Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Social Entrepreneurship Funds
Date: 2011-12-07
Institutions: European Commission
Subjects: aid to undertakings, corporate finance, investment, marketing, small and medium-sized enterprises, social impact, sustainable development

EUROPEAN COMMISSION 

Brussels, 7.12.2011 
COM(2011) 862 final 

2011/0418 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on European Social Entrepreneurship Funds 

(Text with EEA relevance) 

{SEC(2011) 1512 final} 
{SEC(2011) 1513 final} 

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

The principal aim of this proposal is to provide support to the market for social businesses by 
improving the effectiveness of fundraising by investment funds that target these businesses.  

Social  businesses1  are  an  emerging  sector  in  the  EU.  Social  businesses  are  undertakings 
whose  primary  objective  is  to  achieve  social  impacts,  rather  than  generate  profits  for 
shareholders or other stakeholders. In achieving social impacts, social business seeks to build 
on  business  techniques  –  including  business  finance.  While  the  sector  is  new,  it  is 
characterised  by  rapid  growth.  According  to  the  Global  Enterprise  Monitor  2009  report, 
between  3%  and  7.5%  of  the  workforce  in  selected  EU  Member  States  were  employed  in 
various forms of social businesses.  

Social  businesses  are  almost  exclusively  SMEs.  The  social  mission  of  social  businesses 
correlates with a strong focus on sustainable or inclusive development, and on tackling social 
challenges across EU societies: this means that investment in social businesses are likely to 
have  a  greater  positive  social  impact  than  investment  in  SMEs  more  general.  Given  some 
estimates, such as by J. P. Morgan, suggest social investments could grow rapidly to become a 
market well in excess of EUR 100 billion, underlining the potential of this emerging sector.2 

Ensuring this sector continues to grow and flourish would therefore be a valuable contribution 
to meeting the objectives of the Europe 2020 Strategy. 

Social  businesses  derive  significant  proportions  of  their  funding  from  grants,  whether  from 
foundations, individuals or from the public sector. As businesses, however, their sustainable 
growth  depends  on  drawing  on  a  wider  range  of  investments  and  financing  sources.  In  this 
regard, the EU market for investment funds has begun to play a significant role. A market for 
investment funds whose main objective is investing in social businesses has taken shape. In 
order  to  distinguish  such  targeted  funds  from  social  investment  funds  more  widely,  these 
targeted funds are referred to as social entrepreneurship funds in this proposal. The growth of 
social  entrepreneurship  funds  reflects  the  increasing  interest  of  many  investors  in  making 
investments – typically as part of a wider portfolio – that aim to achieve positive social effects 
over and above the quest for financial returns.  

Evidence  on  regulatory  and  market  failings  shows  two  problems  are  limiting  the  growth  of 
social entrepreneurship funds.  

Firstly,  regulatory  requirements  at  EU  and  national  levels  are  not  tailored  to  facilitate  the 
raising of capital by these kinds of funds. Raising capital on a cross border basis is costly and 
complex due to the fragmentation of national rules that govern 'private placements3' abroad. 

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These are referred to as social undertakings in the legal text for reasons of clarity as to their form. They 
are  also  referred  to  as  social  enterprises.  These  different  terms  should  be  interpreted  as  being 
interchangeable in most contexts. 
See J.P.Morgan,Impact Investments: An Emerging Asset Class, 2011.  
Private  placements  can  be  described  as  the  sale  of  securities  to  a  relatively  small  number  of 
select investors as a way of raising capital. Investors involved in private placements are usually large 

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Compliance with a variety of national rules governing the activity of 'private placements' to 
select investor groups raises the cost of capital for these funds. Also, social entrepreneurship 
funds are not flourishing across all Member States, but currently are geographically uneven in 
their distribution. 

Following consultations with Member States it is clear such social entrepreneurship funds are 
in most cases either governed by the general national rules applicable to private placements 
or, alternatively, by special legal provisions that are introduced for venture capital or private 
equity.  A  minority  of  Member  States  also  has  special  rules  for  wider  categories  of  social 
investment funds that are also open to retail investors. These wider social investment funds do 
not  necessarily  target  their  investments  solely  towards  social  businesses.  Evidence  in  the 
impact assessment shows that the fragmentation of national rules on social entrepreneurship 
funds and a lack of tailoring of such rules to their needs has led to cost burdens and reduced 
efficient  access  to  capital  markets  for  such  funds.  Despite  strong  investor  interest  in  social 
investment strategies, these regulatory burdens hinder the creation of efficiently sized social 
entrepreneurship funds (the average social entrepreneurship fund's assets under management 
rarely exceed EUR 20 million).  

Secondly, potential investors in social entrepreneurship funds are faced with a wide range of 
different  social  investment  propositions,  different  levels  of  information  pertaining  to  social 
investments,  the  selection  or  screening  of  social  undertakings,  and  approaches  to  the 
measurement of their social performance. Funds themselves and their target social businesses 
can face costs from the existence of overlapping or competing self-regulatory measures with 
respect  to  the  issues  mentioned  above.  Confidence  and  trust  in  the  eyes  of  investors  are 
undermined. 

These  difficulties  hamper  efficient  flows  of  capital  to  social  entrepreneurship  funds,  and 
thereby the flow of capital to social undertakings themselves, and constitute a barrier to the 
development of a single investment market in this area.  

In these circumstances, the Commission, in the Single Market Act4 (SMA), undertook to put 
in  train  several  measures  to  ensure  EU  social  businesses  can  flourish,  including  by  tackling 
such  financing  weaknesses.  The  current  proposal  on  a  European  framework  for  social 
entrepreneurship funds is one initiative that delivers on that commitment; it forms part of the 
Commission's  Social  Business  Initiative  (COM(2011)  682/2),  which  aims  to  tackle  wider 
issues in this sector. 

The aim of the proposed Regulation is to create a legislative framework tailored to the needs 
of  social  undertakings,  investors  seeking  to  fund  such  undertakings,  and  the  specialised 
investment  funds  that  seek  to  mediate  between  the  two.  It  aims  to  achieve  a  high  level  of 
clarity as to the characteristics that distinguish social entrepreneurship funds from the wider 
category  of  alternative  investment  funds.  Only  funds  that  comply  with  these  characteristics 
shall  be  eligible  to  raise  funds  by  virtue  of  the  proposed  European  framework  for  social 
entrepreneurship funds.  

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banks,  mutual  funds,  insurance  companies  and  pension  funds.  Private  placement  is  the  opposite  of  a 
public issue, in which securities are made available for sale on the open market.  
http://ec.europa.eu/internal_market/smact/docs/20110413-communication_en.pdf

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investment 

techniques  and  eligible  undertakings 

The  proposed  Regulation  addresses  these  problems.  It  introduces  uniform  requirements  for 
the  managers  of  collective  investment  undertakings  that  operate  under  the  designation 
"European  Social  Entrepreneurship  Fund".  It  introduces  requirements  as  to  the  investment 
portfolio, 
that  a  qualifying  social 
entrepreneurship  fund  may  target.  It  also  introduces  uniform  rules  on  which  categories  of 
investors a qualifying social entrepreneurship fund may target and on the internal organisation 
of  the  managers  that  market  such  qualifying  funds.  As  managers  of  collective  investment 
undertakings  that  operate  under  the  designation  "European  Social  Entrepreneurship  Fund" 
will  be  subject  to  identical  substantive  rules  across  the  EU,  they  will  benefit  from  uniform 
requirements for registration and an EU wide passport, which will help create a level playing 
field for all participants in the market for the funding of social entrepreneurs.  

The  proposed  Regulation  on  European  Social  Entrepreneurship  Funds  (EuSEFs)  is 
complementary  to  the  proposed  Regulation  […]  on  Venture  Capital  Funds.  Both  proposals 
aim to achieve different goals and both proposals, if adopted, will coexist as autonomous legal 
acts in mutual independence.  

Venture capital funds focus on providing equity finance for SMEs, but typically do not meet 
the  asset-based  threshold  that  defines  the  passport  available  for  large  fund  managers  under 
Directive  2011/61/EC  (on  Alternative  Investment  Fund  Managers).  While  social  businesses 
are  also  SMEs,  and  the  funds  targeting  social  business  also  operate  beneath  the  asset-based 
thresholds  of  Directive  2011/61/EC,  the  range  of  eligible  financing  tools  proposed  in  the 
Regulation on European Social Entrepreneurship Funds go beyond equity finance - the typical 
instrument for start-up enterprises in the technology sector. Apart from equity finance social 
undertakings  also  have  recourse  to  other  forms  of  finance,  combining  public  and  private 
sector  financing,  debt 
loans.  The  proposed  rules  on  social 
entrepreneurship funds therefore provide for a larger range of qualifying investment tools that 
are available for venture capital funds.  

instruments  or  small 

In  addition,  the  transparency  issues  raised  by  investments  into  social  businesses  are  distinct 
from  the  general  reporting  obligations  that  are  provided  in  the  area  of  venture  capital: 
investments  into  social  entrepreneurship  target  a  form  of  ‘social  return’  or  positive  social 
impact.  The  proposed  rules  contain  special  sections  that  focus  on  information  pertaining  to 
social impacts, their measurement and the strategies employed to foster their achievement.  

For these reasons, the preferred choice is that there should be two EU frameworks on venture 
capital and on social entrepreneurship that would operate autonomously alongside each other.  

Further  work  should  be  undertaken  to  ensure  that  the  rights  assigned  by  this  Regulation  to 
EuSEF  managers  and  the  EuSEFs  they  manage  are  not  undermined  by  tax  obstacles. 
Appropriate  taxation  rules  –  though  independent  from  this  Regulation  –  are  an  important 
compliment to it and aid the development of a fully functional market for EuSEFs within the 
EU.  They  could  ensure  efficient  capital  flows  to  EuSEFs  and  ultimately  the  qualifying 
portfolio undertakings in which the funds invest.  

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2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

2.1. 

Consultation with interested parties 

On  13th  July  2011,  the  Commission  services  launched  a  public  consultation  on  possible 
measures to improve the access of social businesses to finance by means of investment funds, 
which  closed  on  14th  Sept  2011.5  Contributions  received  were  67  in  total  and  can  be 
consulted at the following website: 

http://ec.europa.eu/internal_market/consultations/2011/social_investment_funds_en.htm. 

In  addition,  regulators  and  supervisors  were  also  consulted  via  the  European  Securities 
Committee  (ESC),  including  through  a  questionnaire  requesting  details  on  existing  national 
regimes for social investment funds more widely including on social entrepreneurship funds. 

This falls within the wider context of the Commission's work and consultation on the Single 
Market  Act,  where  the  role  of  social  businesses  and  their  financing  was  also  identified  and 
explored  with  stakeholders  and  participants  in  that  consultation.  Following  this  the 
Commission  launched  a  stand  alone  Social  Business  Initiative  which  offered  further 
opportunities for discussions with stakeholders including through a workshop in May 2011.  

2.2. 

Impact Assessment 

In line with its policy on "better regulation", the Commission conducted an impact assessment 
on various policy alternatives.  

This  analysis  identified  two  key  problems:  on  the  one  hand,  information  made  available  to 
investors pertaining to social undertakings, the investment policies and screening procedures 
followed  by  social  entrepreneurship  funds  and  the  measurement  of  social  impacts  is  either 
insufficient  or  not  presented  in  a  comparable  manner.  On  the  other  hand,  regulatory 
approaches to the fundraising of organisations specialising in investments in social businesses 
were not sufficiently tailored to the specific needs of social entrepreneurship funds.  

First, market participants lack confidence in the information available, are not readily able to 
identify  those  funds  that  target  social  businesses,  and  are  not  confident  in  the  social  impact 
they  can  achieve  by  investing  in  such  funds.  The  second  problem  relates  to  regulatory 
failings:  national  systems  hat  govern  fundraising  outside  the  open  markets  (private 
placements)  are  divergent  and  are  not  specifically  tailored  to  the  need  of  social 
entrepreneurship funds and their managers. This means cross-border fundraising is complex, 
marked  by  regulatory  divergences.  In  the  absence  of  uniform  rules  at  EU  level,  social 
fundraising by social entrepreneurship funds is likely to remain national. 

The analysis thereby identifies three key objectives: improving the clarity and comparability 
of investment funds targeting social businesses; improving tools for assessing and analysing 
social  impacts;  and  better  reflecting  the  needs  of  social  entrepreneurship  funds  in  the  rules 
applying to such funds across the Union. 

A wide range of options were examined against these objectives.  

5 

See http://ec.europa.eu/internal_market/investment/social_investment_funds_en.htm. 

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With respect to raising clarity and comparability of social entrepreneurship funds, the impact 
assessment  explores  different  options  for  facilitating  transparency  through  self-regulation 
(codes of conduct), the establishment of an EU label with harmonised and binding measures 
to  enforce  compliance.  For  improving  tools  for  assessing  or  analysing  social  impacts, 
different  options  were  examined,  ranging  from  the  establishment  of  stakeholder  fora  for 
discussion to launching further study in how such assessment tools can be harmonised at EU 
level.  In  relation  to  improving  cross-border  fundraising  by  such  funds  and  the  regulatory 
environment  that  governs  private  placements  abroad,  options  ranged  from  fostering  mutual 
recognition  between  national  private  placement  rules,  the  use  of  the  venture  capital  rules  to 
also foster fundraising by social entrepreneurship funds, the creation of a bespoke fundraising 
system for such funds and the creation of a self-standing European fund framework for such 
funds.  

The impact assessment concluded in favour of a standalone framework for defining the funds 
and the rules applying to them, to facilitate national and cross border fund raising including 
the development of a European 'brand' of social entrepreneurship funds supported by strong 
transparency measures. 

The  impact  of  options,  including  benefits  and  costs  for  the  fund  industry,  investors,  social 
businesses,  society,  supervisors  and  other  stakeholders  were  assessed.  The  preferred  option 
was retained as offering the strongest potential to tackle the identified problems whilst being 
proportionate in relation to compliance costs incurred by those who want to benefit from the 
new framework. 

The comments by the Impact Assessment Board expressed in their opinion of 18 November 
2011 have been taken into account in the impact assessment report. The wider context for this 
initiative  has  been  further  clarified  by  showing  how  the  different  initiatives  by  the 
Commission  in  the  field  of  social  business  link  together  to  form  a  coherent  strategy.  The 
analysis of the problems has been further strengthened including a clearer explanation on the 
reasons why the initiative on venture capital funds will not be able to address the problems for 
social entrepreneurship funds. The intervention logic and the analysis of the different options, 
particularly  with  respect  to  possible  categories  of  investors  have  been  further  clarified.  The 
contents of the measures which are envisaged now and those which might be necessary at a 
later  stage  are  set  out  in  a  clearer  fashion.  The  assessment  of  impacts  has  been  improved, 
including  an  assessment  of  the  inter-dependence  of  measures  in  terms  of  their  likely 
effectiveness. Finally, monitoring and compliance issues have been further clarified. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Legal basis 

The proposal is based on Article 114 TFEU as the most appropriate legal base in this field. 
The  proposal  aims  principally  at  improving  the  reliability  and  legal  certainty  of  marketing 
activities  undertaken  by  operators  using  the  designation  "European  Social  Entrepreneurship 
Fund".  In  pursuing  this  aim,  the  proposal  introduces  uniform  standards  concerning  the 
portfolio  composition,  eligible  investment  instruments,  and  eligible  investment  targets  of 
collective investment funds that operate under that designation. The proposal also introduces 
rules on investor categories that are considered as eligible to invest in such investment funds.  

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A Regulation is considered to be the most appropriate legal instrument to introduce uniform 
requirements directed to all participants in the market for fundraising for social undertakings - 
investors,  social  entrepreneurship  funds  and  the  target  companies  of  social  entrepreneurship 
financing. A Regulation is also considered the most appropriate instrument to create uniform 
rules on who can be a social entrepreneurship fund investor, on who can use the designation 
"European Social Entrepreneurship Fund" and on the types of undertakings that can receive 
funding  from  such  qualifying  funds.  Finally,  a  Regulation  is  considered  to  be  the  most 
appropriate  instrument  to  ensure  that  all  participants  are  subject  to  uniform  requirements 
regarding  the  subscription  to  "European  Social  Entrepreneurship  Funds"  and  the  investment 
strategies pursued and investment tools used by such funds.  

Furthermore,  the  objectives  of  this  Regulation  relate  to  the  uniform  requirements  on 
transparency  in  relation  to  social  impacts,  including  reporting  and  social  performance 
measurements. For this purpose, uniform requirements to this effect – e.g. details on how the 
information  on  social  performance  is  presented  –  are  necessary.  If  the  choice  of  the  precise 
measures for standardising these requirements was left to the national legislation of Member 
States,  this  would  incur  the  risk  that  these  requirements  diverge  from  Member  State  to 
Member  State.  This  would  create  uneven  standards  in  an  area  which  is  key  for  the  further 
development  of  the  market  of  investment  funds  targeting  social  business.  Such  uneven 
standards would be detrimental to the aim of ensuring this is a market that investors can trust. 
Therefore, to boost investors' confidence it is necessary to ensure that fund managers follow 
the same rules in this key area. 

3.2. 

Subsidiarity and proportionality 

The  proposal  essentially  aims  at  creating  a  trusted,  safe  and  legally  stable  marketing 
environment  for  the  marketing  of  "European  Social  Entrepreneurship  Funds".  The 
determination  of  the  essential  characteristics  of  such  a  fund,  in  terms  of  its  portfolio 
composition, investment tools, investment targets and eligible investor groups, can not be left 
to  the  discretion  of  the  Member  States  as  this  would  give  rise  to  different  and  inconsistent 
application  of  these  defining  requirements  throughout  the  EU.  Uniform  definitions  and 
operating  requirements  therefore  must  play  a  central  role  in  establishing  a  set  of  common 
rules for the European market for these funds and their managers. Furthermore, all collective 
investment  fund  managers  operating  in  this  market  using  the  designation  "European  Social 
Entrepreneurship Fund" must be subject to the same organisational, conduct of business and 
transparency requirements.  

In  respect  of  the  registration  and  supervision  of  the  managers  of  "European  Social 
Entrepreneurship  Funds"  the  proposal  aims  at  striking  a  balance  between  the  need  for 
effective supervision, the interest of the competent national authorities where such funds are 
either domiciled or offered to the eligible categories of investors and the coordinating role of 
ESMA. In order to create a seamless process for supervision, the competent authority in the 
Member State where the manager of the qualifying "European Social Entrepreneurship Fund" 
is domiciled will verify the registration documents submitted by the applicant manager and, 
after  having  assessed  whether  the  applicant  provides  sufficient  guarantee  of  its  ability  to 
comply with the requirements of the Regulation, will register the applicant. In supervising the 
registered  manager,  the  competent  authority  that  has  registered  the  manager  will  cooperate 
with the competent authorities in those Member States where the qualifying fund is marketed. 
ESMA will maintain a central database listing all registered managers that are eligible to use 
the designation European Social Entrepreneurship Fund. 

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As  regards  proportionality,  the  proposal  strikes  the  appropriate  balance  between  the  public 
interest  of  promoting  the  development  of  more  efficient  markets  for  "European  Social 
Entrepreneurship Funds" and the cost efficiency of the measures proposed. In providing for a 
simple registration system, the proposal has taken full account of the need to balance safety 
and reliability associated with the use of the designation "European Social Entrepreneurship 
Fund" with the efficient operation of the market and the cost for its various stakeholders.  

3.3. 

Compliance with Articles 290 and 291 TFEU 

On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, 
EIOPA, and ESMA. In this respect the Commission wishes to recall the Statements in relation 
to  Articles  290  and  291  TFEU  it  made  at  the  adoption  of  the  Regulations  establishing  the 
European  Supervisory  Authorities  according  to  which:  "As  regards  the  process  for  the 
adoption  of  regulatory  standards,  the  Commission  emphasises  the  unique  character  of  the 
financial services sector, following from the Lamfalussy structure and explicitly recognised in 
Declaration  39  to  the  TFEU.  However,  the  Commission  has  serious  doubts  whether  the 
restrictions  on  its  role  when  adopting  delegated  acts  and  implementing  measures  are  in  line 
with Articles 290 and 291 TFEU." 

3.4. 

Presentation of the Proposal 

Article 1 - Scope 

Article 1 delineates the scope of the envisaged Regulation. The Article makes clear that the 
designation  "European  Social  Entrepreneurship  Fund"  (EuSEF)  shall  be  reserved  to  those 
fund managers that comply with a set of uniform quality criteria that apply to the marketing of 
their funds across the Union. In this respect, Article 1 underscores the aim to set out a uniform 
concept of what constitutes a EuSEF. This concept is developed in order to ensure the smooth 
marketing of such funds across the Union. 

Article 2 - Scope of application 

Article  2  specifies  that  this  Regulation  applies  to  managers  of  collective  investment 
undertakings as defined in Article 3(1)(b) of this Regulation that are established in the Union 
and who are subject to registration with the competent authorities in their home member states 
in  accordance  with  Article  3  (3)  (a)  of  Directive  2011/61/EC,  provided  that  they  manage 
portfolios  of  EuSEFs  whose  assets  under  management  in  total  do  not  exceed  a  threshold  of 
EUR 500 million. 

Article 3 - Definitions 

Article 3 contains  essential definitions delineating the scope of application for the proposed 
Regulation.  Key  concepts,  such  as  the  EuSEF  itself,  the  EuSEF  manager,  the  qualifying 
investment  tools  and  the  qualifying  investment  targets  are  defined.  Essentially,  these 
definitions aim to draw a clear demarcation line between a EuSEF and other funds which may 
pursue similar investment strategies but which are not targeting social undertakings.  

In  line  with  the  aim  of  precisely  circumscribing  the  funds  under  this  Regulation,  Article  3, 
paragraph 1(a) stipulates that a EuSEF shall be a fund that dedicates at least 70 percent of its 
aggregate  capital  contributions  and  uncalled  committed  capital  to  investments  that  are 
qualifying portfolio undertakings. This implies that e.g. operational expenses to be charged to 

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the EuSEF as may be agreed with investors, must be borne out of the remaining 30 percent of 
committed capital contributions.  
This  Regulation  takes  also  the  special  characteristics  of  social  undertakings  into  account. 
Social  undertakings  have  the  achievement  of  positive  social  impact  as  their  principle 
objective.  Therefore,  this  Regulation  requires  that  a  qualifying  portfolio  undertaking  should 
have a measurable and positive social impact, uses its profits to achieve its primary objective 
and  that  it  is  managed  in  an  accountable  and  transparent  way.  Article  3  also  specifies  rules 
and  procedures  that  must  be  in  place  to  cover  the  circumstances  in  which  a  qualifying 
portfolio undertaking wishes to distribute some its profits to its owners and shareholders. As 
explained in the recital, such distributions should not undermine effective achievement of the 
undertaking's primary objective.  

Taking into account the funding needs of such undertakings the eligible investment tools are 
equally  defined.  These  include  equity  instruments,  debt  instruments,  investments  into  other 
EuSEFs and long and medium term loans.  

Article 4 – Use of the designation "European Social Entrepreneurship Fund"  

Article 4 contains the key principle that only funds that comply with the uniform criteria laid 
down  by 
the  designation  "European  Social 
Entrepreneurship Fund" to market EuSEFs across the Union.  

this  Regulation  are  eligible 

to  use 

Article 5 – Portfolio composition 

Article 5 contains detailed provision on the portfolio composition that characterises a EuSEF. 
In this respect, Article 5 contains uniform rules on the investment targets for EuSEF, eligible 
investment tools, rules on the limits by which a EuSEF manager can increase its exposure. In 
order  to  allow  EuSEFs  a  certain  degree  of  flexibility  in  their  investment  and  liquidity 
management, other investments are permitted within a maximum threshold not exceeding 30 
percent of aggregate capital contributions and uncalled capital investments that does not need 
to constitute qualifying investments. 

Article 6 – Eligible investors 

Article 6 contains detailed provisions on the investors eligible to invest in EuSEFs: according 
to  this  Article,  the  EuSEFs  may  only  be  marketed  to  investors  recognised  as  professional 
investors  in  Directive  2004/39/EC.  Marketing  to  other  investors  such  as  certain  high-net 
worth individuals is only allowed if they commit a minimum 'ticket' of EUR 100 000 to the 
fund and if certain procedures are followed by the fund manager so that the fund manager is 
reasonably  assured  that  these  other  investors  are  capable  of  making  their  own  investment 
decisions and understanding the risks involved.  

Article 7 – Rules of conduct  

Article 7 contains general principles governing the behaviour of a EuSEF manager, notably in 
the conduct of its activities and its relationship to investors.  

Article 8 – Conflicts of interest  

Article 8 contains rules for the handling of conflicts of interest by the EuSEF manager. These 
rules  also  require  the  manager  to  have  the  necessary  organisational  and  administrative 
arrangements in place to ensure a proper handling of conflicts of interest.  

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Article 9 – Measurement of positive social impacts 

Article  9  requires  EuSEF  managers  to  have  the  necessary  procedures  in  place  in  order  to 
measure  and  monitor  the  positive  social  impacts  the  qualifying  portfolio  undertakings  are 
committed to achieve.  

Article 10 - Organisational requirements 

Article 10 requires that a EuSEF manager maintains adequate human and technical resources 
as well as sufficient own funds as are necessary for the proper management of EuSEFs.  

Article 11 – Valuation  

Article 11 addresses the valuation of the assets of a EuSEF. Rules on this should be laid down 
in the statutory documents of each EuSEF. 

Article 12 - Annual reports  

Article 12 contains rules on annual reports EuSEF managers should prepare in relation to the 
EuSEF  they  manage.  The  report  shall  describe  the  composition  of  the  portfolio  of  the  fund 
and the activities of the past year. It shall also contain information regarding the social impact 
achieved by the investment policy of the fund. 

Article 13 - Disclosure to investors 

Article  13  contains  certain  key  disclosure  requirements  that  are  incumbent  on  a  EuSEF 
manager  in  relation  to  its  investors.  These  requirements  contain  pre-contractual  general 
disclosure obligations in relation to the investment strategy and the objectives of the EuSEF, 
information  on  costs  and  associated  charges,  and  the  risk/reward  profile  of  the  investment 
proposed  by  the  EuSEF.  Such  requirements  also  include  information  about  the  way  the 
remuneration of the EuSEF manager is calculated. At the same time, these requirements aim 
to ensure transparency in relation to the specific nature of EuSEFs, particularly as regards the 
positive social outcome which shall be achieved by the investment policy.  

Article 14 – Supervision  

Article 14 in order to ensure that the competent authority of the home Member State will be 
able to supervise compliance of the EuSEF manager with the uniform requirements set out in 
this Regulation; the EuSEF manager shall inform the competent authority of its intention to 
market  EuSEFs  under  the  designation  "European  Social  Entrepreneurship  Fund."  The 
manager  shall  also  provide  the  necessary  information  including  about  the  arrangements  to 
comply with this Regulation and the funds he intends to market. Once the competent authority 
is satisfied that the required information is complete and that the arrangements are suitable to 
comply with the requirements set out in this Regulation, it shall register the EuSEF manager. 
This  registration  shall  be  valid  across  the  entire  Union  and  allows  the  EuSEF  manager  to 
market EuSEFs under the designation "European Social Entrepreneurship Fund". 

Article 15 – Update of information  

Article  15  contains  rules  on  circumstances  when  information  supplied  to  the  competent 
authority in the home Member State needs to be updated.  

EN 

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Article 16 - Cross-border notifications 

Article 16 describes the cross-border notification process between the competent supervisory 
authorities that is triggered by the registration of the EuSEF manager.  

Article 17 – ESMA database 

Article 17 entrusts ESMA with the task to maintain a central database listing all EuSEFs that 
are registered across the Union.  

Article 18 – Supervision by competent authority 

Article  18  stipulates  that  the  competent  authority  of  the  home  Member  State  supervises  the 
requirements of this Regulation. 

Article 19 – Supervisory powers 

Article 19 specifies a list of supervisory powers that competent authorities shall have at their 
disposal to ensure compliance with the uniform criteria contained in the Regulation.  

Article 20 – Sanctions 

Article 20 contains provisions on sanctions to ensure proper enforcement of the requirements 
of this Regulation.  

Article 21 – Breach of key provisions 

Article 21 specifies that the breach of key provisions of this Regulation such as on portfolio 
composition,  the  eligible  investors  and  the  use  of  the  designation  "European  Social 
Entrepreneurship Fund" should be sanctioned by the prohibition of the use of the designation 
and the removal of the EuSEF manager of the register. 

Article 22 – Supervisory cooperation 

Article 22 contains rules on the exchange of supervisory information between the competent 
authorities in the home and host Member States and ESMA.  

Article 23 - Professional secrecy 

Article 23 contains provisions on the requisite level of professional secrecy that should apply 
to  all  relevant  national  authorities  and  to  the  European  Securities  and  Markets  Regulator 
(ESMA).  

Article 24 – Conditions for empowerment 

Article  24  sets  out  the  conditions  under  which  the  Commission  is  empowered  to  adopt 
delegated acts. 

Article 25 - Review  

Article  25  contains  clauses  on  the  review  of  the  proposed  Regulation  and  possible 
Commission proposals to modify the latter.  

EN 

11 

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4. 

BUDGETARY IMPLICATION  

There are no budgetary implications. 

EN 

12 

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2011/0418 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on European Social Entrepreneurship Funds 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Central Bank,6 

Having regard to the opinion of the European Economic and Social Committee,7 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Increasingly,  as  investors  also  pursue  social goals and are  not only seeking  financial 
returns, a social investment market has been emerging in the Union, comprised in part 
by  investment  funds  targeting  social  undertakings.  Such  investment  funds  provide 
funding to social undertakings which are acting as drivers of social change by offering 
innovative solutions to social problems and making a valuable contribution to meeting 
the objectives of the Europe 2020 Strategy. 

It  is  necessary  to  lay  down  a  common  framework  of  rules  regarding  the  use  of  the 
designation  "European  Social  Entrepreneurship  Fund", 
the 
composition of the portfolio of funds that operate under this designation, their eligible 
investment  targets,  the  investment  tools  they  may  employ  and  the  categories  of 
investors that are eligible to invest in such funds by uniform rules in the Union. In the 
absence  of  such  a  common  framework,  there  is  a  risk  that  Member  States  take 
diverging measures at national level having a direct negative impact on, and creating 
obstacles  to,  the  good  functioning  of  the  internal  market,  since  funds  that  wish  to 
operate  across  the  Union  would  be  subject  to  different  rules  in  different  Member 

in  particular  on 

6 
7 

OJ C …p… 
OJ C , , p. . 

EN 

13 

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(3) 

(4) 

(5) 

States. Moreover, diverging quality requirements on portfolio composition, investment 
targets and eligible investors could lead to different levels of investor protection and 
generate confusion as to the investment proposition associated with a European Social 
Entrepreneurship  Fund  (EuSEF).  Investors  should,  furthermore,  be  able  to  compare 
the investment propositions of different EuSEFs. It is necessary to remove significant 
obstacles  to  cross-border  fundraising  by  EuSEFs  and  to  avoid  distortions  of 
competition between those funds, and to prevent any further likely obstacles to trade 
and significant distortions of competition from arising in the future. Consequently, the 
appropriate  legal  basis  is  Article  114  TFEU,  as  interpreted  in  accordance  with  the 
consistent case law of the Court of Justice of the European Union. 

It is necessary to adopt a Regulation establishing uniform rules applicable to EuSEFs 
and imposing corresponding obligations on their managers in all Member States that 
wish  to  raise  capital  across  the  Union  using  the  designation  "European  Social 
Entrepreneurship Fund". These requirements should ensure the confidence of investors 
that wish to invest in such funds.  

Defining  the  quality  requirements  for  the  use  of  the  designation  "European  Social 
Entrepreneurship  Fund"  in  the  form  of  a  Regulation  should  ensure  that  those 
requirements  will  be  directly  applicable  to  the  managers  of  collective  investment 
undertakings  that  raise  funds  using  this  designation.  This  would  ensure  uniform 
conditions  for  the  use  of  this  designation  by  preventing  diverging  national 
requirements  as  a  result  of  the  transposition  of  a  Directive.  This  Regulation  would 
entail  that  managers  of  collective  investment  undertakings  that  use  this  designation 
would  need  to  follow  the  same  rules  in  all  of  the  Union,  which  would  also  boost 
confidence of investors that wish to invest in funds that focus on social undertakings. 
A  Regulation  would  also  reduce  regulatory  complexity  and  the  manager's  cost  of 
compliance  with  often  divergent  national  rules  governing  such  funds,  especially  for 
those managers that want to raise capital on a cross-border basis. A Regulation should 
also contribute to eliminating competitive distortions.  

laws,  regulations,  and  adminstrative  provisions,  relating 

In  order  to  clarify  the  relationship  between  this  Regulation  and  generally  applicable 
Union rules on collective investment undertakings and their managers, it is necessary 
to  establish  that  this  Regulation  should  only  apply  to  managers  of  collective 
investment undertakings other than UCITS in accordance with Article 1 of Directive 
2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of 
to 
undertakings for collective investment in transferable securities (UCITS)8 and who are 
established in the Union and are registered with the competent authority in their home 
Member  State  in  accordance  with  Directive  2011/61/EC  of  the  European  Parliament 
and  of  the  Council  of  8  June  20011  on  Alternative  Investment  Fund  Managers  and 
amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations  (EC)  No 
1060/2009 and (EU) No 1095/2010.9 Furthermore, this Regulation should only apply 
to  managers  who  manage  portfolios  of  EuSEFs  whose  assets  under  management  in 
total do not exceed a threshold of EUR 500 million. In order to make the calculation of 
this threshold operational, the power to adopt acts in accordance with Article 290 of 
the  Treaty  on  the  Functioning  of  the  European  Union  should  be  delegated  to  the 

8 
9 

OJ L 302, 17.11.2009, p.32. 
OJ L 174, 1.7.2011, p.1. 

EN 

14 

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Commission in respect of specifying the calculation of this threshold. When exercising 
this empowerment, the Commission should, in order to ensure consistency in rules on 
collective  investment  undertakings,  take  into  account  measures  adopted  by  the 
Commission in accordance with point (a) of Article 3 (6) of Directive 2011/61/EC. 

(6)  Where  managers  of  collective  investment  undertakings  do  not  wish  to  use  the 
designation  "European  Social  Entrepreneurship  Fund"  then  this  Regulation  does  not 
apply. In those cases, existing national rules and general Union rules should continue 
to apply.  

(7) 

(8) 

(9) 

This  Regulation  should  establish  uniform  rules  on  the  nature  of  EuSEFs,  notably  on 
the portfolio undertakings into which the EuSEFs are to be permitted to invest, and the 
investment  instruments  to  be  used.  In  order  to  ensure  the  necessary  clarity  and 
certainty  this  Regulation  should  also  lay  down  uniform  criteria  to  identify  social 
undertakings  as  eligible  qualifying  portfolio  undertakings.  Social  undertakings  have 
the  achievement  of  positive  social  impact  as  their  principle  objective  rather  than 
maximising  their  profits.  Therefore,  this  Regulation  should  require  that  a  qualifying 
portfolio undertaking should have the achievement of a measurable and positive social 
impact as its focus; that it uses its profits to achieve its primary objective and that it be 
managed in an accountable and transparent way. For the, in general, exceptional cases, 
in which a qualifying portfolio undertaking wishes to distribute profits to shareholders 
and  owners,  the  qualifying  portfolio  undertaking  should  have  predefined  procedures 
and  rules  on  how  profits  are  distributed  to  shareholders  and  owners.  Those  rules 
should  specify  that  distribution  of  profits  does  not  undermine  the  primary  social 
objective.  

Social undertakings include a large range of undertakings, taking various legal forms, 
that  provide  social  services  or  goods  to  vulnerable  or  marginalised  persons.  Such 
services  include  access  to  housing,  healthcare,  assistance  for  elderly  or  disabled 
persons,  child  care,  access  to  employment  and  training  as  well  as  dependency 
management. Social undertakings also include undertakings that employ a method of 
production  of  goods  or  services  with  a  social  objective,  but  whose  activities  may  be 
outside the realm of the provision of social goods or services. Those activities include 
social  and  professional  integration  by  means  of  access  to  employment  for  people 
disadvantaged  in  particular  by  insufficient  qualifications  or  social  or  professional 
problems leading to exclusion and marginalisation. 

Taking into account the specific funding needs of social undertakings, it is necessary 
to  achieve  clarity  regarding  the  types  of  instruments  a  EuSEF  should  use  for  such 
funding.  Therefore,  this  Regulation  should  lay  down  uniform  rules  on  the  eligible 
instruments  to  be  used  by  a  EuSEF  when  making  investments,  which  include  equity 
instruments,  debt  instruments,  investments  into  other  EuSEFs  and  short  and  medium 
term loans. 

(10)  To  maintain  the  necessary  flexibility  in  its  investment  portfolio,  EuSEFs  may  also 
invest in other assets than qualifying investments to the extent that these investments 
do not exceed the limits set by this Regulation for non-qualifying investments. Short 
term holdings such as cash and cash equivalents should not be taken into account for 
the calculation of the limits set for non-qualifying investments in this Regulation.  

EN 

15 

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(11) 

(12) 

(13) 

(14) 

In  order  to  ensure  that  the  designation  "European  Social  Entrepreneurship  Fund"  is 
reliable and easily recognisable for investors across the Union this Regulation should 
establish that only EuSEF managers which comply with the uniform quality criteria as 
set  out  in  this  Regulation  should  be  eligible  to  use  this  designation  when  marketing 
EuSEFs across the Union.  

In order to ensure that EuSEFs have a distinct and identifiable profile which is suited 
to their purpose, there should be uniform rules on the composition of the portfolio and 
on the investment techniques which are permitted for such funds.  

In order to ensure that EuSEFs do not contribute to the development of systemic risks, 
and  so  as  to  ensure  that  such  funds  concentrate,  in  their  investment  activities,  on 
supporting  qualifying  portfolio  companies,  borrowing  or  leverage  at  the  level  of  the 
fund  should  not  be  permitted.  However,  in  order  to  permit  the  fund  to  cover 
extraordinary  liquidity  needs  that  might  arise  between  the  call  of  committed  capital 
from  investors  and  the  actual  reception  of  the  capital  in  its  accounts,  short-term 
borrowing should be allowed. 

In  order  to  ensure  that  EuSEFs  are  marketed  to  investors  who  have  the  knowledge, 
experience and capacity to take on the risks these funds carry, and in order to maintain 
investor  confidence  and  trust  in  EuSEF,  certain  specific  safeguards  should  be  laid 
down.  Therefore,  EuSEFs  should  in  general  only  be  marketed  to  investors  who  are 
professional  clients  or  who  can  be  treated  as  professional  clients  under  Directive 
2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
markets  in  financial  instruments  amending  Council  Directives  85/611/EEC  and 
93/6/EEC  and  Directive  2000/12/EC  of  the  European  Parliament  and  of  the  Council 
and repealing Council Directive 93/22/EEC.10 However, in order to have a sufficiently 
broad investor base for investments into EuSEFs it is also desirable that certain other 
investors have access  to  these  funds,  including high net worth individuals. For those 
other  investors,  specific  safeguards  should  be  laid  down  in  order  to  ensure  that 
EuSEFs  are  only  marketed  to  investors  that  have  the  appropriate  profile  for  making 
such  investments.  These  safeguards  exclude  marketing  through  the  use  of  periodic 
savings plans. 

(15)  To  ensure  that  only  EuSEF  managers  who  fulfil  uniform  quality  criteria  as  regards 
their behaviour in the market use the designation "European Social Entrepreneurship 
Fund",  this  Regulation  should  establish  rules  on  the  conduct  of  business  and  the 
relationship  of  the  EuSEF  manager  to  its  investors.  For  the  same  reason,  this 
Regulation  should  also  lay  down  uniform  conditions  concerning  the  handling  of 
conflicts of interest by such managers. These rules should also require the manager to 
have the necessary organisational and administrative arrangements in place to ensure a 
proper handling of conflicts of interest.  

(16)  The  creation  of  positive  social  impacts  in  addition  to  the  generation  of  financial 
returns  for  investors  is  a  key  characteristic  of  investment  funds  targeting  social 
undertakings,  one  which  distinguishes  them  from  other  types  of  investment  funds. 
This  Regulation  should  therefore  require  that  the  EuSEF  managers  put  in  place 

10 

OJ L 145, 30.4.2004, p. 1. 

EN 

16 

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(17) 

(18) 

procedures for monitoring and measuring the positive social impacts which are to be 
achieved by investment into qualifying portfolio undertakings.  

In order to ensure the integrity of the designation "European Social Entrepreneurship 
Fund", this Regulation should also contain quality criteria as regards the organisation 
of  a  EuSEF  manager.  Therefore,  this  Regulation  should  lay  down  uniform, 
proportionate  requirements  for  the  need  to  maintain  adequate  technical  and  human 
resources as well as sufficient own funds for the proper management of EuSEFs.  

It is necessary for the purpose of investor protection to ensure that EuSEFs assets are 
properly  evaluated.  Therefore  the  statutory  document  of  the  EuSEF  should  contain 
rules on the valuation of assets. This should ensure the integrity and the transparency 
of the valuation. 

(19) 

In order to ensure that EuSEF managers which make use of the designation "European 
Social  Entrepreneurship  Funds"  give  sufficient  account  of  their  activities,  uniform 
rules on annual reports should be established.  

(20)  To ensure the integrity of the designation "European Social Entrepreneurship Fund" in 
the  eyes  of  investors,  it  is  necessary  that  the  designation  only  be  used  by  fund 
managers who are fully transparent as to their investment policy and their investment 
targets.  This  Regulation  should  therefore  set  out  uniform  rules  on  disclosure 
requirements  that  are  incumbent  on  a  EuSEF  manager  in  relation  to  his  investors. 
These requirements include those elements that are specific to investments into social 
undertakings, so that greater consistency  and comparability of such  information  may 
be achieved. This includes information about the criteria and the procedures which are 
used to select particular qualifying portfolio undertakings as investment targets. This 
also  includes  information  about  the  positive  social  impact  to  be  achieved  by  the 
investment  policy  and  how  this  should  be  monitored  and  assessed.  To  ensure  the 
necessary  confidence  and  the  trust  of  investors  in  such  investments,  this  further 
includes  information  about  the  assets  of  the  EuSEF  which  are  not  invested  into 
qualifying portfolio undertakings and how these are selected.  

(21) 

In order to ensure effective supervision of the uniform requirements contained in this 
Regulation,  the  competent  authority  of  the  home  Member  State  should  supervise 
compliance  of  the  EuSEF  manager  with  the  uniform  requirements  set  out  in  this 
Regulation. To this effect, the EuSEF manager who wishes to market his funds under 
the  designation  "European  Social  Entrepreneurship  Fund"  should  inform  the 
competent  authority  of  his  home  Member  State  of  this  intention.  The  competent 
authority  should  register  the  fund  manager  if  all  necessary  information  has  been 
provided  and  if  there  are  suitable  arrangements  to  comply  with  the  requirements  of 
this Regulation are in place. This registration should be valid across the entire Union.  

(22) 

In order to ensure effective supervision of compliance with the uniform criteria set out, 
this  Regulation  should  contain  rules  on  the  circumstances  under  which  information 
supplied to the competent authority in the home Member State needs to be updated.  

(23)  For  the  effective  supervision  of  the  requirements  laid  down,  this  Regulation  should 
also  establish  a  process  for  cross-border  notifications  between  the  competent 
supervisory authorities, to be triggered by the registration of the EuSEF manager in its 
home Member State.  

EN 

17 

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(24) 

(25) 

(26) 

In  order  to  maintain  transparent  conditions  for  the  marketing  of  EuSEF  managers 
across the Union, the European Securities and Markets Authority (ESMA) should be 
entrusted with maintaining a central database listing all EuSEFs that are registered in 
accordance with this Regulation.  

In  order  to  ensure  the  effective  supervision  of  the  uniform  criteria  established,  this 
Regulation should contain a list of supervisory powers that competent authorities shall 
have at their disposal.  

In order to ensure proper enforcement, this Regulation should contain sanctions for the 
breach of its key provisions, namely the rules on portfolio composition, on safeguards 
relating  to  the  identity  of  eligible  investors,  and  on  the  use  of  the  designation 
"European  Social  Entrepreneurship  Fund"  only  by  registered  EuSEF  managers.  It 
should  be  established that a breach of these key provisions entails the prohibition of 
the use of the designation and the removal of the fund manager from the register. 

(27)  Supervisory  information  should  be  exchanged  between  the  competent  authorities  in 

the home and host Member States and ESMA.  

(28)  Effective  regulatory  cooperation  among 

tasked  with  supervising 
compliance  with  the  uniform  criteria  set  out  in  this  Regulation  requires  that  a  high 
level  of  professional  secrecy  should  apply  to  all  relevant  national  authorities  and  to 
ESMA.  

the  entities 

(29)  Technical standards in financial services should ensure consistent harmonisation and a 
high  level  of  supervision  across  the  Union.  As  a  body  with  highly  specialised 
expertise, it would be efficient and appropriate to entrust ESMA with the elaboration 
of draft implementing technical standards where these do not involve policy choices, 
for submission to the Commission.  

(30)  The Commission should be empowered to adopt implementing technical standards by 
means of implementing acts pursuant to Article 291 of the Treaty on the Functioning 
of  the  European  Union  and  in  accordance  with  Article  15  of  Regulation  (EU)  No 
1095/2010  of  the  European  Parliament  and  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Securities  and  Markets 
Authority)  amending  Decision No  716/2009/EC and repealing Commission Decision 
2009/77/EC.11  ESMA  should  be  entrusted  with  drafting  implementing  technical 
standards for the format and method of the notification procedure in Article 16. 

(31) 

In order to specify the requirements set out in this Regulation, the power to adopt acts 
in  accordance  with  Article  290  of  the  Treaty  on  the  Functioning  of  the  European 
Union should be delegated to the Commission in respect of specifying the methods to 
be  used  to  for  calculating  and  monitoring  the  threshold  as  referred  to  in  this 
Regulation,  specifying  the  details  for  the  identification  of  qualifying  portfolio 
undertakings, the types of conflicts of interests EuSEF managers need to avoid and the 
steps  to  be  taken  in  that  respect,  the  details  of  the  procedures  to  measure  the  social 
impacts  to  be  achieved  by  the  qualifying  portfolio  undertakings  and  details  for  the 
specification  of  transparency  requirements.  It  is  of  particular  importance  that  the 

11 

OJ L 331, 15.12.2010, p. 84. 

EN 

18 

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Commission carry out appropriate consultations during its preparatory work, including 
at expert level. This work should also take into account self regulatory initiatives and 
codes of conduct.  

(32)  The  Commission,  when  preparing  and  drawing  up  delegated  acts,  should  ensure  a 
simultaneous,  timely  and  appropriate  transmission  of  relevant  documents  to  the 
European Parliament and to the Council.  

(33)  At the latest four years after the date on which this Regulation becomes applicable a 
review  of  this  Regulation  should  be  carried  out  in  order  to  take  account  of  the 
development  of  the  market  of  EuSEFs.  On  the  basis  of  the  review,  the  Commission 
should  submit  a  report  to  the  European  Parliament  and  the  Council  accompanied,  if 
appropriate, by legislative changes.  

(34)  This Regulation respects fundamental rights and observes the principles recognised in 
particular by the Charter of Fundamental Rights of the European Union, including the 
right to respect for private and family life and the freedom to conduct a business. 

(35)  Directive 95/46 of the European Parliament and of the Council of 24 October 1995 on 
the protection of individuals with regard to the processing of personal data and on the 
free  movement  of  such  data12  governs  the  processing  of  personal  data  carried  out  in 
the Member States in the context of this Regulation and under the supervision of the 
Member States competent authorities, in particular the public independent authorities 
designated  by  the  Member  States.  Regulation  (EU)  No  45/2001  of  the  European 
Parliament and of the Council of 18 December 2000 on the protection of individuals 
with regard to the processing of personal data13 by the EU institutions and bodies and 
on the free movement of such data, governs the processing of personal data carried out 
by  ESMA  within  the  framework  of  this  Regulation  and  under  the  supervision  of  the 
European Data Protection Supervisor. 

(36)  The objective of this Regulation, namely to develop a an Internal Market for EuSEFs 
by  laying  down  a  framework  for  the  registration  of  EuSEF  managers  facilitating  the 
marketing of EuSEFs throughout the Union, can only be achieved at Union level. The 
Union may adopt measures in accordance with the principle of subsidiarity as set out 
in Article 5 of the Treaty on the European Union. In accordance with the principle of 
proportionality,  as  set  in  that  Article,  this  Regulation  does  not  go  beyond  what  is 
necessary in order to achieve that objective, 

12 
13 

OJ L 281, 23.11.1995 p. 31. 
OJ L 8, 12.1.2001, p. 1. 

EN 

19 

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HAVE ADOPTED THIS REGULATION: 

CHAPTER I 
SUBJECT MATTER, SCOPE AND DEFINITIONS 

Article 1 

This Regulation lays down uniform requirements for those managers of collective investment 
undertakings  who  wish  to  use  the  designation  "European  Social  Entrepreneurship  Fund" 
(EuSEF) and the conditions for the marketing of collective investment undertakings under this 
designation  in  the  Union,  thereby  contributing  to  the  smooth  functioning  of  the  internal 
market.  

This  Regulation  also  lays  down  uniform  rules  for  the  marketing  of  EuSEF  managers  to 
eligible investors across the Union, for the portfolio composition of EuSEFs, for the eligible 
investment  instruments  and  techniques,  as  well  as  on  the  organisation,  transparency  and 
conduct of EuSEF managers that market EuSEFs across the Union.  

Article 2 

1. 

2. 

3. 

This Regulation applies to managers of collective investment undertakings as defined 
in  point  (b)  of  Article  3  (1)  who  are  established  in  the  Union  and  are  subject  to 
registration with the competent authorities of their home Member State in accordance 
with point (a) of Article 3 (3) of Directive 2011/61/EC, provided that these managers 
manage portfolios of EuSEFs whose assets under management in total do not exceed 
a threshold of EUR 500 million or, in the Member States where the Euro is not the 
official currency, the corresponding value in the national currency on the date of the 
entry into force of this Regulation. 

In  calculating  the  threshold  referred  to  in  paragraph  1  managers  of  collective 
investment  undertakings  who  manage  funds  other  than  EuSEFs  will  not  need  to 
aggregate the assets managed in these other funds. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  24  specifying  the  methods  for  calculating  the  threshold  as  referred  in 
paragraph 1 of this Article and for monitoring compliance with this threshold on an 
ongoing basis.  

Article 3 

1. 

For the purposes of this Regulation, the following definitions shall apply: 

(a) 

'European  Social  Entrepreneurship  Fund'  (EuSEF)  means  a  collective 
investment undertaking that invests at least 70 percent of its aggregate capital 
contributions  and  uncalled  committed  capital  in  assets  that  are  qualifying 
investments;  

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(b) 

'collective  investment  undertaking'  means  an  undertaking  which  raises  capital 
from  a  number  of  investors  with  a  view  to  investing  it  in  accordance  with  a 
defined investment policy for the benefit of those investors and which does not 
require authorisation pursuant to Article 5 of Directive 2009/65/EC; 

(c) 

'qualifying investments' means any of the following instruments:  

(i) 

an equity instrument that is:  

– 

– 

– 

issued  by  a  qualifying  portfolio  undertaking  and  acquired  directly 
by the EuSEF from the qualifying portfolio undertaking or  

issued  by  a  qualifying  portfolio  undertaking  in  exchange  for  an 
equity security issued by the qualifying portfolio undertaking or  

issued  by  an  undertaking  of  which  the  qualifying  portfolio 
undertaking is a majority-owned  subsidiary and which is acquired 
by  the  EuSEF  in  exchange  for  an  equity  instrument  issued  by  the 
qualifying portfolio undertaking;  

(ii) 

securitised  and  un-securitised  debt  instruments,  issued  by  a  qualifying 
portfolio undertaking; 

(iii)  units or shares of one or several other EuSEFs; 

(iv)  medium  to  long  term  loans  granted  to  qualifying  portfolio  undertakings 

by the EuSEF; 

(v) 

any other type of participation in a qualifying portfolio undertaking.  

(d) 

'qualifying portfolio undertaking' means an undertaking that, at the time of an 
investment  by  the  EuSEF,  is  not  listed  on  a  regulated  market  as  defined  in 
point (14) of Article 4 (1) of Directive 2004/39/EC, which either has an annual 
turnover  not  exceeding  EUR  50  million,  or  an  annual  balance  sheet  total  not 
exceeding  EUR  43  million,  which  is  not  itself  a  collective  investment 
undertaking and which: 

(i) 

has the achievement of measurable, positive social impacts as a primary 
objective  in  accordance  with  its  articles  of  association,  statutes  or  any 
other statutory document establishing the business, where:  

– 

– 

the  undertaking  provides  services  or  goods  to  vulnerable  or 
marginalised persons; or 

the  undertaking  employs  a  method  of  production  of  goods  or 
services that embodies its social objective;  

(ii)  uses  its  profits  to  achieve  its  primary  objective  instead  of  distributing 
profits  and  has  in  place  predefined  procedures  and  rules  for  any 
circumstances  in  which  profits  are  distributed  to  shareholders  and 
owners; 

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(iii) 

is  managed  in  an  accountable  and  transparent  way,  in  particular  by 
involving  workers,  customers  and  stakeholders  affected  by  its  business 
activities. 

'equity' means ownership interest in an undertaking, represented by the shares 
or  other  form  of  participation  in  the  capital  of  the  qualifying  portfolio 
undertaking issued to the investors; 

'marketing' means a direct or indirect offering or placement at the initiative of 
the EuSEF manager or on behalf of that manager of units or shares of a EuSEF 
it  manages  to  or  with  investors  domiciled  or  with  a  registered  office  in  the 
Union; 

(e) 

(f) 

(g) 

'committed  capital'  means  any  commitment  pursuant  to  which  a  person  is 
obligated to acquire an interest in the EuSEF or make capital contributions to 
the EuSEF; 

(h) 

'EuSEF manager' means a legal person whose regular business is managing at 
least one EuSEF; 

(i) 

(j) 

(k) 

'home  Member  State'  means  the  Member  State  where  the  EuSEF  manager  is 
established or has its registered office; 

'host  Member  State'  means  the  Member  State,  other  than  the  home  Member 
State,  where  the  EuSEF  manager  markets  EuSEFs  in  accordance  with  this 
Regulation. 

'competent  authority'  means  the  national  authority  which  the  home  Member 
State  designates,  by  law  or  regulation,  to  undertake  the  registration  of 
managers of collective investment undertakings as referred to in Article 2 (1). 

2. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 24 specifying the types of services or goods and the methods of production of 
services or goods that embody a social objective referred to in point (i) of paragraph 
1  (d)  of  this  Article  taking  into  account  the  different  kinds  of  qualifying  portfolio 
undertakings and those circumstances in which profits can be distributed to owners 
and investors.  

CHAPTER II 
CONDITIONS FOR THE USE OF THE DESIGNATION 
"EUROPEAN SOCIAL ENTREPRENEURSHIP FUND" 

Article 4 

EuSEF managers who comply with the requirements set out in this Chapter shall be entitled to 
use the designation "European Social Entrepreneurship Fund" in relation to the marketing of 
EuSEFs across the Union. 

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Article 5 

1. 

2. 

3. 

EuSEF  managers  shall  ensure  that,  when  acquiring  assets  other  than  qualifying 
investments no more than 30 percent of the EuSEF's aggregate capital contributions 
and  uncalled  committed  capital  is  used  for  the  acquisition  of  assets  other  than 
qualifying investments; short term holdings in cash and cash equivalents shall not be 
taken into account for calculating this limit. 

EuSEF managers shall not borrow, issue debt obligations, provide guarantees, at the 
level of the EuSEF, nor employ any method, at the level of the EuSEF, by which the 
exposure  of  the  fund  will  be  increased,  whether  through  borrowing  of  cash  or 
securities, the engagement into derivative positions or by any other means. 

The  prohibition  set  out  in  paragraph  2  shall  not  apply  to  borrowing  for  a  non-
renewable term of no longer than 120 calendar days to provide liquidity between a 
call for and receipt of committed capital from investors .  

Article 6 

EuSEF  managers  shall  market  the  units  and  shares  of  the  EuSEFs  under  management 
exclusively  to  investors  which  are  considered  to  be  professional  clients  in  accordance  of 
Section I of Annex II of Directive 2004/39/EC, or may, on request, be treated as professional 
clients  in  accordance  with  Section  II  of  Annex  II  of  Directive  2004/39/EC,  or  to  other 
investors where: 

(a) 

those other investors commit to invest a minimum of EUR 100.000; 

(b) 

(c) 

(d) 

those other investors state in writing, in a separate document from the contract 
that is concluded for the commitment to invest, that they are aware of the risks 
associated with the envisaged commitment;  

the EuSEF manager undertakes an assessment of the expertise, experience and 
knowledge of the investor, without presuming that the investor has the market 
knowledge and experience of those listed in Section I of Annex II of Directive 
2004/39/EC; 

the  EuSEF  manager  is  reasonably  assured,  in  light  of  the  nature  of  the 
commitment  envisaged,  that  the  investor  is  capable  of  making  his  own 
investment  decisions  and  understanding  the  risks  involved,  and  that  a 
commitment of this kind is appropriate for such an investor;  

(e) 

the EuSEF manager confirms in writing that he has undertaken the assessment 
referred to in point (c) and has reached the conclusion referred to in point (d). 

Article 7 

EuSEF managers shall, in relation to the EuSEF they manage: 

(a) 

act with due skill, care and diligence in conducting their activities; 

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(b) 

(c) 

apply  appropriate  policies  and  procedures  for  preventing  malpractices  that 
might  be  reasonably  expected  to  affect  the  interests  of  investors  and  the 
qualifying portfolio undertakings; 

conduct  of  their  business  activities  so  as  to  promote  the  best  interests  of  the 
EuSEFs  they  manage,  the  investors  in  those  EuSEFs,  and  the  integrity  of  the 
market; 

(d) 

apply  a  high  level  of  diligence  in  the  selection  and  ongoing  monitoring  of 
investments in qualifying portfolio undertakings; 

(e)  possess  adequate  knowledge  and  understanding  of  the  qualifying  portfolio 

undertakings they invest in. 

Article 8 

EuSEF managers shall identify and avoid conflicts of interest and, where they cannot 
be avoided, manage and monitor and, in accordance with paragraph 4, disclose, those 
conflicts of interest in order to prevent them from adversely affecting the interests of 
the EuSEFs and their investors and to ensure that the EuSEFs they manage are fairly 
treated. 

EuSEF managers shall identify in particular those conflicts of interest that may arise 
between 

(a)  EuSEF  managers,  those  persons  who  effectively  conduct  the  business  of  the 
EuSEF manager, employees or any person who directly or indirectly controls 
or is controlled by the EuSEF manager, and the EuSEF managed by the EuSEF 
manager or the investors in those EuSEFs; 

(b) 

a EuSEF or the investors in that EuSEF, and another EuSEF managed by that 
EuSEF manager, or the investors in that other EuSEF. 

EuSEF  managers  shall  maintain  and  operate  effective  organisational  and 
administrative arrangements in order to comply with the requirements laid down in 
paragraph 1 and 2. 

Disclosures  of  conflicts  of  interest  as  referred  to  in  paragraph  1  shall  be  provided, 
where organisational arrangements made by the EuSEF manager to identify, prevent, 
manage and monitor conflicts of interest are not sufficient to ensure, with reasonable 
confidence,  that  risks  of  damage  to  investors’  interests  will  be  prevented.  EuSEF 
managers shall clearly disclose the general nature or sources of conflicts of interest to 
the investors before undertaking business on their behalf. 

1. 

2. 

3. 

4. 

5. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 24 specifying: 

(a) 

the types of conflicts of interest as referred to in paragraph 2 of this Article; 

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24 

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(b) 

the  steps  EuSEF  Managers  are  expected  to  take,  in  terms  of  structures  and 
organisational  and  administrative  procedures,  in  order  to  identify,  prevent, 
manage, monitor and disclose conflicts of interest. 

Article 9 

1. 

2. 

EuSEF managers shall employ for each EuSEF they manage procedures to measure 
and monitor the extent to which the qualifying portfolio undertakings, in which the 
EuSEF invests, achieve the positive social impact that they are committed to. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  24  specifying  the  details  of  the  procedures  referred  in  paragraph  1  of  this 
Article, in relation to different qualifying portfolio undertakings.  

Article 10 

At  all  times,  EuSEF  managers  shall  have  sufficient  own  funds  and  use  adequate  and 
appropriate  human  and  technical  resources  as  are  necessary  for  the  proper  management  of 
EuSEFs. 

Rules for the valuation of assets shall be laid down in the statutory documents of the EuSEF.  

Article 11 

Article 12 

1. 

EuSEF managers shall make available an annual report to the competent authority of 
the home Member State for each EuSEF under management no later than 6 months 
following the end of the financial year. The report shall describe the composition of 
the  portfolio  of  the  EuSEF  and  the  activities  of  the  past  year.  It  shall  contain  the 
audited  financial  accounts  for  the  EuSEF.  It  shall  be  produced  in  accordance  with 
existing reporting standards and the terms agreed between the EuSEF manager and 
the  investors.  EuSEF  managers  shall  provide  the  report  to  investors  on  request. 
EuSEF  managers  and 
investors  may  agree  additional  disclosures  amongst 
themselves.  

2. 

The annual report shall at least include the following elements: 

(a)  details,  as  appropriate,  of  the  overall  social  outcomes  achieved  by  the 

investment policy and the method used to measure these outcomes; 

(b) 

(c) 

a statement of any divestments in relation to qualifying portfolio undertakings 
that have occurred; 

a  description  of  whether  divestments  in  relation  to  the  other  assets  of  the 
EuSEF which are not invested into qualifying portfolio undertakings occurred 
on the basis of the criteria as referred to in point (e) of Article 13 (1); 

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25 

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(d) 

a  summary  of  the  activities  the  EuSEF  manager has undertaken in relation to 
the qualifying portfolio undertakings as referred to in point (k) of Article 13(1). 

3. 

Where the EuSEF manager is required to make public an annual financial report in 
accordance with Article 4 of Directive 2004/109/EC of the European Parliament and 
Council14 in relation to the EuSEF the information referred to in paragraph 1 and 2 of 
this Article may be provided either separately or as an additional part of the annual 
financial report.  

1. 

EuSEF  managers  shall  inform  their  investors  prior  to  their  investment  decision  at 
least about the following elements:  

Article 13 

(a) 

(b) 

(c) 

the  identity  of  the  EuSEF  manager  and  of  any  other  service  providers 
contracted  by  the  EuSEF  manager  in  relation  to  their  management,  and  a 
description of their duties; 

a description of the investment strategy and objectives of the EuSEF, including 
a  description  of  the  types  of  the  qualifying  portfolio  undertakings  and  the 
process  and  criteria  which  are  used  for  identifying  them,  the  investment 
techniques it may employ, and any applicable investment restrictions;  

the  positive  social  impact  being  targeted  by  the  investment  policy  of  the 
EuSEF,  including  where  relevant,  projections  of  such  outcomes  as  may  be 
reasonable, and information on past performance in this area; 

(d) 

the methodologies to be used to measure social impacts; 

(e) 

(f) 

(g) 

a description of the assets other than qualifying portfolio undertakings and the 
process and the criteria which are used for selecting these assets unless they are 
cash or cash equivalents; 

a description of the risk profile of the EuSEF and any risks associated with the 
assets in which the fund may invest or the investment techniques that may be 
employed; 

a  description  of  the  EuSEF’s  valuation  procedure  and  of  the  pricing 
methodology  for  valuing  assets,  including  the  methods  used  for  valuing 
qualifying portfolio undertakings; 

(h) 

a  description  of  all  fees,  charges  and  expenses  and  of  the  maximum  amounts 
thereof which are directly or indirectly borne by investors; 

(i) 

a description of how the remuneration of the EuSEF manager is calculated;  

(j)  where available, the historical financial performance of the EuSEF; 

14 

OJ L 390, 31.12.2004, p. 38. 

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26 

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2. 

3. 

4. 

(k) 

the  business  support  services  and  the  other  support  activities  the  EuSEF 
manager is providing or arranging through third parties in order to facilitate the 
development,  growth  or  in  some  other  respect  the  on-going  operations  of  the 
qualifying portfolio undertakings in which the EuSEF invests, or, where these 
services or activities are not provided, an explanation of that fact;  

(l) 

a description of the procedures by which the EuSEF may change its investment 
strategy or investment policy, or both. 

All  of  the  information  referred  to  in  paragraph  1  shall  be  fair,  clear  and  not 
misleading. It shall be kept up-to-date and reviewed regularly. 

Where  the  EuSEF  manager  is  required  to  publish  a  prospectus  in  accordance  with 
Directive 2003/71/EC of the European Parliament and the Council15 or in accordance 
with national law in relation to the EuSEF, the information referred to in paragraph 1 
of this Article may be provided either separately or as a part of the prospectus.  

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 24 specifying: 

(a) 

the  content  of  the  information  referred  to  in  point  (b)  to  (e)  and  (k)  of 
paragraph 1 of this Article; 

(b)  how the information as referred to in point (b) to (e) and (k) of paragraph 1 of 
this  Article  can  be  presented  in  a  uniform  way  in  order  to  ensure  the  highest 
possible level of comparability. 

CHAPTER III 
SUPERVISION AND ADMINISTRATIVE COOPERATION  

Article 14 

1. 

EuSEF  managers  who  intend  to  use  of  the  designation  "European  Social 
Entrepreneurship Fund" for the marketing of their EuSEF shall inform the competent 
authority  of  their  home  Member  State  of  this  intention  and  shall  provide  the 
following information:  

(a) 

(b) 

(c) 

the  identity  of  the  persons  who  effectively  conduct  the  business  of  managing 
EuSEFs;  

the  identity  of  the  EuSEFs  whose  units  or  shares  shall  be  marketed  and  their 
investment strategies; 

information on the arrangements made for complying with the requirements of 
Chapter II; 

15 

OJ L 345, 31.12.2003, p. 64. 

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27 

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(d) 

a  list  of  Member  States  where  the  EuSEF  manager  intends  to  market  each 
EuSEF. 

2. 

The  competent  authority  of  the  home  Member  State  shall  only  register  the  EuSEF 
manager if it is satisfied that the following conditions are met:  

(a) 

the information required referred to in paragraph 1 is complete; 

(b) 

the arrangements notified according to in point (c) of paragraph 1 are suitable 
in order to comply with the requirements of Chapter II.  

3. 

The  registration  shall  be  valid  for  the  entire  territory  of  the  Union  and  shall  allow 
EuSEF  managers  to  market  EuSEFs  under  the  designation  "European  Social 
Entrepreneurship Funds" throughout the Union. 

Article 15 

The EuSEF manager shall update the information provided to the competent authority of the 
home Member State where the EuSEF manager intends: 

(a) 

to market a new EuSEF;  

(b) 

to  market  an  existing  EuSEF  in  a  Member  State  not  mentioned  in  the  list 
referred to in point (d) of Article 14 (1). 

Article 16 

1. 

2. 

3. 

4. 

5. 

Immediately  after  the  registration  of  a  EuSEF  manager,  the  authority  of  the  home 
Member  State  shall  notify  the  fact  that  the  EuSEF  manager  is  registered  to  the 
Member  States  indicated  in  accordance  with  point  (d)  of  Article  14  (1)  of  this 
Regulation and to ESMA. 

The host Member States indicated in accordance with point (d) of Article 14 (1) of 
this  Regulation  shall  not  impose,  on  the  EuSEF  manager  registered  in  accordance 
with  Article  14,  any  requirements  or  administrative  procedures  in  relation  to  the 
marketing of its EuSEFs, nor shall they require any approval of the marketing prior 
to its commencement. 

In  order  to  ensure  uniform  application  of  this  article,  ESMA  shall  develop  draft 
implementing technical standards to determine the format of the notification. 

ESMA shall submit those draft implementing technical standards to the Commission 
by [insert date]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in paragraph 3 in accordance with the procedure laid down in Article 15 
of Regulation (EU) No 1095/2010.16 

16 

OJ L 331, 15.12.2010, p.84. 

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ESMA shall maintain a central database, publicly accessible on the internet, listing all EuSEF 
managers registered in the Union in accordance with this Regulation. 

Article 17 

The  competent  authority  of  the  home  Member  State  shall  supervise  compliance  with  the 
requirements set out in this Regulation.  

Article 18 

Article 19 

Competent  authorities  shall,  in  conformity  with  national  law,  have  all  supervisory  and 
investigatory powers that are necessary for the exercise of their functions. They shall have in 
particular the power to:  

(a) 

request access to any document in any form, and to receive or take a copy of it 
thereof;  

(b) 

require the EuSEF manager to provide information without delay;  

(c) 

require  information  from  any  person  related  to  the  activities  of  the  EuSEF 
manager or the EuSEF;  

(d) 

carry out on site inspections with or without prior announcements;  

(e) 

(f) 

take  appropriate  measures  to  ensure  that  a  EuSEF  manager  continues  to 
comply with the requirements of this Regulation; 

issue an order to ensure that a EuSEF manager complies with the requirements 
of this Regulation and desists from a repetition of any conduct that may consist 
of a breach of this Regulation.  

Article 20 

1. 

2. 

Member  States  shall  lay  down  the  rules  on  administrative  measures  and  sanctions 
applicable to breaches of the provisions of this Regulation and shall take all measures 
necessary to ensure that they are implemented. The measures and sanctions provided 
for shall be effective, proportionate and dissuasive.  

By  [24  months  after  entry  into  force  of  this  Regulation]  the  Member  States  shall 
notify the rules referred to in paragraph 1 to the Commission and ESMA. They shall 
notify  the  Commission  and  ESMA  without  delay  of  any  subsequent  amendment 
thereto. 

1. 

The  competent  authority  of  the  home  Member  State  shall  take  the  appropriate 
measures referred to in paragraph 2 where EuSEF managers:  

Article 21 

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29 

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(a) 

fail to comply with the requirements that apply to the portfolio composition in 
accordance with Article 5; 

(b) 

fail to market the EuSEF to eligible investors in accordance to Article 6; 

(c)  use  the  designation  "European  Social  Entrepreneurship  Fund"  without  being 
registered  with  the  competent  authority  of  their  home  Member  State  in 
accordance with Article 14. 

2. 

In the cases referred to in paragraph 1 the competent authority of the home Member 
State shall take the following measures, as appropriate:  

(a)  prohibit  the  use  of  the  designation  "European  Social  Entrepreneurship  Fund" 

for the marketing of one or more EuSEFs of the EuSEF manager; 

3. 

4. 

1. 

2. 

1. 

2. 

(b) 

remove the EuSEF manager from the register. 

The  competent  authorities  of  the  home  Member  State  shall  inform  the  competent 
authorities  of  the  host  Member  States  indicated  in  accordance  with  point  (d)  of 
Article 14 (1) of the removal of the EuSEF manager from the register referred to in 
point (b) of paragraph 1 of this Article. 

The  right  to  market  one  or  more  EuSEFs  under  the  designation  "European  Social 
Entrepreneurship Funds" in the Union expires with immediate effect from the date of 
the decision of the competent authority referred to in points (a) or (b) of paragraph 2. 

Article 22 

Competent  authorities  and  ESMA  shall  cooperate  with  each  other  whenever 
necessary  for  the  purpose  of  carrying  out  their  respective  duties  under  this 
Regulation.  

They  shall  exchange  all  information  and  documentation  necessary  to  identify  and 
remedy breaches to this Regulation.  

Article 23 

All persons who work or who have worked for the competent authorities or ESMA, 
as  well  as  auditors  and  experts  instructed  by  the  competent  authorities  and  ESMA, 
are  bound  by  the  obligation  of  professional  secrecy.  No  confidential  information 
which  those  persons  receive  in  the  course  of  their  duties  shall  be  divulged  to  any 
person or authority whatsoever, save in summary or aggregate form such that EuSEF 
managers  and  EuSEFs  cannot  be  individually  identified,  without  prejudice  to  cases 
covered by criminal law and proceedings under this Regulation. 

The  competent  authorities  of  the  Member  States  or  ESMA  shall  not  be  prevented 
from exchanging information in accordance with this Regulation or other Union law 
applicable to EuSEF Managers and EuSEFs.  

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3. 

Where  competent  authorities  and  ESMA  receive  confidential  information  in 
accordance with paragraph 1, they may use it only in the course of their duties and 
for the purpose of administrative and judicial proceedings. 

CHAPTER IV 
TRANSITIONAL AND FINAL PROVISIONS 

1. 

2. 

3. 

4. 

5. 

1. 

Article 24 

The  power  to  adopt  delegated  acts  is  conferred  on  the  Commission  subject  to  the 
conditions set outin this Article. 

The delegation  of  power referred to in Articles 2 (3), 3 (2), 8 (5), 9 (2) and 13 (4) 
shall be conferred on the Commission for a period of four years for a period of four 
years from the date of entering into force of this Regulation. The Commission shall 
draw  up  a  report  in  respect  of  the  delegation  of  powers  not  later  than  nine  months 
before  the  end  of  the  four  year  period.  The  delegation  of  power  shall  be  tacitly 
extended for periods of an identical duration, unless the European Parliament or the 
Council  opposes  such  extension  not  later  than  three  months  before  the  end  of  each 
period. 

The delegation of powers referred to Articles 2 (3), 3 (2), 8 (5), 9 (2) and 13 (4)may 
be revoked at any time by the European Parliament or by the Council. A decision of 
revocation shall put an end to the delegation of the power specified in that decision. 
It  shall  take  effect  the  day  following  the  publication  of  the  decision  in  the  Official 
Journal of the European Union or at a later date specified therein. It shall not affect 
the validity of any delegated acts already in force. 

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to 
the European Parliament and to the Council. 

A delegated act shall enter into force only if no objection has been expressed either 
by  the  European  Parliament  or  the  Council  within  a  period  of  2  months  of 
notification of that act to the European Parliament and the Council or if, before the 
expiry of that period, the European Parliament and the Council have both informed 
the Commission that they will not object. That period shall be extended by 2 months 
at the initiative of the European Parliament or the Council. 

Article 25 

At  the  latest  four  years  after  the  date  of  application  of  this  Regulation,  the 
Commission shall review this Regulation. The review shall include a general survey 
of  the  functioning  of  the  rules  in  this  Regulation  and  the  experience  acquired  in 
applying them, including:  

(a) 

the extent to which the designation "European Social Entrepreneurship Fund" 
has  been  used  by  EuSEF  managers  in  different  Member  States,  whether 
domestically or on a cross border basis;  

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(b) 

(c) 

the  use  of  the  different  qualifying  investments  by  EuSEFs  and  how  this  has 
impacted the development of social undertakings across the Union; 

the  practical  application  of  the  criteria  for  identifying  qualifying  portfolio 
undertakings and the impact of this on the development of social undertakings 
across the Union; 

(d) 

the scope of this Regulation, including the threshold of EUR 500 million.  

2. 

After  consulting  ESMA  the  Commission  shall  submit  a  report  to  the  European 
Parliament and the Council accompanied, if appropriate, by a legislative proposal.  

Article 26 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. It shall apply from the 22 July 2013, except for 
Articles 2 (3), 3 (2), 8 (5), 9 (2) and 13 (4), which shall apply from the date of entry into force 
of the Regulation. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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