16 %Holding
Loan
Guarantee
Equity
Mixed
Other-
7
-
-
2
--France
Total No of funds               120 
Not reported
ERDF c ontributions*         230      
Share of ERDF b udget      3 %Holding
Loan
Guarantee
Equity
Mixed
Other2
34
1211
5
-
56
Portugal
Total No of funds                 56
Not reported
ERDF c ontributions*         376      
Share of ERDF b udget      3 %Holding
Loan
Guarantee
Equity
Mixed
Other3
8
-
33
7
-
-Spain
Total No of funds                16 
Not reported
ERDF c ontributions*         950      
Share of ERDF b udget      4 %Holding
Loan
Guarantee
Equity
Mixed
Other4
2
-
-
10
--Poland
Total No of funds                    227
Not reported
ERDF c ontributions*              973      
Share of ERDF b udget           3 %Holding
Loan
Guarantee
Equity
Mixed
Other14
110
92
11
-
-
-Latvia
Total No of funds                14 
Not reported
ERDF c ontributions*        146   
Share of ERDF b udget      6 %Holding
Loan
Guarantee
Equity
Mixed
Other1
5161
--Finland
Total No of funds                 1 
Not reported
ERDF c ontributions*          35      
Share of ERDF b udget     4 %Holding
Loan
Guarantee
Equity
Mixed
Other-
---
1
--Estonia
Total No of funds                  5
Not reported
ERDF c ontributions*         119      
Share of ERDF b udget      6 %Holding
Loan
Guarantee
Equity
Mixed
Other-
3
-
-
1
1
-
Slovakia
Total No of funds                  7
Not reported
ERDF c ontributions*          95   
Share of ERDF b udget      2 %Holding
Loan
Guarantee
Equity
Mixed
Other1
1
-
-
4
-
1Lithuania
Total No of funds                34
Not reported
ERDF c ontributions*         396      
Share of ERDF b udget     12 %Holding
Loan
Guarantee
Equity
Mixed
Other3
22
4
5
---Czech Republic
Total No of funds                  3
Not reported
ERDF c ontributions*         171      
Share of ERDF b udget      1 %Holding
Loan
Guarantee
Equity
Mixed
Other1
3
-
-
1
--
Romania
Total No of funds                 4
Not reported
ERDF c ontributions*         129   
Share of ERDF b udget      1 %Holding
Loan
Guarantee
Equity
Mixed
Other1
1
11
---Hungary
Total No of funds               170
Not reported
ERDF c ontributions*         762      
Share of ERDF b udget      6 %Holding
Loan
Guarantee
Equity
Mixed
Other1
74
202847
--Bulgaria
Total No of funds                10
Not reported
ERDF c ontributions*         330      
Share of ERDF b udget     10 %Holding
Loan
Guarantee
Equity
Mixed
Other2
1
133
--
Austria
Total No of funds                 2
Not reported
ERDF c ontributions*          10      
Share of ERDF b udget      1 %Holding
Loan
Guarantee
Equity
Mixed
Other-
-
-
1
1
-
-Slovenia
Total No of funds                  3
Not reported
ERDF c ontributions*         105      
Share of ERDF b udget       5 %Holding
Loan
Guarantee
Equity
Mixed
Other1
-
1
-
1
-
-
Legend
(% of total ERDF budget)
< 4
4 - 8
8 - 1212 - 16
91 Annexes Annex IV
Source:  ECA, on the basis of the data from the Commission, situation as at 31 December 2014.
ITDEPLDKET
LV
LT
Legend
(% of total ESF budget)
< 1
1 - 2
2 - 33 - 41
-
-
1
---
6
2 %Estonia
Not reported
ESF contributions (in million euro) 
Share of ESF budgetHolding
Loan
Guarantee
EquityTotal No of funds  
MixedLatvia
Not reported
ESF contributions (in million euro) 
Share of ESF budgetHolding
Loan
Guarantee
Equity1
-
-
---
13
2 %Total No of funds  
Mixed1
Total No of funds  
Not reported
ESF contributions (in million euro) Holding
Loan
Guarantee
Equity21
1
-
--
14
1 %Mixed -Lithuania
Share of ESF budgetNot reported
ESF contributions (in million euro) Holding
Loan
Guarantee
Equity21
1
20
---
31
<1 %Mixed -Poland
Share of ESF budgetTotal No of funds  4
-
211
-
-
126
1 %Germany
Not reported
ESF contributions (in million euro) 
Share of ESF budgetHolding
Loan
Guarantee
EquityTotal No of funds  
Mixed
20
2
75
-
51
261
4 %Italy
Not reported
ESF contributions (in million euro) 
Share of ESF budgetHolding
Loan
Guarantee
EquityTotal No of funds  
Mixed4
-
1
-
-
-
3
10
4 %Denmark
Not reported
ESF contributions (in million euro) 
Share of ESF budgetHolding
Loan
Guarantee
EquityTotal No of funds  
MixedOverview of the ESF financial instruments in the 28 EU Member States:  
number of funds and endowment (2007-2013 programme period)
92 Annexes Annex VSummary of ex -ante assessment requirements (2014-2020 programme period)
ElementShared‑managed financial instruments in Cohesion policy 
(2014 ‑2020 programme period)Centrally‑managed financial instruments in Social Energy 
and Transport Policy (effective since 1  January  2013)
Legal BasisLegal Basis:
The aspects to be analysed and reported on are set out in Articles 
37(2) and 37(3) of the CPR, and include the following aspects.Legal Basis:
Article 140(f) of the Financial Regulation provides that financial 
instruments must be established on the basis of an ex -ante 
evaluation. The elements of this evaluation are described in the 
rules of application of the Financial Regulation1 and summarised 
below.
Market failuresAn analysis of market failures, suboptimal investment situations, 
and investment needs.Identification of market imperfections or failures or sub -optimal 
investment situations, and assessment of investment needs in 
view of policy objectives.
Added valueAn assessment of the added value of the financial instruments 
that are being considered for support from the ESIF; consistency 
with other forms of public intervention addressing the same 
market; the proportionality of the planned action; and measures 
to minimise market distortion. ο Demonstration that identified market needs cannot be 
addressed appropriately and in a timely manner either 
through market -led activities or through types of EU inter -
vention other than funding by a financial instrument.
 ο Demonstration that the planned financial instrument is 
consistent with new and existing financial instrument in 
order to avoid overlaps.
State aid Possible State aid implications; Not applicable
LeverageAn estimate of additional public and private resources to be 
potentially raised by the financial instrument, down to the level 
of the final recipient (expected leverage effect).Assessment of the proportionality of the planned action with 
regard to the size of the funding gap, the expected leverage 
effect additional qualitative effects.
Investment 
strategyThe proposed investment strategy, including an examination of 
options financial products to be offeredDetermination of the most efficient mode for delivering the 
financial instrument.
ResultsA specification of the expected results and of how the financial 
instrument concerned is expected to contribute to the achieve -
ment of the specific objectives set out under the relevant priority, 
including indicators for that contribution.Establishment of a set of appropriate performance indicators.
Leasons learntAn assessment of lessons learnt from similar instruments and 
ex-ante assessments carried out by the Member State in the past.No comparable provision in the legal basis to reflect on the previ -
ous experiences.
Posibility for 
reviewProvisions allowing for the ex -ante assessment to be reviewed 
and updated as required during the implementation of any 
financial instrument which has been implemented based upon 
such assessment, where during the implementation phase, the 
managing authority considers that the ex -ante assessment may 
no longer accurately represent the market conditions existing at 
the time of implementation.No review clause in the legal basis.
1  Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 on the rules of application of Regulation (EU, Euratom) No 966/2012 
of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union, Article 224 (OJ L 362, 
31.12.2012, p. 1).
93 Reply of  
the Commission
Executive summary
II
The Commission agrees that there are multiple advantages in delivering financial support from the EU budget 
through financial instruments, which is why for the 2014-2020 programme period it is actively promoting and 
encouraging their increased use.
VI
The Commission considers that the effect of the issues identified by the Court varies between Member States and 
types of financial instruments and that, overall, financial instruments remain an efficient and effective way of deliv -
ering EU funds.
VI First indent
The Commission considers that the average disbursement rate of 57% (at end of 2014) represents a very heteroge -
neous situation. The risk of not achieving full disbursement at closure concerns a limited number of financial instru -
ments in a few Member States.
The low disbursement rate at the end of 2014 is a result of a number of factors including the financial crisis, the lim -
ited experience in some Member States and the late start of some instruments.
VI Second indent
For shared management financial instruments, the legal requirements on reporting did not allow the Commission 
to obtain exhaustive data regarding the participation of private investors from Member States. Nevertheless, the 
Commission notes that the state aid rules require for certain financial instruments a minimum participation of pri -
vate investors (e.g. 30% and in some cases even 60%).
The Commission considers that centrally managed financial instruments developed in the period 2007-2013 man -
aged to attract sizeable resources from the private sector at the level of projects, even in those cases where no 
private contributions were made at the level of the fund (such as the Marguerite fund). We consider that the experi -
ence acquired under these instruments helps the Commission to develop instruments capable of attracting even 
more private investment.
VI Third indent
The Commission considers that the frequency of the recycling of funds during the eligibility period is not an end in 
itself.
Moreover, the maturity date of the financing provided is/has to be adjusted to the typology of investments being 
financed, and any conclusion on the limited revolving effect should be drawn by reference to the setup date of 
the financial instrument, the grace period, the maturity and the default rates of the financing provided to final 
recipients.
Reply of the Commission 94
VI Fourth indent
Under the rules established for the programming period 2007-2013, the management costs and fees are linked to 
the amounts paid in to the financial instruments and not to the amounts disbursed to final recipients. The Commis -
sion notes that a comparison with centrally managed instruments will only be possible at closure of the ERDF and 
ESF instruments.
For 2014-2020 the management costs and fees must be linked to performance, including the amounts disbursed to 
final recipients.
VIII First recommendation
The Commission accepts the recommendation.
Whenever a new financial instrument is developed, the ex -ante assessment should include an analysis of lessons 
learnt with similar instruments in the past.
VIII Second recommendation
The Commission accepts the recommendation.
For centrally managed instruments the relevant legal bases foresee mid -term reviews or evaluations.
For all such future mid -term reviews of financial instruments, the Commission will ensure that they cover the lessons 
learnt and the effect of any major socio -economic changes on the rationale of the instrument and the correspond -
ing contribution from the EU budget.
VIII Third recommendation
The Commission accepts the recommendation.
Insofar as it is concerned, the Commission considers this recommendation as being implemented through a draft 
guidance note on the implementation options under Article 38(1)(b) CPR presented for the first time to Member 
States on 28  April  2016 and now under finalisation, the extensive clarifications provided to Member States on what 
concerns the SME Initiative and the brochure to guide Member States on ESIF /EFSI complementarities.
VIII Fourth recommendation
The Commission does not accept the recommendation.
It does not see the necessity of amending the Financial Regulation and/or the underlying sectorial rules (CPR and 
centrally managed sectorial rules) and considers that the issue can be sufficiently addressed through the provision 
of guidance.
In this respect, the ESIF DGs started to elaborate a draft guidance note on reporting. That draft was presented to 
Member States on 28 April 2016 and is envisaged to contain extensive information on the calculation of the lever -
age as provided for in the Financial Regulation. For centrally managed instruments, in June 2015, the Commission 
refined the methodology for leverage calculation for the 2014-2020 financial instruments in order to comply, in 
a consistent and harmonised way, with the applicable requirements on the leverage effect in the Financial Regula -
tion and the Rules of Application.
Reply of the Commission 95
VIII Fifth recommendation
The Commissions accepts the recommendation.
The Member States will have to report at closure of operational programmes the national private co -financing effec -
tively paid to the financial instrument as well as the identity of national co -financing providers, the type of national 
co-financing provided and any co -investment funds in addition to programme resources.
VIII Sixth recommendation
The Commission accepts this recommendation.
The Commission started to elaborate a draft guidance note on preferential remuneration which was presented to 
Member States in October 2015 and the final version is under preparation.
VIII Seventh recommendation
The Commission partially accepts this recommendation insofar as it concerns its legislative proposals for the post-
2020 programming period.
VIII Eighth recommendation
The Commissions accepts the recommendation.
For shared management, the Commission will include in the final version of the guidance note on implementation 
options under Article 38(1)(b) CPR additional recommendations to require alignment of financial instruments struc -
tures with the policy set out in the Commission Communication on the anti -tax avoidance package of January 2016.
For centrally managed instruments, the Commission has already written to the EIB and the EIF to stress the impor -
tance of the Commission’s anti -tax avoidance measures encouraging the further promotion of best practice by EIB/
EIF in this field. The Commission engages in an active dialogue with the EIB and EIF on the review of their respective 
policies in this area.
VIII Ninth recommendation
The Commission accepts this recommendation.
The Commission will in the final version of the guidance note on implementation options under Article 38(1)(b) CPR 
emphasise the importance of the requirement in the CPR on the use of resources returned in the funding agree -
ment signed by the managing authorities and will indicate that a verification of the adequacy of this provision falls 
within the scope of regular audit work of the audit authorities.
VIII Tenth recommendation
The Commission accepts this recommendation.
The guidance note on ex -ante assessment adopted in May 2014 explains the conditions to contribute programme 
resources 2014-2020 to an existing financial instrument, and the draft guidance note on selection of bodies imple -
menting financial instruments started to be elaborated by the Commission is envisaged to include a section which 
explains the conditions applicable to contract modifications. The final version of this guidance note is currently 
under preparation.
Reply of the Commission 96
VIII Eleventh recommendation
The Commission accepts this recommendation.
The guidelines on the closure of operational programmes (Commission Decision C(2015) 2771) foresee a mandatory 
reporting on the management costs and fees incurred and paid by March 2017.
VIII Twelfth recommendation
The Commission does not accept the recommendation.
The Commission considers that the rules are clearly set out in the legal basis which has been subject to detailed 
guidance and that there is no scope at this stage for reinterpretation.
VIII Thirteenth recommendation
The Commission does not accept the recommendation.
The Commission considers the mandatory provisions on performance based remuneration laid down in Article 42(5) 
CPR, as well as the detailed criteria for performance established in Article 12 of Delegated Act 480/2014 constitute 
an adequate basis for achieving the desired incentive effect and that at this stage there is no sufficient basis which 
would justify proposing an amendment.
VIII Fourteenth recommendation
The Commission notes that this recommendation is addressed to Member States.
The Commission agrees that the managing authorities should make the best use of the existing legal requirements.
VIII Fifteenth recommendation
The Commission does not accept the recommendation.
As regards the feasibility and the proportionality of the implementation of this recommendation, the Commission 
considers that the analysis would require isolating the costs for grants and financial instruments borne by a manag -
ing authority, and probably by the same staff working on both tasks. Moreover, the cost structures of grants and 
financial instruments, as well as of shared management and direct management financial instruments, differ as they 
are different policy delivery modes and they target different typologies of investments.
Introduction
02
The Commission would like to highlight further advantages such as the better expertise and access to a wider spec -
trum of financial tools for policy delivery.
Reply of the Commission 97
08
The Commission highlights that the criteria for selecting fund managers, as defined in Article 7 Regulation 
480/2014, are applicable even in the cases where the public procurement rules are not applicable.
The State aid rules require also an open, transparent and non -discriminatory process for the selection of the fund 
manager.
The Commission considers that these are strong safeguards to ensure a sound selection of fund managers.
09
The Commission notes that not for all centrally -managed instruments is the fund manager designated in the legisla -
tive proposal, e.g. the EaSI Regulation mentions the EIB Group, but does not exclude other fund managers.
22
The Commission recalls that EFSI aims to mobilise at least 315 billion euros with an EU budget guarantee of 16 bil -
lion euros and additional 5 billion euros risk bearing capacity from the EIB resources.
This guarantee is expected to lead to a higher leverage in contrast with the different products delivered under the 
ESIF financial instruments.
Observations
31
Taking into account the life cycle of the financial instruments, an increase is expected in the last years of implemen -
tation and a conclusion on the disbursement rates can be fully drawn at closure.
32
See Commission reply to paragraph 43 and recommendation 5 of the Court’s 2014 annual report.
33
The Commission considers that there is no automatic link between the level of disbursement and the level of the 
initial endowment due to the following factors:
The analysis of the disbursement rates is based on data collected as at the end of 2014. The year -on-year progress 
made in 2014 (+12% for OP contributions to financial instruments and +38% for payments to final recipients, lead -
ing to a 10 percentage point increase in the overall disbursement rates) corresponds to the life cycle of the financial 
instruments. The Commission expects that the absorption rate in the report for the year 2015 and in the final report 
on implementation covering 2016 and 2017 will be substantially higher.
The Commission notes that there are also other factors influencing the level of the disbursement rates at the end of 
2014 such as new instruments established in 2014 and to the late settlement of financial instruments in some Mem -
ber States in 2012 and 2013.
See also Commission replies to paragraphs 53 and 54.
Reply of the Commission 98
34
The Commission believes that an overall absorption rate of 75% and a disbursement rate of around 60% for financial 
instruments, at the end of 2014, can be considered reasonable. As indicated in Figure  2a, there are also high absorp -
tion rates in some of the Member States allocating considerable amounts to financial instruments.
Like in any statistical representation, exceptions exist:
— low overall absorption rate and high disbursement rate for Romania and the Czech Republic;
— high overall absorption rate and a medium disbursement rate like Greece and France.
– Italy, Spain and Slovakia with overall low absorption.
The Commission put in place specific actions to help the low performers to increase their administrative capacity to 
be able to use the funds in line with their needs.
Common Commission reply to paragraphs 36-38
The Commission has identified the risk indicated by the Court (even if in some cases the increase was justified by 
the market conditions). The 2014-2020 rules on phased payments address this issue.
The Commission would like to point out that in any event financial intermediaries will not approve starting the 
implementation of a financial instrument without an appropriate amount of money having been made available to 
it.
40
Arrangement on management costs and fees are left to the agreement between the managing authority and the 
fund manager in line with the principle of subsidiarity.
In many cases these arrangements included also a performance based remuneration, and/or set the management 
costs and fees below the maximum thresholds of the Regulation. In some cases, there were no management costs 
and fees charged to the EU budget.
The Regulation defines the maximum level of eligible management costs and fees only, which is capped by the 
threshold linked to the capital paid in.
41
For the investments in SMEs, the financial instruments managed by EIF started in 2013-2014 and for some instru -
ments, additional allocations were made in 2015. Even if the disbursement rates at end 2014 were below the aver -
age, a further significant increase is expected until the end of the eligibility period.
For the investments in urban development funds (UDFs), the EIB and the UDFs have strongly accelerated invest -
ment activity since 2014. The slow take -off of investment projects at final recipients’ level can be explained by the 
infrastructure nature and therefore the longer cycle of the JESSICA projects which implies more complex permit 
processes, State -aid and work advancement payments. Number of South -European funds suffered also macro -eco-
nomic and banking sector crisis.
Reply of the Commission 99
43
The Commission considers that the modifications introduced in its closure guidelines were within the scope of Arti -
cle 78(6) of Regulation (EC) No 1083/2006, as amended, and therefore did not require an amendment of the legisla -
tive act (see also Commission reply to paragraph 6.52 and to Recommendation 5 of the Court’s 2014 annual report).
44
The Commission considers the projection of disbursement rates from previous years not to be the most relevant 
method to estimate the level of disbursement rate by the end of 2015 as it does not take into account the entire life 
cycle of the financial instruments and the time elapsed since a particular fund was established.
See also Commission reply to paragraph 43.
48
Experience showed that it was not appropriate to regulate on the details of the content of a business plan. This is 
also in line with the spirit of shared management and the principles of subsidiarity and proportionality.
The way Article 43(2) of the General Regulation was initially drafted raised important questions. For e.g. it was not 
considered adequate to require the business plan to be submitted by co -financing partners as a business plan (or 
other appropriate document) should be submitted only by the fund manager. Moreover, Article 43(2) did not make 
a distinction between the business plan of a holding fund and a business plan of a financial intermediary and thus 
its content raised confusions.
In the 2014-2020 legal framework which is more comprehensive, the exact content of a business plan is not pro -
vided either. The crucial element in terms of setting up a financial instrument is a funding agreement signed 
between the managing authority and the fund manager. The funding agreement must include the investment 
strategy and a business plan and several other relevant elements (see Annex IV CPR).
50
The Commission has repeatedly recommended to the Member States to include in the funding agreements the 
conditions for possible withdrawing of funds from financial instruments and to proceed with phased payments into 
the instruments (see point 5.3 COCOF Guidance FEI 10-0014-05-EN).
51
The Commission notes that in the same country different funds performed differently.
The Commission considers that there are other factors than just the robustness of the gap assessment which may 
have contributed to instrument oversizing (e.g. financial crisis or the late setup of the instruments that influence the 
disbursement of the funds).
Furthermore, the financial instruments are market -led instruments. The gap assessment reveals an existence, or not, 
of a given market failure. The market conditions can however vary significantly few years after the instruments have 
been setup. Therefore, assessing the performance of a financial instrument by reference to the link between the gap 
analyses and the disbursement rates seems not to address these evolving market conditions.
Reply of the Commission 100
52
The Commission notes that, in 2007-2013, carrying out a gap assessment was only  indirectly required by the legal 
framework. In view of this, the Commission considers the fact that 82% of the respondents to the Court’s survey 
have carried out an assessment as positive.
53
The Commission recalls that the indirect requirement to carry out a gap assessment in the 2007-2013 period did not 
include any of the mandatory and detailed requirements provided for the ex -ante assessment in Article 37 CPR for 
the 2014-2020 period. The Commission believes that the new legal requirement will prevent the associated risk and 
that a second layer of review would bring no added value.
Performing an ex -ante assessment is the responsibility of the managing authority and its results are to be submit -
ted to the monitoring committee before any decision to make programme contributions to financial instruments 
is taken. The ex -ante assessment is not a decision as such. It helps to avoid overlaps and inconsistencies between 
instruments implemented by different actors at different levels and to avoid some of the problems identified in the 
2007-2013 period.
The experience of the Commission shows that the ex -ante assessments in 2014-2020 are carried out by entities with 
market experience and competence, including the EIB group. The ex -ante assessment requirement was designed 
with a view to ensure its independence and objectivity. The ex -ante assessment is undergoing a strong public scru -
tiny with a much higher added value than an ‘independent review’ due to the submission to the monitoring com -
mittee and the publication within three months of their date of finalisation.
The Commission considers that the new phased payment system will function also as a market test and as a second 
layer of safeguard. In case the disbursements to final recipients are lower than expected, the Commission will not 
proceed with any further reimbursements.
54
The Commission notes that ‘lessons learnt’ and ‘major socio -economic changes’ are already taken into account in 
the systematic mid -term reviews of the 2014-2020 centrally managed instruments. This is why the Commission con -
siders that ex -ante assessments do not need to be updated to cater for these aspects.
55
The Commission recalls that, while financial instruments should be established in line with the rules of the pro -
grammes (national/regional), this does not mean that a financial instrument needs to be created in every region. It 
is possible to make several programme contributions to one financial instrument therefore benefiting from econo -
mies of scale and critical mass.
It is also highlighted that the amounts allocated to financial instruments in a region are not arbitrary. They are part 
of the programme strategy used for the programme negotiations and including the needs analysis of the region 
which is confirmed by an ex -ante evaluation of the programme.
Reply of the Commission 101
57
Under Cohesion policy the objective was to provide a sufficient range of options so that the best implementation 
option is chosen in respect of the market failure identified so to provide the most effective support.
Based on the ex -ante assessment the instruments should be designed in a way that avoids overlaps and ensures 
complementarity. It is possible to make several programmes’ contributions from different regions to one financial 
instrument therefore benefiting from economies of scale and critical mass. Depending on the type of instruments 
(e.g. loans and guarantees), and the specificities of the Member States, some smaller funds perform as well as bigger 
funds or even better (e.g. Germany, Poland or France).
The Commission believes the ex -ante assessment, by indicating the adequate size of the financial instrument, will 
provide reliable and appropriate results with more accuracy than any general information issued by the business 
fund industry.
59
The Commission recalls that this possibility in the Common Provisions Regulation does not eliminate the geographi -
cal restrictions of each contributing programme. The geographical eligibility is one of the main features of Cohesion 
policy.
See Commission replies to paragraphs 55 and 57.
61
With respect to Article 38(1) (a) of the Common Provisions Regulation (CPR), the managing authorities may pro -
vide financial contribution to financial instruments set up at Union level, managed directly or indirectly by the 
Commission.
The Commission has provided extensive clarifications and worked closely with Member States on what concerns the 
SME Initiative, which is an EU -level financial instrument. Moreover, the Commission has issued a brochure to guide 
Member States on the complementarities between ESIF and EFSI. In case new EU level instruments are developed, 
the Commission will provide guidance on the contribution of programme resources to the EU level instruments 
based on Member States’ requests.
64
The definition of leverage derives from Article 223 of the Rules of application of the Financial Regulation which will 
allow for consistent reporting by Member State.
The discussion on a common definition of leverage took place between all Commission services. Section 2.3.4 of the 
Commission Communication COM(2011) 662 of 19.10.2011 introduces an unified concept.
Reply of the Commission 102
65
Discussions on the definition of leverage between the Court and the Commission have been ongoing since 2010. As 
mentioned in the Commission reply to paragraph 64, the definition of leverage derives from the Financial Regula -
tion and ensures a consistent reporting from the Member States.
The Commission considers that the Court’s interpretation of the leverage effect is diverging from the definition 
in Article 223 of the Rules of Application to the EU Financial Regulation (RAP) as ‘the amount of finance to eligible 
final recipients divided by the amount of the Union contribution’. This means that the leverage should be seen as 
the ratio between the Union financial resources allocated to a financial instrument (input) and the (total) amount of 
finance provided to eligible final recipients (output).
Such an interpretation guarantees in fact a comparable treatment of the leverage effect between financial instru -
ments and grants.
For shared management instruments, the reporting by the Member States will enable the Commission to distin -
guish between the leverage of private and national public contributions under the OP and/or of additional private 
or public capital contributions. Co -financing does not necessarily constitute public funding only. Priority axis can be 
on eligible public expenditure or eligible total expenditure (including public and private expenditure). The majority 
of the axis created to support SMEs and the private sector in general) are on total expenditure (see Article 120 of the 
Common Provisions Regulation).
Because the European Structural and Investment (ESI) funds are implemented always through operational pro -
grammes which are co -financed with public and/or private resources (whereas financial instruments implemented 
under other policy areas do not require such co -financing at programme level), it would be inappropriate to con -
sider that such co -financing should not count as leverage resources for financial instruments implemented through 
ESI funds.
67
The Commission underlines that Member States’ reports in the 2014-2020 period will, among others, enable the 
Commission to provide information on the leverage effect of financial instruments, which takes into account 
the co -financing requirements, i.e. the fact that the national co -financing can consist of public and/or private 
expenditure.
68
The Commission has set up a horizontal taskforce providing guidance on the interpretation of the rules of the 
current Financial Regulation with regard to the implementation of 2014-2020 financial instruments, including on 
leverage.
The Commission also refers to its replies to paragraphs 69 and 73.
Reply of the Commission 103
69
The current Financial Regulation and its Rules of Application require an unified approach to reporting on leverage. 
The Commission took steps to fine tune the methodology for leverage calculation as indicated in the reply to para -
graph 68.
As the provisions applying to financial instruments entered into force in January 2014, the revised approach is 
applied only to 2014-2020 financial instruments.
Moreover, it needs to be noted that the scope of these instruments is far from homogeneous, which explains 
some differences in the applied methodology. These differences should therefore not be systematically seen as 
inconsistencies.
70
The Commission agrees that different methodologies adapted to the different instruments should be clarified and 
notes that efforts have already been made in this respect.
In June 2015, the Commission refined the methodology for leverage calculation in order to comply, in a consistent 
and harmonised way, with the applicable requirements on the leverage effect in the Financial Regulation and the 
Rules of Application. The methodology covers EU -level financial instruments of the current programming period 
(2014-2020). According to the aforementioned methodology, the amount of finance to eligible final recipients 
should correspond to the volume of finance provided to eligible final recipients by a financial instrument through 
its financing chain, including the part of the Union Contribution.
Moreover, finance provided outside the financing chain of a financial instrument can also be taken into account 
provided there is a clear link with the financing provided through the financing chain of the financial instrument. 
In line with the above, in infrastructure financing, all sources of finance – equity investment, loans and grants – are 
to be taken into account for the calculation of the amount of finance to the project. In this context, the EU budget 
intervention in the financing of a transaction ensures a high degree of certainty and deliverability of the transaction 
as a whole, which triggers as an effect a higher volume of finance mobilised.
For the reporting period starting from 2015 the Commission will ensure an improved consistency in the methodol -
ogy for leverage calculation across instruments and product types.
See also Commission’s replies to paragraphs 69 and 73.
Reply of the Commission 104
Box 7
The Commission notes that the OECD methodology concerns the measurements of amount mobilised from the 
private sector by official development finance.
The Commission considers that the causality between the EU budget contribution and the amount of finance that 
was mobilised as a result can be assessed only on a case by case basis.
Even limited EU and EIB contributions to projects can have positive impacts:
— Attracting additional private financing at least for the same amount as EIB senior lending (this is the case for all 
LGTT guaranteed projects, where the EIB lending has been equal to other banks’ lending);
— Providing a stepping -in into the financial close of private financing institutions, or national development banks, 
due to the recognised role of the EIB as AAA financing institution;
— Public authorities engaging in long term maturities with EIB for projects, which could not otherwise be financed 
solely in the regional/ even national context due to shorter term return on investment requirements of the pri -
vate investors.
Given the arguments above, the Commission considers that the joint EC -EIB financial contributions, as well as the 
EIB’s role as institutional bank, do trigger the decisions of the national/ regional authorities in procuring public pri -
vate partnerships projects, where part of the financing is provided on the long -term basis from the national budg -
ets, along the EU -EIB engagement on the long term basis, which the solely private institutions would be unable to 
undertake.
The methodology for multiplier calculation was refined in the design of the European Fund for Strategic Invest -
ments (EFSI). To this effect, Project Investment Costs have been adjusted to exclude all EU grant financing, EU finan -
cial instruments or ESIF grants/financial instruments (including related national public co -financing from Managing 
Authorities) which are used to co -finance the proposed project.
Common Commission reply to paragraphs 71 and 72
The Common Provisions Regulation provides the framework for the implementation of ESIF. Other legal frameworks 
such as Procurement Directives or State aid rules apply as well without the need to repeat them in the Common Pro -
visions Regulation. The Financial Regulation also applies in the same way, in particular its special provisions applica -
ble to shared management.
In April 2016, the Commission issued a guidance note on reporting, which covers leverage calculation in order to 
give to Member States a consistent methodology. This will ensure robust and comparable data with respect to the 
expected and achieved leverage effect. For shared management instruments, the reporting by the Member States 
will also enable the Commission to provide information on the leverage effect of financial instruments, which takes 
into account the co -financing requirements which may consist of public and/or private expenditure.
Reply of the Commission 105
73
The Commission considers that the goal of attracting private capital should not be overemphasised in particular for 
sectors exposed to major market failures.
For both centrally managed and shared management instruments, other goals may be equally important (e.g. 
establishing investment in a given nascent market with strong EU value added at a time of economic recession; sup -
porting growth, jobs and competitiveness in all Member States and their regions, etc.). Therefore the measurement 
of the success factor of financial instruments goes beyond the extent of private funds attracted.
The Commission underlines that private funding is an additional legal requirement for shared management stem -
ming from the State aid legal framework.
Common Commission reply to paragraphs 74 to 76
The Commission points out that the fact that the parties may have different goals will reinforce the quality of 
the projects and will allow for access to a wider spectrum of financial tools for policy delivery and private sector 
involvement and expertise. It believes that EU support delivered through professional and experienced mechanisms 
will strengthen the governance and delivery system of ESIF.
For ‘shared management’ financial instruments, the preferential treatment of the private investors or public inves -
tors operating under the market economy principle, as well as any risk sharing arrangements, have to comply with 
State aid rules as provided for in the regulations for 2007-13 and is limited to the minimum necessary to attract 
those investors.
In addition, as provided for in the Article 6 of Delegated Regulation No 480/2014 the preferential remuneration of 
private investors or public investors operating under the market economy principle, as referred to in Articles 37(2)
(c) and 44(1)(b) CPR, is proportionate to the risks taken by these investors and limited to the minimum necessary to 
attract such investors, which shall be ensured through contractual terms and conditions and procedural safeguards.
77
The Commission believes that the legal basis should contain general terms in relation to the risk and revenue shar -
ing mechanisms, in order to give sufficient flexibility for the detailed arrangements to be agreed upon in the spe -
cific Delegation Agreements between the Commission and the entrusted entities (see Commission reply to Box 9).
Box 9
Fifth alinea: The Commission considers that the level of remuneration that the Commission is entitled to receive 
for the LGTT/PBI portfolio is commensurate with the risk taken. Moreover following the depletion of the PFLP the 
remaining risk is fully borne by the EIB.
Sixth alinea: The Staff Working Paper dated 19 October 2011 was an exploratory document, charting the contours of 
a highly innovative scheme without any precedent.
Under the legislative procedure, the co -legislators were made aware of the evolution of the detailed scheme, which 
was triggered by further calculations and risk analysis by the Commission and the EIB. In any case, the 95%/5% split 
of the First Loss Piece was clearly indicated in the Staff Working Paper – this risk -sharing parameter never changed.
Reply of the Commission 106
Common Commission reply to paragraph 78 and Box 10
The Commission believes that the risk allocation under the examined centrally managed instruments is justified in 
particular to help overcoming the reluctance of the private sector to invest in certain areas. First loss pieces should 
be duly justified and certain caveats have to apply taking into account in particular the sector and market in which 
the instrument operates, which may in turn justify such risk taking.
As regards EEEF, given the difficulties in stimulating investment in the embryonic, fragmented, small scale, capi -
tal intensive energy efficiency market, further risk bearing or other measures may be necessary to stimulate 
investment.
79
The use of tax ruling in the Fund industry in Luxembourg is usual and necessary, in particular for a SICAV, to reduce 
the uncertainty faced by investors by providing clarity on the cross -borders investment taxations.
Such funds obtain tax rulings only because of the market environment in which they operate and it is not linked to 
the fact that a financial instrument is implemented through a SICAV structure.
80
The Commission notes that none of the investigations referred to are linked to a SICAV. The Commission emphasizes 
that only a fraction of tax rulings were used by large multinational companies to gain unfair advantages. The pro -
posal for a Council Directive COM(2015)135 still needs to be adopted by the legislator and subsequently be trans -
posed in the national law of the Member States. The recommendation C(2012)8806 is addressed to Member States.
Common Commission reply to paragraph 81 and Box 11
Marguerite is a Luxembourg based SICAV which operates within the market practices and conditions as well as the 
national legal environment.
The use of tax rulings is common for financial vehicles established in Luxembourg for confirmatory reasons with 
a view to limit the uncertainty for investors (especially when the Fund aims to attract private investors).
82
There is no legal requirement from Member States to report to the Commission the details of the set -up of ERDF and 
ESF financial instruments. Under shared management and in line with the subsidiarity principle, the Member States 
have the responsibility to ensure that the set -up of the financial instruments is compliant with the applicable EU and 
national laws so that the related expenditure is legal and regular.
Reply of the Commission 107
83
The Commission recalls that there is no systematic reporting to identify private funding at the level of the final 
recipients.
The Court’s analysis takes into account only the implementation report on FEIs for which figures were inserted in 
the column II.10 Amounts of OP contributions paid to FEI – national private co -financing. However, as the Court 
explains in paragraph 85, private funding can also be provided from sources outside the OP .
85
For the 2014-2020 programming period requirements on reporting on financial instruments are provided in Article 
46 CPR, and Annex I of the Commission Implementing Regulation 821/2014. The latter sets out a model for reporting 
on financial instruments. In section VIII of the reporting model the Member States have to provide information on 
the amount of other contributions, outside ESI Funds raised by financial instruments, including public and/or pri -
vate contributions, both committed in the funding agreements and paid at the level of final recipients. Indeed the 
regulatory framework envisages that reporting on financial instruments under Article 46 should include information 
on the private contributions (in the context of assessing the leverage effect).
86
While the legal basis for 2007-2013 did not explicitly require performance oriented management costs and fees, the 
remuneration is generally determined in the funding agreement between the managing authority and the body 
implementing the financial instrument. For example, at least Portugal, UK and Poland have put in place a perfor -
mance based remuneration system in some of the funding agreements for ERDF and ESF instruments during the 
2007-2013 programme period.
The Commission underlines also that in many loan funds the private co -investment takes place at the fund level and 
it is provided by the fund manager itself.
87
The Commission notes that an additional factor regarding the set -up of financial instruments and the leverage 
result in mobilising additional private funds is the risk and credit profile of targeted final recipients. It is worth men -
tioning that EPMF targets final recipients with higher risk credit profiles.
See also Commission reply to Box 12.
Reply of the Commission 108
Box 12 First alinea
According to the ad -hoc audit report prepared by external consultants at the request of the Commission on the 
Marguerite Fund, a lack of private co -financing at the Fund level was not due to private sector reluctance to invest 
in publicly -funded instruments but rather to the less common governance structure of Marguerite, the limited pipe -
line of mature projects and the challenging market conditions in which the Fund has had to operate.
Box 12 Second alinea
The EEEF was created in a short timeframe under the European Energy Recovery programme to support particu -
larly risky and innovative energy efficiency projects, a sector where no previous dedicated funds were established. 
Therefore, the Commission agreed to be the cornerstone investor of the fund. Nevertheless, there is still room 
for additional investments as the total amount committed at this stage is less than half of the fund’s target of 
700 million  euro.
89
The Commission started to elaborate a draft guidance note on preferential remuneration which was presented to 
Member States in October 2015 and the final version is under preparation.
90
The Commission believes that the main aspects of the risk -sharing arrangements between the Commission and its 
partners are to be assessed in the future legal bases.
However, a balance must be found to allow sufficient flexibility in the legal bases so that the risk and revenue shar -
ing arrangements between the Commission and the entrusted entity can be agreed upon in the specific Delegation 
Agreement.
91
The Commission recognises the importance of ensuring that financial instruments are not subject to unaccepta -
ble tax avoidance schemes. This is reiterated in its recent Communication on the anti -tax avoidance Package of 
29/01/2016. However advance tax agreements cannot be considered per se as going against the Commission’s own 
policy.
In respect of both centrally and shared management financial instruments, as provided for respectively in Article 
140(4) of the Financial Regulation and in Article 38(4) of the Common Provisions Regulation, the bodies implement -
ing these instruments shall not be established and shall not maintain business relations with entities incorporated 
in territories, whose jurisdictions do not cooperate with the Union in relation to the application of internationally 
agreed tax standards and shall transpose such requirements in their contracts with the selected financial intermedi -
aries. This is a legal requirement for implementation of financial instruments and provides a powerful safeguard for 
the use of EU funds.
The Commission considers that the reputational risk should not be attached to the existence of advance tax agree -
ments, but to the specific provisions of these agreements.
Reply of the Commission 109
94
The Commission envisages to provide timely guidance based on Member States identified questions and needs.
Common Commission reply to paragraphs 96 and 97
The Commission considers that the frequency of the recycling of funds during the eligibility period is not an end 
in itself.
Moreover, the maturity date of the financing provided is/has to be adjusted to the typology of investments being 
financed, and any conclusion on the limited revolving effect should be drawn by reference to the setup date of 
the financial instrument, the grace period, the maturity and the default rates of the financing provided to final 
recipients.
For example, in the off the shelf instrument Energy Efficiency ‘Renovation Loan’ for 2014-2020 the loan maturity can 
be defined for a period of up to 20 years.
A full revolving cycle within the programming period goes against such a long -term perspective.
Common Commission reply to paragraphs 99 and 100
The Commission underlines that the managing authorities are obliged to ensure proper measures to comply with 
Article 78(7) of the General Regulation and to present these measures at closure, such as the information on the 
reuse of legacy resources attributable to the ERDF and ESF specifying the competent authority which is responsible 
for managing legacy resources, the form of reuse, the purpose, the geographic area concerned and the envisaged 
duration; (see the closure guidelines point 5.2.5).
The framework not only incentivises Member States to reuse the resources for the same target group but also that 
these resources are reinvested several times provided that there is a market gap. It is up to the Member States to 
ensure compliance with these provisions.
102
The Commission highlights that resources returned to the fund after the end of the eligibility period are no longer 
EU resources, but national resources.
The CPR requires the Member States to adopt the necessary measures to ensure the proper use of resources paid 
back to the financial instruments during a period of at least eight years after the end of the eligibility period (see 
Article 45 Common Provisions Regulation and the model of funding agreement in Annex IV Article 1(j)).
The Commission envisages verifying the appropriateness of measures put in place in the funding agreements 
through the regular audit work of the national audit authorities and its own services on financial instruments.
Reply of the Commission 110
104
The Commission acknowledges the time length necessary to organise an open procedure in order to select a fund 
manager. Nevertheless, this cannot be avoided as the applicable selection rules, including those on public procure -
ment, have to be complied with.
The Guidance note on ex -ante assessment which was finalised in February 2015 explains the conditions to contrib -
ute programme resources 2014-2020 to an existing financial instrument. In addition, the Commission started to 
elaborate a draft guidance note on selection of bodies implementing financial instruments which is envisaged to 
include a section which explains the conditions applicable to contract modifications (e.g. extension of implemen -
tation period or increase of amounts of OP contribution to the financial instruments existing under the 2007-2013 
period).
110
The Commission recalls that fees reported as ‘zero’ does in many cases mean that no management costs and fees 
have been paid out. There are more than 261 funds which have reported ‘zero’ management costs and fees.
111 Second alinea
In 2007-2013 the Regulation referred to national eligibility rules rather than EU eligibility rules (Article 56(4) of 
1083/2006). This empowerment to Member States was in line with shared management and the subsidiarity 
principle.
Eligibility rules on management costs and fees are one of the very few elements in the legislation where a limitation 
on specific expenditure is imposed by the legal basis. The Regulation established different thresholds for manage -
ment costs and fees depending on the type of financial products provided and these can be lower (but not higher) 
than 4%, namely 2% for holding and guarantee funds, 3% for loan and equity funds and 4% for micro -credit instru -
ments. The ceilings aim at preserving the EU financial interests.
113
The management costs and fees are eligible and reimbursed by EU only if they are paid. Therefore, the Member 
State has no obligation to report on management costs and fees which are not paid as they cannot be claimed for 
reimbursement from the Commission and are therefore not financed by the EU budget.
If the management costs and fees are exceeding the ceilings based on a competitive procedure and are declared 
to the Commission as eligible expenditure, at closure, the appropriate authorities (managing authorities, certifying 
authorities and audit authorities) will check the eligibility of this expenditure and are obliged to report to the Com -
mission any irregularities.
Reply of the Commission 111
Common Commission reply to paragraphs 115 to 117
The Commission considers that the rules are clearly set out in the legal basis which has been subject to detailed 
guidance and that there is no scope at this stage for reinterpretation.
Article 43 of the Implementing Regulation states that the ceilings for eligible expenditure are applicable to the 
capital contributed from the operational programme to the fund, and not to the capital used by the fund to provide 
support to final recipients.
The ceilings define the maximum amount of eligible expenditure and must be calculated on a yearly average, 
pro‑rata temporis . The COCOF guidance note on financial engineering instruments addresses and further explains 
the legal basis (see paragraphs 2.6.1 to 2.6.17).
For 2014-2020, the legal framework requires that the management costs and fees must be linked to performance, 
including the amounts disbursed to final recipients.
118
See Commission reply to paragraph 86.
122
On the basis of data reported by Member States, the cumulative management costs and fees for ERDF and ESF 
financial instruments at the end of 2014 represent 4.7% of the amounts paid to the financial instruments, which is 
an annual equivalent of less than 1.0%. This is in line with the figures presented by the Court for contributions from 
the EU budget to centrally managed instruments.
123
The management costs and fees reported to the Commission are those paid by the managing authorities and reim -
bursed by the Commission to the Member State regardless of the level/layer of implementation where the manage -
ment costs and fees are incurred. The Commission underlines that a holding fund manager and a financial instru -
ment manager perform different functions and are entitled to fees for performing their functions.
The fees charged to the final recipients have to be deducted from the eligible expenditure declared to the Com -
mission in order to avoid a double financing. The existence of such fees and their correct treatment are part of the 
management verifications and audit work.
Common Commission reply to paragraphs 124 to 127
The ratio between fees and financial support provided to final recipients reflects the situation in the implementa -
tion of financial instruments at the end of 2014 and will be reduced in subsequent years as the financial support 
provided to final recipients is expected to increase.
Reply of the Commission 112
128
The Commission refers to its reply to paragraph 124 and notes that a comparison will only be possible at closure of 
the ERDF and ESF instruments.
131
Under shared management and in line with the subsidiarity principle, it is the responsibility of national authorities 
to ensure that individual operations are implemented in accordance with the applicable legal provisions, including 
compliance with the ceilings for reimbursement.
For ERDF and ESF financial instruments the Commission underlines that the management costs and fees are estab -
lished on the basis of a funding agreement negotiated between the managing authority and the fund manager and 
the Commission is not a party of that contractual relation. This is different for centrally managed instrument where 
the Commission is a party in the contractual relation with the fund manager.
133
The management costs and fees are eligible and reimbursed by EU only if they are paid. Therefore, the Member 
State has no obligation to report on management costs and fees which are not paid as they cannot be claimed for 
reimbursement from the Commission and are therefore not financed by the EU budget.
The management costs and fees paid by the managing authority can also exceed the thresholds set in the Article 
43.4 of the Commission Regulation (EC) No 1828/2006, but these are then not eligible for reimbursement from the 
Structural Funds.
134
For the programming period 2014-2020, the summary of data has to be prepared by the Commission for all of the 
five ESI funds. The reporting on financial instruments was set up for a time period of six months in order to take into 
account all fund specific rules (and the respective deadlines of submission of the annual implementation report as 
required in Articles 50(6) and (7) CPR), the time required for the consolidation and assessment of the data submitted 
by the Member States/managing authorities as part of the annual implementation report, and the overall presenta -
tion of progress on implementation of financial instruments across all 5 ESI Funds.
Where the Commission provides observations on the annual implementation report, including the financial instru -
ments, the report is returned to the managing authorities and the deadline of 2 months is interrupted until the 
revised information is resubmitted to the Commission and the deadline of two months resumes again.
Therefore, the data can be aggregated once the complete assessment by the Commission has taken place and there 
is sufficient assurance on the accuracy and plausibility of data provided by the managing authorities.
Reply of the Commission 113
141 First indent
The Commission considers that the normal duration of a holding fund and specific fund is less than the eligibility 
period given the necessary time to set up the financial instrument (see also paragraph 93).
The Commission underlines that, according to Article 42(5) CPR, it is mandatory to use a performance based calcu -
lation methodology and the criteria for performance are established in Article 12 of Delegated Act 480/2014. The 
global cap for eligible management cost and fees is established in Article 13(3) of Delegated Act 480/2014 aiming at 
protecting the EU’s financial interest.
In line with the principle of subsidiarity, the payments of management costs and fees are a matter to be established 
in the funding agreement. The CPR and of Delegated Act 480/2014 only establish ceilings to the maximum eligible 
expenditure to be co -financed by ESIF, and not to the actual payments of fees to be made. This protects the EU 
financial interests.
141 Second indent
The Commission clarified in the Guidance Note EGESIF 15-0021-01 on management costs and fees dated 26 Novem -
ber 2015 that a ‘bonus/malus scheme’ should be used where for instance the full reimbursement of management 
costs is linked to the fulfilment of agreed targets in relation to the relevant performance criteria (see point 2.2 page 
3 of the Guidance Note).
141 Third indent
In line with the principle of subsidiarity, such a condition can be set up at the level of the funding agreement as it 
is a matter of negotiation between the managing authority and the body implementing the financial instrument. 
The ceilings for base remuneration and performance based remuneration aim at capping the maximum eligible 
expenditure.
The Commission emphasizes furthermore that the use of performance based criteria is mandatory.
The performance based remuneration is a mandatory requirement as provided for in Article 42(5) CPR and the crite -
ria for performance are established in Article 12 of Delegated Act 480/2014.
From a regulatory perspective, this was considered sufficient by the co -legislators to ensure a sound implementa -
tion of financial instruments.
From a transparency and sound financial management perspective it is also underlined that the managing authority 
must inform the monitoring committee of the provisions regarding the performance -based calculation of manage -
ment costs incurred or of the management fees of the financial instrument. The monitoring committee will receive 
reports on an annual basis on the management costs and fees effectively paid in the preceding calendar year.
Reply of the Commission 114
144
The Commission does not consider that the increase in funding through financial instruments de facto raises the 
technical assistance support to Member States as the amounts committed for technical assistance are based on spe -
cific projects related to the implementation of the programmes and not to the level of funding delivered through 
the financial instruments.
In addition, some technical support has to be used in the implementation of the financial instruments (see Commis -
sion reply to paragraph 94).
The level of the technical assistance support was planned in each Member State in relation to the expected needs to 
cover the work linked to the preparation and implementation of the programmes.
The management costs and fees represent the remuneration of the fund manager to manage and to ensure the 
reporting requirements.
Furthermore, the cost driver of technical assistance is not necessarily the overall amount made available to grant 
schemes, but other factors such as the complexity of the management and control system and of the legal require -
ments linked to implementation at national and EU level, the number of OP’s, measures and major projects 
co-financed, the number of IB’s etc.
145
The Commission points out that in the Annual Implementation Report submitted by the managing authority the 
main technical assistance actions undertaken in a particular year are described in a specific section. Furthermore, 
technical assistance expenses declared to the Commission for reimbursement are verified, based on breakdown of 
costs and supported by invoices, pay slips or other evidence, by the management authority or another body.
The declaration of expenditure verified by the managing authority, based on a sampling method, could be further 
verified by the certifying authority, the audit authority and the Commission auditors.
146
The Commission considers that the costs of programme management (TA budget) should not be mixed with the 
costs of implementation of single operations within a programme (management costs and fees for financial instru -
ments) as it is also not mixed in the implementation of grants operations (e.g. the costs related to the remuneration 
of the engineer supervisor of the project included in the amounts allocated to the projects and not in the amounts 
of Technical Assistance).
The Commission receives reports from Member States on the technical assistance budget.
Moreover, the cost structures of grants and financial instruments, as well as of shared management and direct man -
agement financial instruments differ.
The Commission published a study in July 2012 with quantitative and qualitative information about the administra -
tive costs and administrative burden of managing EU structural funds ( http://ec.europa.eu/regional_policy/sources/
docgener/studies/pdf /measuring/measuring_impact_report.pdf ).
The update of this study is ongoing and it is planned to be published end 2016. It is planned to be taken into consid -
eration in the simplification exercise.
Reply of the Commission 115
Conclusions and recommendations
147
The Commission agrees that there are multiple advantages in delivering financial support from the EU budget 
through financial instruments, which is why for the 2014-2020 programme period it is actively promoting and 
encouraging their increased use.
148
The Commission considers that the effect of the issues identified by the Court varies between Member States and 
types of financial instruments and that, overall, financial instruments remain an efficient and effective way of deliv -
ering EU funds.
148 First indent
The Commission considers that the average disbursement rate of 57% (at end of 2014) represents a very heteroge -
neous situation. The risk of not achieving full disbursement at closure concerns a limited number of financial instru -
ments in a few Member States.
The low disbursement rate at the end of 2014 is a result of a number of factors including the financial crisis, the lim -
ited experience in some Member States and the late start of some instruments.
148 Second indent
For shared management financial instruments, the legal requirements on reporting did not allow the Commission 
to obtain exhaustive data regarding the participation of private investors from Member States. Nevertheless, the 
Commission notes that the state aid rules require for certain financial instruments a minimum participation of pri -
vate investors (e.g. 30% and in some cases even 60%).
The Commission considers that centrally managed financial instruments developed in the period 2007-2013 man -
aged to attract sizeable resources from the private sector at the level of projects, even in those cases where no 
private contributions were made at the level of the fund (such as the Marguerite fund). We consider that the experi -
ence acquired under these instruments helps the Commission to develop instruments capable of attracting even 
more private investment.
148 Third indent
The Commission considers that the frequency of the recycling of funds during the eligibility period is not an end 
in itself.
Moreover, the maturity date of the financing provided is/has to be adjusted to the typology of investments being 
financed, and any conclusion on the limited revolving effect should be drawn by reference to the setup date of 
the financial instrument, the grace period, the maturity and the default rates of the financing provided to final 
recipients.
Reply of the Commission 116
148 Fourth indent
Under the rules established for the programming period 2007-2013, the management costs and fees are linked to 
the amounts paid in to the financial instruments and not to the amounts disbursed to final recipients. The Commis -
sion notes that a comparison with centrally managed instruments will only be possible at closure of the ERDF and 
ESF instruments.
For 2014-2020 the management costs and fees must be linked to performance, including the amounts disbursed to 
final recipients.
150
The Commission considers that the risk of not achieving full disbursement at closure concerns a limited number of 
financial instruments in a few Member States.
The Commission notes that 82% of the respondents indicated that they performed a gap assessment of the market 
needs despite the fact that it was only indirectly required by the legal framework. This should be seen as a positive 
aspect taking into account the non -binding nature of this requirement for 2007-2013.
151
The Commission notes that, depending on the type of instruments, (e.g. loans and guarantees), and the specificities 
of the Member States, some smaller funds perform as well as or even better than larger -sized funds (e.g. Germany, 
Poland or France).
Recommendation 1 (a)
The Commission accepts the recommendation.
Whenever a new financial instrument is developed, the ex -ante assessment should include an analysis of lessons 
learnt in previous similar instruments.
Recommendation 1 (b)
The Commission accepts the recommendation.
For centrally managed instruments the relevant legal bases foresee mid -term reviews or evaluations.
For all such future mid -term reviews of financial instruments, the Commission will ensure that they cover the lessons 
learnt and the effect of any major socio -economic changes on the rationale of the instrument and the correspond -
ing contribution from the EU budget.
Reply of the Commission 117
Recommendation 2
The Commission accepts this recommendation and considers it as being implemented, insofar as it is concerned.
In relation to national/regional level financial instruments the Commission started to elaborate and presented on 
28 April 2016 to Member States a draft guidance note on the implementation options under Article 38(1)(b) CPR. The 
potential for economies of scale has to be also addressed in the context of the ex -ante assessment when looking at 
the implementation arrangement within the meaning of Article 38 CPR.
As regards ESIF programme contributions to EU level instruments, the Commission has provided extensive clarifi -
cations and worked closely with Member States on what concerns the SME Initiative, which is an EU -level financial 
instrument.
Moreover, the Commission has issued a brochure to guide Member States on ESIF /EFSI complementarities.
In case new EU level instruments are developed, the Commission will provide guidance on the contribution of pro -
gramme resources to the EU level instruments based on Member States’ requests.
As regards the target implementation date, the Commission underlines that the recommendation is being imple -
mented insofar as it concerns the Commission.
152
The Commission considers that the goal of attracting private capital should not be overemphasised in particular for 
sectors exposed to major market failures. For both EU level and shared management instruments, other goals were 
as important (e.g. establishing investment in a given nascent market with strong EU value added at a time of eco -
nomic recession and supporting growth, jobs and competitiveness in all Member States and their regions.). There -
fore the measurement of the success of financial instruments goes beyond the extent of private funds attracted.
For shared management financial instruments, the legal requirements on reporting did not allow the Commission 
to obtain exhaustive data regarding the participation of private investors from Member States. Nevertheless, the 
Commission notes that the state aid rules require for certain financial instruments a minimum participation of pri -
vate investors (e.g. 30% and in some cases even 60%).
The Commission considers that centrally managed financial instruments developed in the period 2007-2013 man -
aged to attract sizeable resources from the private sector at the level of projects, even in those cases where no 
private contributions were made at the level of the fund (such as the Marguerite fund). We consider that the experi -
ence acquired under these instruments helps the Commission to develop instruments capable of attracting even 
more private investment.
Article 223 of the rules of Application to the EU Financial Regulation defines leverage as ‘the amount of finance to 
eligible final recipients divided by the amount of the Union contribution’. This means that the leverage should be 
seen as the ratio between the Union financial resources allocated to a financial instrument (input) and the (total) 
amount of finance provided to eligible final recipients (output). As such, the Commission considers that this formula 
fully takes into account the extent to which public financing from the EU budget mobilises additional funds.
Reply of the Commission 118
153
The Commission considers that it is premature to draw conclusions regarding the level of private funding to be 
attracted during 2014-2020. The wider scope of financial instruments for the 2014-2020 period should provide addi -
tional opportunities, as should the possibility for combination with EFSI. The Commission notes that it did provide 
models for preferential remuneration schemes in the guidance of 2014.
The Implementing Regulation No 964/2014 for off the shelf instruments for the 2014-2020 period provides examples 
on how to best to apply the provisions on preferential treatment to attract more private capital without allocating 
excessive risks to the public sector.
Moreover, the Commission in its brochure of 22 February 2016 provided examples of combinations of ESIF and 
EFSI involving preferential remunerations of private investors (see http://ec.europa.eu/regional_policy/sources/
thefunds/fin_inst/pdf/efsi_esif_compl_en.pdf ).
Finally, the Commission started to elaborate a draft guidance note on preferential remuneration which was pre -
sented to Member States in October 2015 and the final version is under preparation.
154
The Commission recognises the importance of ensuring that financial instruments are not subject to unaccepta -
ble tax avoidance schemes. This is reiterated in its recent Communication on the anti -tax avoidance Package of 
29/01/2016. However advance tax agreements cannot be considered per se as going against the Commission’s own 
policy. As a concept, advance tax agreement aim at diminishing the uncertainty for investors.
Recommendation 3
The Commission does not accept the recommendation.
It does not see the necessity of amending the Financial Regulation and/or the underlying sectorial rules (CPR and 
centrally managed sectorial rules) and considers that the issue can be sufficiently addressed through the provision 
of guidance.
For shared management, the ESIF DGs started to elaborate a draft guidance note on reporting. That draft was pre -
sented to Member States on 28 April 2016 and is envisaged to contain extensive information on the calculation of 
the leverage as provided for in the Financial Regulation and its Rules of Application and including how the amounts 
mobilized are determined. The reporting by the Member States will enable the Commission to distinguish between 
the leverage of private and national public contributions under the OP and/or of additional private or public capital 
contributions.
For centrally managed instruments, in June 2015, the Commission refined the methodology for leverage calculation 
for the 2014-2020 financial instruments in order to comply, in a consistent and harmonised way, with the applicable 
requirements on the leverage effect in the Financial Regulation and the Rules of Application.
Reply of the Commission 119
Recommendation 4
The Commissions accepts the recommendation.
The guidelines on the closure of operational programmes (Commission Decision C(2015) 2771) foresee in chapter 
5.2.5 that the final report as part of the closure package must describe the identity of national co -financing provid -
ers, the type of national co -financing provided and any co -investment funds in addition to programme resources. 
In addition, Annex I, templates 1 and 2, require Member States to report in the mandatory field III.2.2.4 the national 
private co -financing effectively paid to the financial instrument.
Recommendation 5
The Commission accepts this recommendation.
The way to apply the provisions on preferential treatment to attract more private capital without allocating exces -
sive risks to public contributors to the financial instruments’ endowments is covered in the Volume I of the General 
Methodology to carry out the ex -ante assessment for financial instruments, issued in April 2014.
Moreover, the Implementing Regulation No 964/2014 for off the shelf instruments for the 2014-2020 period provides 
examples on how to best to apply the provisions on preferential treatment to attract more private capital without 
allocating excessive risks to the public sector.
Finally, the Commission started to elaborate a draft guidance note on preferential remuneration which was pre -
sented to Member States in October 2015 and the final version is under preparation.
As regards the target implementation date, the Commission underlines that the recommendation is being imple -
mented insofar as it concerns the Commission.
Recommendation 6
The Commission partially accepts this recommendation insofar as it concerns its legislative proposals for the post-
2020 programming period.
Recommendation 7
The Commissions accepts the recommendation.
For shared management, the Commission will include in the guidance note on implementation options under 
Article 38(1)(b) CPR additional recommendations to require alignment of financial instruments structures with the 
policy set out in the Commission Communication on the anti -tax avoidance package of January 2016.
For centrally managed instruments, the Commission has already written to the EIB and the EIF to stress the impor -
tance of the Commission’s anti -tax avoidance measures encouraging the further promotion of best practice by EIB/
EIF in this field. The Commission engages in an active dialogue with the EIB and EIF on the review of their respective 
policies in this area.
Reply of the Commission 120
Moreover, the Commission notes that Article 140(4) of the Financial Regulation and Article 38(4) 2nd paragraph CPR 
specifies that the bodies implementing financial instruments should be compliant with the applicable law, includ -
ing money laundering, fight against terrorism and tax fraud. The bodies implementing financial instruments cannot 
be established and cannot maintain business relations with entities incorporated in territories, whose jurisdictions 
do not cooperate with the Union in relation to the application of internationally agreed tax standards. The manag -
ing authorities shall transpose such requirements in their contracts with the selected financial intermediaries.
The compliance of the tax treatments with the national law and EU recommendations is part of the system in place 
to implement the financial instruments and is also covered in the scope of management verifications as provided 
for in the guidance note EGESIF 14/0012/02.
As regards the target implementation date, the Commission underlines that the recommendation is being imple -
mented, insofar as it concerns the Commission.
Common Commission reply to paragraphs 155 and 156
The Commission considers that the frequency of the recycling of funds during the eligibility period is not an end in 
itself.
Moreover, the maturity date of the financing provided is/has to be adjusted to the typology of investments being 
financed, and any conclusion on the limited revolving effect should be drawn by reference to the setup date of 
the financial instrument, the grace period, the maturity and the default rates of the financing provided to final 
recipients.
With regard to the end of the implementation period, the Commission considers that the modifications introduced 
in its closure guidelines were within the scope of Article 78(6) of Regulation (EC) No 1083/2006, as amended, and 
therefore did not require an amendment of the legislative act (see also Commission reply to paragraph 43 and 
Commission reply to paragraph 6.52 and Recommendation 5 of the Court’s Annual report 2014). The Commission 
underlines that the managing authorities are obliged to ensure proper measures to comply with Article 78(7) of 
the General Regulation and to present these measures at closure, such as the information on the reuse of legacy 
resources attributable to the ERDF and ESF, and in particular specifying the competent authority which is responsi -
ble for managing legacy resources, the form of reuse, the purpose, the geographic area concerned and the envis -
aged duration (see the closure guidelines point 5.2.5).
Recommendation 8
The Commission accepts this recommendation.
Article 45 CPR requires Member States to adopt the necessary measures to ensure the proper use of resources paid 
back to the financial instruments during a period of at least eight years after the end of the eligibility period (see 
also the model of funding agreement in Annex IV Article 1(j)). Resources returned to the fund after the end of the 
eligibility period are no longer EU resources, but national resources.
The Commission will in the guidance note on implementation options under Article 38(1)(b) CPR emphasise the 
importance of this requirement in the funding agreement signed by the managing authorities and will indicate that 
a verification of the adequacy of this provision falls within the scope of regular audit work of the audit authorities.
As regards the target implementation date, the Commission underlines that the recommendation is being imple -
mented, insofar as it concerns the Commission.
Reply of the Commission 121
Recommendation 9
The Commission accepts this recommendation.
The Guidance note on ex -ante assessment adopted in May 2014 explains the conditions to contribute programme 
resources 2014-2020 to an existing financial instrument.
In addition, the Commission started to elaborate a draft guidance note on selection of bodies implementing finan -
cial instruments. That draft was presented to Member States in October 2015 and is envisaged to include a section 
which explains the conditions applicable to contract modifications (e.g. extension of implementation period or 
increase of amounts of OP contribution to the financial instruments existing under the 2007-2013 period). The final 
version of the guidance note is currently under preparation.
As regards the target implementation date, the Commission underlines that the recommendation is being imple -
mented insofar as it concerns the Commission.
158
The cumulated management costs and fees represent 4.7% of the amounts paid to financial instruments as at end 
December 2014, which is an annual equivalent of less than 1%.
The management costs and fees are eligible and reimbursed by the EU only if they are paid to the fund manager. If 
the management costs and fees paid exceed the ceilings, the reimbursement will be effected on the basis of those 
ceilings and not on the actual higher amounts paid. This measure protects the EU financial interest.
The Commission considers that the rules are clearly set out in the legal basis which has been subject to detailed 
guidance and that there is no scope at this stage for reinterpretation.
Article 43 of the Implementing Regulation states that the ceilings for eligible expenditure are applicable to the 
capital contributed from the operational programme to the fund, and not to the capital used by the fund to provide 
support to final recipients.
The ceilings define the maximum amount of eligible expenditure and must be calculated on a yearly average, 
pro‑rata temporis . The COCOF guidance note on financial engineering instruments addresses and further explains 
the legal basis (see paragraphs 2.6.1 to 2.6.17).
For 2014-2020, the legal framework requires that the management costs and fees must be linked to performance, 
including the amounts disbursed to final recipients.
Common Commission reply to paragraphs 159 and 160
For 2007-2013, the Commission monitors the management costs and fees through the Summary of data for financial 
instruments based on the reporting from Member States. This requirement was introduced in 2011.
For 2014-2020, the Commission will have more complete and reliable set of data to monitor the whole financial 
instruments’ implementation, including management costs and fees.
For both periods, the national authorities are responsible for ensuring the eligibility of the management costs and 
fees in line with the applicable rules and the principle of subsidiarity.
Reply of the Commission 122
The Commission considers that the costs of programme management (TA budget) should not be mixed with the 
costs of implementation of single operations within a programme (management costs and fees for financial instru -
ments) as it is not mixed in the implementation of grants operations (e.g. the costs related to the remuneration of 
the engineer supervisor of the project included in the amounts allocated to the projects and not in the amounts of 
Technical Assistance).
The Commission would like to underline that it reviews reports received from Member States on the technical assis -
tance budget. This was the case for the 2007-2013 period and continues for the 2014-2020 period.
161
For the programming period 2014-2020, the summary of data has to be prepared by the Commission for all of the 
five ESI funds. The reporting on financial instruments was set up for a time period of six months in order to take into 
account all fund specific rules (and the respective deadlines of submission of the annual implementation report as 
required in Articles 50(6) and (7) CPR), the time required for the consolidation and assessment of the data submitted 
by the Member States/managing authorities as part of the annual implementation report, and the overall presenta -
tion of progress on implementation of financial instruments across all 5 ESI Funds.
Where the Commission provides observations on the annual implementation report, including the financial instru -
ments, the report is returned to the managing authorities and the deadline of 2 months is interrupted until the 
revised information is resubmitted to the Commission and the deadline of two months resumes again.
Therefore, the data can be aggregated once the complete assessment by the Commission has taken place and there 
is sufficient assurance on the accuracy and plausibility of data provided by the managing authorities.
162
The performance based remuneration is a mandatory requirement as provided for in Article 42(5) CPR and the crite -
ria for performance are established in Article 12 of Delegated Act 480/2014.
In the guidance note on management costs and fees (EGESIF_15-0021-01) issued in November 2015, the Commission 
provided clarifications on the performance based calculation methodology.
Recommendation 10 (a)
The Commission accepts this recommendation.
The management costs and fees will continue to be reported in the framework of the summary of data and in May 
2015 specific instructions on this reporting were sent to Member States.
The guidelines on the closure of operational programmes (Commission Decision C(2015) 2771) Annex I, template 
1 (mandatory field III.4, III.6) and template 2 (mandatory field III.4), require Member States to report management 
costs and fees incurred and paid by March 2017.
Reply of the Commission 123
Recommendation 10 (b)
The Commission does not accept the recommendation.
The Commission considers that the rules are clearly set out in the legal basis which has been subject to detailed 
guidance and that there is no scope at this stage for reinterpretation.
Article 43 of the Implementing Regulation states that the ceilings for eligible expenditure are applicable to the 
capital contributed from the operational programme to the fund, and not to the capital used by the fund to provide 
support to final recipients.
The ceilings define the maximum amount of eligible expenditure and must be calculated on a yearly average, 
pro‑rata temporis . The COCOF guidance note on financial engineering instruments addresses and further explains 
the legal basis (see paragraphs 2.6.1 to 2.6.17).
For 2014-2020, the legal framework requires that the management costs and fees must be linked to performance, 
including the amounts disbursed to final recipients.
Recommendation 11 (a)
The Commission does not accept the recommendation.
The Commission considers the mandatory provisions on performance based remuneration laid down in Article 42(5) 
CPR, as well as the detailed criteria for performance established in Article 12 of Delegated Act 480/2014 constitute 
an adequate basis for achieving the desired incentive effect and that at this stage there is no sufficient basis which 
would justify proposing an amendment.
Moreover, the Commission notes that the managing authority must inform the monitoring committee of the provi -
sions regarding the performance -based calculation of management costs incurred or of the management fees of 
the financial instrument. The monitoring committee will receive reports on an annual basis on the management 
costs and fees effectively paid in the preceding calendar year.
Recommendation 11 (b)
The Commission notes that this recommendation is addressed to Member States.
The Commission agrees that the managing authorities should make the best use of the existing legal requirements. 
These requirements are also explained and interpreted in detail in the Guidance Note on management costs and 
fees.
The existing legal basis allows for more performance criteria to be used in addition to the ones mentioned in Article 
12 of Delegated Act 480/2014.
Reply of the Commission 124
Recommendation 12
The Commission does not accept the recommendation.
As regards the feasibility and the proportionality of the implementation of this recommendation, the Commission 
considers that the analysis would require isolating the costs for grants and financial instruments borne by a manag -
ing authority, and probably by the same staff working on both tasks. Moreover, the cost structures of grants and 
financial instruments, as well as of shared management and direct management financial instruments, differ.
Concerning the relevance of such a comparative analysis, the Commission would further like to underline that 
grants and financial instruments are two different delivery modes of ESIF policy and they target different typologies 
of investments.
163
The Commission agrees on the principle of optimising the coordination between financial instruments under ESI 
Funds and EFSI.
The Commission issued on 22 February 2016 a brochure to help local authorities and project promoters to make full 
use of the opportunities for coordination, synergies and complementarities of the EFSI and ESI Funds. These two 
instruments have been designed in a different but complementary way in terms of rationale, design and legisla -
tive framework. They reinforce each other. The brochure provides an overview of the possible combinations of EFSI 
and ESI Funds, either at project level or through a financial instrument such as an investment platform (see http://
ec.europa.eu/regional_policy/sources/thefunds/fin_inst/pdf/efsi_esif_compl_en.pdf ). 
125 Reply of the Marguerite 
Fund
Replies to paragraph 81 and box 11
The structure employed by the Marguerite Fund to hold the investments that it makes was established primarily to 
allow the Marguerite Fund to holds its individual investments via individual subsidiary companies for both portfo -
lio risk management reasons (allowing separation of one investment from another), to facilitate disposals of those 
investments in the future and to facilitate the flow of cash within the structure (down from the Marguerite Fund to 
make its investments and then the flow of cash back to the Marguerite Fund from those investments). A tax ruling 
was sought for confirmatory reasons from the Luxembourg authorities.
In relation to your statement “It is possible that other taxes…..are avoided through the use of this structure”, we 
believe that the reference to tax avoidance could be misleading as the term is often used to refer to schemes whose 
aim is to avoid taxes legitimately due. Marguerite Adviser manages the tax affairs of the Marguerite Fund to ensure 
it complies with its tax obligations and pays all taxes due.

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Event Date
Adoption of APM / Start of audit 14.1.2015
Official sending of draft report to Commission (or other auditee) 11.4.2016
Adoption of the final report after the adversarial procedure 1.6.2016
Commission’s (or other auditee’s) official replies received in all languages 5.7.2016
QJ-AB-16-019-EN-C
Financial instruments are increasingly used to provide 
financial support from the EU budget through loans, 
guarantees and equity investments. During the 2007-2013 
programming period, some 21.5 billion euros from the EU 
budget were allocated to financial instruments.  We found 
that while they may have distinct advantages compared to 
other forms of EU funding such as grants, their 
implementation faces significant challenges which could 
limit their efficiency.
ISBN 978-92-872-5417-7EUROPEAN
COURTOF AUDITORS