General provisions applicable to all financial engineering instruments
1. Pursuant to Article 55(8) of the basic Regulation, as part of an operational programme, the EFF may co-finance expenditure in respect of an operation comprising contributions to support financial engineering instruments for enterprises, primarily to small and medium-sized enterprises (SMEs), including micro enterprises, as defined in Commission Recommendation 2003/361/EC ( 21 ) as of 1 January 2005, such as venture capital funds, guarantee funds and loan funds including through holding funds.
The financial engineering instruments shall be in the form of actions which make repayable investments or provide guarantees for repayable investments, or both. The conditions set out in Articles 35, 36 and 37 shall apply to them.
2. The statement of expenditure, as regards financial engineering instruments, shall include the total expenditure paid in establishing or contributing to such instruments. However, at the partial or final closure of the operational programme, the eligible expenditure shall be the total of any payments for investment in enterprises from each of the financial engineering instruments referred to in paragraph 1 or any guarantees provided, including amounts committed as guarantees by guarantee funds and eligible management costs. The corresponding statement of expenditure shall be corrected accordingly.
3. Interest generated by payments from the operational programme to financial engineering instruments shall be used to finance financial engineering instruments for small and medium-sized enterprises, including micro enterprises.
4. Resources returned to the operation from investments undertaken by financial engineering instruments or left over after all guarantees have been honoured shall be reused by the competent authorities of the Member States concerned for the benefit of small and medium-sized enterprises, including micro enterprises.
Conditions applicable to all financial engineering instruments
1. When the EFF finances operations comprising financial engineering instruments, including those organised through holding funds, a business plan shall be submitted by the co-financing partners or shareholders or by their duly authorised representative.
That business plan shall be assessed and its implementation monitored by or under the responsibility of the Member State or the managing authority. The assessment of the economic viability of the investment activities of the financial engineering instruments shall take into account all sources of income of the enterprises concerned.
2. The business plan provided for in paragraph 1 shall specify at least the following:
(a)
the targeted market of enterprises and the criteria, terms and conditions of financing them;
(b)
the operational budget of the financial engineering instrument;
(c)
the ownership of the financial engineering instrument;
(d)
the co-financing partners or shareholders;
(e)
the by-laws of the financial engineering instrument;
(f)
the provisions on professionalism, competence and independence of the management;
(g)
the justification for and intended use of the contribution from EFF;
(h)
the policy of the financial engineering instrument concerning exits from investments in enterprises;
(i)
the winding-up provisions of the financial engineering instrument, including the reutilisation of resources returned to the financial engineering instrument from investments or left over after all guarantees have been honoured, attributable to the contribution from the operational programme.
3. Financial engineering instruments, including holding funds, shall be set up as independent legal entities governed by agreements between the co-financing partners or shareholders or as a separate block of finance within an existing financial institution.
Where the financial engineering instrument is established within a financial institution, it shall be set up as a separate block of finance, subject to specific implementation rules within the financial institution, stipulating, in particular, that separate accounts are kept, which distinguish the new resources invested in the financial engineering instrument, including those contributed by the operational programme, from those initially available in the institution.
The Commission shall not become a co-financing partner or shareholder in financial engineering instruments.
4. Management costs may not exceed, on a yearly average, for the duration of the assistance any of the following thresholds, unless a higher percentage proves necessary after a competitive tender:
(a)
2 % of the capital contributed from the operational programme to holding funds, or of the capital contributed from the operational programme or holding fund to the guarantee funds;
(b)
3 % of the capital contributed from the operational programme or the holding fund to the financial engineering instrument in all other cases, with the exception of micro credit instruments directed at micro enterprises;
(c)
4 % of the capital contributed from the operational programme or the holding fund to instruments directed at micro enterprises.
5. The terms and conditions for contributions from the operational programme to financial engineering instruments shall be set out in a funding agreement, to be concluded between the duly mandated representative of the financial engineering instrument and the Member State or the managing authority.
6. The funding agreement referred to in paragraph 5 shall include at least:
(a)
the investment strategy and planning;
(b)
monitoring of implementation in accordance with applicable rules;
(c)
an exit policy for the contribution from the operational programme out of the financial engineering instrument;
(d)
the winding-up provisions of the financial engineering instrument, including the reutilisation of resources returned to the financial engineering instrument from investments or left over after all guarantees have been honoured, that are attributable to the contribution from the operational programme.
7. The managing authority shall take precautions to minimise any distortions of competition in the venture capital or lending markets. Returns from equity investments and loans, less a pro rata share of the management costs and performance incentives, may be allocated preferentially to investors operating under the market economy investor principle up to the level of remuneration laid down in the bylaws of the financial engineering instruments and they shall then be allocated proportionally among all co-financing partners or shareholders.
Specific conditions applicable to holding funds
1. When the EFF finances financial engineering instruments organised through holding funds, that is, funds set up to invest in several venture capital funds, guarantee funds and loan funds, the Member State or managing authority shall implement them through one or more of the following forms:
(a)
the award of a public contract in accordance with applicable public procurement law;
(b)
in other cases, where the agreement is not a public service contract within the meaning of public procurement law, the award of a grant, defined for this purpose as a direct financial contribution by way of a donation to:
(i)
the European Investment Bank or to the European Investment Fund;
or
(ii)
a financial institution without a call for proposals, if this is pursuant to a national law compatible with the Treaty.
2. When the EFF finances financial engineering instruments organised through holding funds, the Member State or the managing authority, shall conclude a funding agreement with the holding fund setting out the funding arrangements and objectives.
The funding agreement shall, where appropriate, take account of the conclusions of an evaluation of gaps between the supply of such instruments to, and demand for such instruments by, SMEs.
3. The funding agreement, referred to in paragraph 2, shall in particular make provision for:
(a)
the terms and conditions for contributions from the operational programme to the holding fund;
(b)
a call for expressions of interest addressed to financial intermediaries;
(c)
the appraisal, selection and accreditation of financial intermediaries;
(d)
the setting up and monitoring of the investment policy, which shall comprise at least an indication of the targeted enterprises and the financial engineering products to be supported;
(e)
reporting by the holding fund to the Member State or managing authority;
(f)
monitoring the implementation of investments in accordance with applicable rules;
(g)
audit requirements;
(h)
the exit policy of the holding fund out of the venture capital funds, guarantee funds or loan funds;
(i)
the winding-up provisions of the holding fund, including the reutilisation of resources returned to the financial engineering instrument from investments made or left over after all guarantees have been honoured which are attributable to the contribution from the operational programme.
4. The terms and conditions for contributions to venture capital funds, guarantee funds, and loan funds from holding funds supported by the operational programme shall be set out in a funding agreement, to be concluded between the venture capital funds, guarantee fund and loan fund, on one hand, and the holding fund, on the other. The funding agreement shall include at least the elements listed in Article 35(6).
Specific conditions applicable to venture capital funds, guarantee funds and loan funds
Financial engineering instruments, other than holding funds, shall invest in enterprises, primarily in SMEs. Such investments may only be made at the establishment, in the early stages, including seed capital, or on the expansion of those enterprises, and only in activities which the managers of the financial engineering instruments judge potentially economically viable.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
