ZEI Monitor: EU Progress 2019-2024

EU Recovery Instrument ('Next Generation EU')

• Entry into force - the Recovery and Resilience Facility:

On the 18th of February 2021, the Regulation establishing the Recovery and Resilience Facility entered into force. The Facility is the key operational pillar of the EU Recovery Instrument which came into effect in December 2020. It is based on a Proposal for a Regulation submitted by the European Commission on the 28th of May 2020. The EU Commission plans to borrow at least 150 billion euro every year until 2026 to finance the instrument.

General Objectives: To create a facility to promote the economic, social and territorial cohesion of the Union in the context of the COVID-19 crisis. According to Art. 3 of the Regulation, the scope is structured in six pillars: a) green transition b) digital transformation c) smart, sustainable and inclusive growth d) social and territorial cohesion, e) health and economic, social and institutional resilience f) policies for the next generation.

Financial volume (in 2018 prices) allocated to the member states:

Grants of 312.5 billion euro

Loans of up to 360 billion euro

The 312.5 billion euro in grants (referred to as the "financial contribution" in the Regulation) are fed by the total volume of the Recovery Instrument adopted in December 2020, which amounts to 384.4 billion euro in repayable and non-repayable support (see ZEI Monitor 2020 / Council Regulation 2020 / 2094) The "financial contribution" is either allocated to the member states or can be used by them for their own allocations.

Distribution criteria: The maximum financial contribution that member states may receive is calculated as follows: 70 per cent of the contribution is based on the population size, inverse GDP per capita, and relative unemployment rate. The remaining 30 per cent of the contribution is calculated based on inverted GDP per capita and in equal parts on the change in real GDP in 2020 and the cumulative change in real GDP over the period 2020-2021. By the 31st of December 2022, the Commission will provide the 70 percent and in 2023 the remaining 30 percent.

Operating principle: Member states prepare national recovery and resilience plans; these must include a reform and investment agenda. The plans must take into account country-specific challenges, European Semester priorities and the Council's recommendation on economic policy. After the plans are presented, a financial amount is made available for allocation at the discretion of the Commission.

Assessment by the Commission: The Commission monitors the implementation and measures the achievement of the objectives. For this purpose, the Commission shall implement a buildout and resilience scoreboard. The scoreboard shall serve as a performance reporting system. By the 31st of July 2022, the Commission shall submit a review report to the Parliament and the Council. The assessment report shall include a quantitative evaluation of the contribution of the recovery and resilience plans on the following areas: (i) the climate target of at least 37 per cent; (ii) the digital target of at least 20 per cent; (iii) each of the six pillars referred to in Article 3; By the 20th of February 2024, the Commission shall provide the European Parliament, the Council, the European Economic and Social Committee, and the Committee of the Regions with an independent evaluation report on the implementation of the Facility, and by the 31st of December 2028, the Commission shall provide them with an independent ex-post evaluation report.

Deepening the Capital Markets Union

• a) Investment protection and facilitation framework (legislative, incl. impact assessment, Article 114 TFEU, Q2 2021)

• b) Revision of prudential rules for insurance and reinsurance companies (Solvency II) (legislative, incl. impact assessment, Articles 53(1), 62 and 114 TFEU, Q3 2021)

• c) Revision of the Markets in Financial Instruments Directive and Regulation (legislative, incl. impact assessment, Article 114 TFEU, Q4 2021)

Sustainable corporate governance

• Sustainable corporate governance (legislative, incl. impact assessment, Articles 50 and, possibly, 114 TFEU, Q2 2021)
   

EU green bond standard

• Proposal for a Regulation on European Green Bonds (legislative, incl. impact assessment, Article 114 TFEU, 6th of July 2021, press release)

Aim: The Regulation aims to offer issuers (any legal entity that issues bonds) the possibility to label their environmentally sustainable bonds as "European Green Bond" or "EuGB". This should create more transparency for investors about their investments. For this purpose, uniform requirements for issuers, a registration system and a supervisory framework for external reviewers are to be implemented.

What is a “Sovereign” (public bond issuer)? A Sovereign means any of the following:

(a) Euratom, the Union and any of their agencies;

(b) any State, including a government department, an agency, or a special purpose vehicle of such State;

(c) in the case of a federal State, a member of the federation;

(d) a regional or municipal entity;

(e) a collective undertaking of several States in the form of an organization or a special purpose vehicle;

(f) a company of private law fully owned by one or more of the entities referred to in points (a) to (e);

Use of the proceeds of European green bonds:

Before maturity of the bond, the proceeds of European green bonds shall be exclusively and fully allocated, without deducting costs, to the following, or a combination thereof:

(a) fixed assets, including those of households, that are not financial assets;

(b) capital expenditures, including those of households;

(c) operating expenditures that were incurred more recently than three years prior to the issuance of the European green bond;

(d) financial assets as referred to in Article 5.

By way of derogation a sovereign may also allocate the proceeds of European green bonds it has issued to the following, or any combination thereof referred to in Regulation (EU) No 549/2013:

a) Fixed assets

b) Non-produced non-financial asset

c) Tax relief

d) Subsidies

e) Capital expenditures

Requirements: The labeling is to be used for issuers inside as well as outside the Union, if they provide bonds for investors in the Union. The use of proceeds should meet the requirements of the taxonomy or the requirements should be met within a certain period of time (5 years; in exceptional cases 10 years). This proposal for a European Green Bond is anchored to the Taxonomy Regulation (EU) 2020/852. The Taxonomy Regulation sets out a classification of economic activities as environmentally sustainable, including as one of the defining criteria the full compliance with minimum social safeguards. This framework can be used as a benchmark to classify whether an economic activity and, by extension, related assets or projects are green. According to Article 4 of the Taxonomy Regulation, the Union must apply the criteria of the Taxonomy when setting out any standards for environmentally sustainable corporate bonds. Hence, for the purposes of European green bonds, the Commission proposes that the Taxonomy Regulation, and –  as they are developed - its Delegated Acts, should define what counts as ‘green’.

Allocation report obligations and post-issuance review of allocation reports:

Every year and until the full allocation of the proceeds of the European green bond concerned, issuers of European green bonds shall draw up a European green bond allocation report. In addition, issuers of European green bonds shall, after the full allocation of the proceeds of such bonds and at least once during the lifetime of the bond, draw up a European green bond impact report on the environmental impact of the use of the bond proceeds.

Timeframe: The Regulation shall enter into force on the twentieth day following its publication in the Official Journal of the European Union.

Anti-money laundering package

• Anti-money laundering legislative package (legislative, incl. impact assessment, Article 114 TFEU, 20th of July 2021, press release)

COM (2021) 420 final: Money laundering prevention in the financial system

I. Proposal for a Regulation (COM 420 final) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing:

Problem: Money laundering and terrorist financing seriously threaten the integrity of the EU's economy and the EU financial system, and therefore the security of its citizens. According to Europol, 1 per cent of the EU’s annual GDP is invested in suspicious financial activities.

Goal: This Regulation  aims to reform current Regulations and to lay down uniform rules to combat money laundering and terrorist financing.

Subject matter: Rules shall be implemented in order to prevent money laundering and terrorist financing by obliged entities, to set up beneficial ownership transparency requirements for legal entities and arrangements, and to implement measures to limit the misuse of bearer instruments.

Scope: This Regulation addresses obliged entities which include credit institutions, financial institutions, and natural or legal persons acting in exercise of their professional activities (i.e. auditors, tax advisors, notaries). In this proposal the range of entities is amended to the scope of crypto-asset service providers (CASPs), crowdfunding service providers, creditors for mortgage and consumer credits as well as mortgage and consumer credit intermediaries that are not credit institutions or financial institutions, operators involved on behalf of third country nationals in the context of investor residence schemes, and traders in goods are removed except for dealers in precious metals and stones. Member states can decide to exclude gambling operators from this Regulation based on a risk assessment.

Measures for compliance:

1. Obliged entities shall appoint one executive member of their board of directives (or equivalent) to ensure the implementation of this Regulation’s measures.
2. The compliance manager shall be responsible for the obliged entity’s policies, controls and procedures and therefore report regularly to the board of directors. 
3. Obliged entities shall have a compliance officer, who shall be in charge of the daily operations regarding anti-money laundering and countering the financing of terrorism (AML/CFT) policies
4. Obliged entities shall provide adequate resources to the compliance function.
5. The compliance manager shall submit a report on the implementation of the obliged entity’s internal policies, controls and procedures to the governing body once a year.

Third-country policy and ML/TF threats: Based on the public identification of the FATF or on its Union’s own autonomous assessment, the Commission shall be powered to identify third countries as a risk for the Union’s financial system.

The AMLA (the new EU anti-money laundering authority) shall develop guidelines on money laundering and terrorist financing risks, trends and methods, which do not have a country-specific dimension, but rather stem from geographical areas outside the Union and advise obliged entities accordingly on the opportunity to implement measures to mitigate them.

Reporting obligations: Obliged entities shall report to the FIU (Financial Intelligent Unit) all suspicious transactions, including attempted transactions and provide the FIU with all necessary information.

Measures to mitigate the risks of misuse of bearer instruments:

Persons trading in goods or providing services may accept or make a payment in cash only up to an amount of 10.000 euro or equivalent amount in national or foreign currency, whether the transaction is carried out in a single operation or in several operations which appear to be linked. Member states may adopt lower limits after a consultation of the European Central Bank. Further, credit institutions and financial institutions shall not enter into, or continue, a correspondent relationship with a shell bank (a credit institution or financial institution, or an institution that carries out activities equivalent to those carried out by credit institutions and financial institutions, incorporated in a jurisdiction in which it has no physical presence, involving meaningful mind and management, and which is unaffiliated with a regulated financial group).

Entry into force: This Regulation will enter into force on the twentieth day after publication in the Official Journal and become applicable 3 years after its entry into force. The Commission must review and evaluate this Regulation within five years of its application and every three years thereafter.

COM (2021) 421 final: Establishing the Authority for Anti-Money Laundering

II. Proposal for a Regulation on establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA)

Goal: This proposal aims to establish a support and cooperation mechanism for Financial Intelligence Units (FIUs) and to introduce an EU Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime supervision at EU-level (AMLA).

Organization of the Authority: The Authority shall act in the form of an EU decentralized agency from the 1st of January 2023. It shall comprise of two collegial governing bodies, an Executive Board with five independent members and the Chair of the AMLA and of a General Board composed of representatives of the member states. The General Board will be attended by a delegate of the Commission but without the right to vote. Additionally, national FIU delegates shall support the work of the Authority and are therefore represented in the General Board.

Budget: The Authority’s budget shall be balanced in terms of revenue and of expenditure and consists of a contribution from the general budget of the Union, the fees paid by the selected and non-selected obliged entities and voluntary financial contribution from the member states.

Tasks and authorizations:

a. Direct supervision of selected financial sector obliged entities as defined in Commission Proposal COM (2021) 420 final Art.3: A periodic selection of entities for direct supervision shall take place every three years.
b. Indirect supervision of non-selected obliged entities and non-financial obliged entities: coordination and oversight of national AML/CFT supervisors, including self-regulatory bodies (SRBs) in certain member states for certain non-financial obliged entities.
c. For non-compliance with the regulation, the authority shall have the power to impose administrative pecuniary sanctions and periodic penalty payments. These are calculated proportionate to the respective damages.
d. Serve as a support and coordination center, which includes the joint analysis of suspicious transaction reports, suspicious activity reports with significant cross-border implications and providing stable hosting of the FIU.net platform
e. Develop common reporting templates and standards to be used by the EU FIUs
f. Develop draft regulatory and implementing technical standards, guidelines and recommendations, and to function as an advisor to the Commission and co-legislator
g. Establish a central AML/CFT database of information collected from supervisors and supervisory authorities

Review by the Court of Justice: The Court of Justice of the European Union shall have unlimited jurisdiction to review decisions of the Authority imposing an administrative pecuniary sanction or a periodic penalty payment.

Entry into force: This Regulation shall enter into force the twentieth day following that of its publication in the Official Journal of the European Union and shall apply from 1st of January 2024. However, Articles 1, 4, 38, 42, 43, 44, 46, 56, 58, 86 and 87 shall apply from 1st of January 2023.

COM (2021) 422 final: Transfers of funds and certain crypto-assets

• III. Proposal for a Regulation on information accompanying transfers of funds and certain crypto-assets
  

COM (2021) 423 final: Anti money laundering mechanisms to be put in place by the member states

• IV. Proposal for a Directive (COM 423 final) on the mechanisms to be put in place by the member states for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive (EU) 2015/849

Goal: This proposal  aims to implement mechanisms for the prevention of the use of the financial system for the purpose of money laundering and terrorist financing.

Subject matter and scope:

1. This proposal for a Directive shall set out regulatory requirements for the sectors currency exchange and cheque cashing offices, licensing or registration requirements for trust or company service providers, and regulations on gambling services, which are to be implemented into national law.

2. Supervisors of the member states may appoint contact points where electronic money issuers, payment service providers and crypto-assets service providers are active via freedom to provide services.

3. This draft Directive complements the current framework on the probity requirements for senior managers of obliged entities by supplementing requirements and grants certain powers to national supervisors over the senior management of certain obliged entities, especially in the case of conviction for money laundering or terrorist financing.

Definitions:

a. Home member state: means the member state where the registered office of the obliged entity is situated or, if the obliged entity has no registered office, the member state in which its head office is situated

b. Host member state: means the member state other than the home member state in which the obliged entity has a subsidiary or a branch or provides services

c. AML-CFT supervisory college: means a permanent structure for cooperation and information sharing for the purposes of supervising a group or an entity operating on a cross-border basis

Risk assessments: The Commission conducting periodically an assessment of AML/CFT risks at EU level, contained in the current AML/CFT framework, is maintained, however with the frequency of the assessment extended to every four years. In this course, the Commission shall make recommendations to member states on measures for addressing identified risks. In addition, the member states are also to conduct risk assessments and are held review it at least every four years. One designated authority shall coordinate the national response to the risks.

Real estate registers: Member states shall provide competent authorities with access to information which allows the identification of any natural or legal person owning real estate, including through registers or electronic data retrieval systems.

Establishment of Financial Intelligent Units (FIU’s): Member states shall be required to create operationally independent FIUs at national level to receive and analyse Suspicious Transaction Reports and Suspicious Activity Reports from obliged entities. Further, member states should ensure that FIUs, on their own initiative or upon request exchange any information necessary for the processing or analysis of information by the FIU in connection with money laundering, its predicate offences or terrorist financing.

Administrative sanctions and measures: Member states are to lay down rules on administrative sanctions and measures and ensure that supervisors may impose such sanctions and measures with respect to breaches of this Directive. Additionally, member states shall ensure that supervisory authorities, as well as, where applicable, self-regulatory bodies, establish effective and reliable mechanisms to encourage the reporting of potential and actual breaches. Therefore, they shall provide one or more secure communication channels.

Entry into force: This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Fair economy package

• a) Action plan on the European Pillar of Social Rights (non-legislative, Q1 2021)

• b) Recommendation for a European child guarantee (non-legislative, Q1 2021)

• c) Communication on a new occupational safety and health strategy framework (non-legislative, Q2 2021)

• d) Action plan for the social economy (non-legislative, Q4 2021)

Generalised scheme of preferences in the Common Commercial Policy

• Towards the future generalised scheme of preferences legal framework granting trade advantages to developing countries (legislative, incl. impact assessment, Article 207 TFEU, Q2 2021)

Detering and counteracting coercive actions by third countries

• Instrument to deter and counteract coercive actions by third countries (legislative, incl. impact assessment, Article 207, Q4 2021)
   

Performance framework 2021-2027

• Communication on the performance framework 2021-2027 (non-legislative, Q2 2021)

Completing the Banking Union

• Revision of the bank crisis management and deposit insurance framework (legislative, incl. impact assessment, Article 114 TFEU, Q4 2021)

Excise duties package

• a) Revision of the tobacco taxation Directive (legislative, incl. impact assessment, Article 113 TFEU, Q3 2021)

• b) Amendment of the Directive on general arrangements for excise duties (legislative, incl. impact assessment, Article 113 TFEU, Q4 2021)

Social Europe

• EU-SURE Bond Emission:On the 21st of October 2020, the European Commission for the first time conducted an emission of the EU-SURE social bond worth 17 billion euro. (Press release)

• SURE-Regulation - Entry into force: On the 20th of May 2020, the SURE-Regulation on short term work came into force after publication in the Official Journal of the European Union. This enables the European Commission to issue social bonds on the capital market, in particular to secure jobs. It contains 16 articles on the conditions and procedure for financial assistance from the member states.

• SURE Regulation - Legislative proposal: The legal act is based on a Proposal  for a Regulation of the European Commission dated on the 2nd of April 2020 for the solidarity instrument SURE. With the submitted draft, the Commission wants to support the member states in their short time work programs and similar measures in connection with the coronavirus pandemic. (Press release)

The Commission's objective is to mitigate the consequences of the coronavirus outbreak and its socio-economic impact, in particular by protecting jobs and thus livelihoods and human lives. In order to achieve this, the regulation creates a European instrument, which temporarily helps the member states to reduce the risk of unemployment (SURE). The measure is temporary, its duration and scope is limited to dealing with the consequences of the pandemic. Payment is conditional on actual or planned public expenditure by the member states, which has increased substantially as a result of measures taken to deal with the coronavirus outbreak. The aid package offers a total of up to 100 billion euro for the support program. The assistance takes the form of a loan to the member state concerned, the loan contract is concluded with the European Commission. The applicant states must provide a binding guarantee.

Economic Governance: EU Recovery Instrument ('Next Generation EU')

• Entry into Force: EU Recovery Instrument

On the 14th of December 2020, the Council Regulation 2020/2094 establishing a European Union Recovery Instrument to support the recovery from the COVID-19 crisis entered into force. The instrument will be financed on the basis of the authorization under Article 5 of the Own Resources Decision up to the amount of 750 billion euro in 2018 prices. The 750 billion euro package (in 2018 prices as part of the 2018 budget counting process) now totals around 800 billion euro in 2021 prices. The amount is allocated as follows:

Non-repayable grants of up to 384.4 billion euro:

Of this amount, 312.5 billion euro (in 2018 prices) are allocated to the Recovery and Resilience Facility, which entered into force in February 2021. The remaining funds of 71.9 billion euro are distributed among the following financial instruments:

(i) up to 47.5 billion euro for structural and cohesion programmes under the Multiannual Financial Framework 2014-2020 reinforced until 2022;

ii) up to 10 billion euro for programmes to support territories in their transition to a climate-neutral economy;

(iii) up to 7,5 billion euro for the development of rural areas;

(iv) up to 5 billion euro for research and innovation programmes;

v) up to 1.9 billion euro for civil protection programmes;

Loans of up to 360 billion euro
(in 2018 prices)

Budget guarantees of up to 5.6 billion euro to support investments (in 2018 prices)

The Commission will submit a report to the Council by October 31, 2022 on the progress made in implementing the instrument and the use of the funds.

• Proposal for a Council Regulation on an "EU Recovery Instrument":

On the 28th of May 2020, the European Commission presented a Proposal for a Council Regulation on the Establishment of a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 pandemic. The Instrument shall be financed up to an amount of 750 billion euro. The support will include grants, loans and guarantees.

Grants shall amount to 433.2 billion euro in the form of non-repayable support and repayable support through financial instruments.

Loans to the member states will be up to 250 billion euro for a programme financing recovery and economic and social resilience via support to reforms and investments.

Guarantees of up to 66.8 billion euro.    

• Key operational pillar - the 'Recovery and Resilience Facility':

As the key pillar of 'Next Generation EU', the European Commission on the 28th of May 2020 put forward a Proposal for a Regulation establishing a Recovery and Resilience Facility.

Key principles and elements include:

General objective: Promoting the Union’s economic, social and territorial cohesion by improving the resilience and adjustment  capacity of the member states, mitigating the social and economic impact of  the crisis, and supporting the green and digital transitions, thereby contributing to restoring the growth potential of the economies of the Union, fostering employment creation in the aftermath of the COVID-19  crisis, and promoting sustainable growth.

Financing volume: a. 334.95 billion euro in grants for non-repayable support; b. 267.955 billion euro for  loan support to member states

How does it work? A maximum financial contribution shall be calculated for each member state for the allocation of the amount of the GRANTS based on the population, the inverse of the per capita Gross Domestic Product (GDP) and the relative unemployment rate of each member state.

Additionality: Support under the Recovery and Resilience Facility shall be additional to the support provided under other Union funds and programs.

Eligibility criteria: Member states shall prepare national recovery and resilience plans. These plans shall set out the reform and investment agenda of the member state concerned for the subsequent four years. Recovery and resilience plans eligible for financing under this instrument shall comprise measures for the implementation of reforms and public investment projects through a coherent package
The recovery and resilience plans shall be consistent with the relevant country-specific challenges and priorities identified in the context ofthe European Semester, in particular those relevant for or resulting from the green and digital transition.

Compliance of member states: Where the recovery and resilience plan does not comply satisfactorily with the criteria / modes of use set out in Article 16(3) of the Regulation, no financial contribution shall be allocated to the member state concerned.

Deepening the Capital Markets Union

Completing the Banking Union

Effective Taxation

Customs Union Package