Off-the-shelf instruments

Off-the-Shelf instruments are one of the innovations for the 2014-20 period. For FIs set up at national, regional, transnational or cross-border levels, managed by or under the responsibility of the managing authority, the CPR allows Member States to provide a financial contribution to FI ‘complying with the standard terms and conditions laid down by the Commission’ (Article 38(3)(a)).312 _{These terms and conditions provide a standard} template for the implementation of FIs and make them ready to use – the so-called ‘off-the-shelf’ instruments. Such instruments have been developed to facilitate the design and management of the most commonly used types of FI supported by ESIF, in particular for specific sectors where FIs are expected to play an important role contributing to the Europe 2020 objectives,313 _{and enable their wider use in a more standardised way,}314 helping managing authorities to deliver faster and safer funds to the final recipients.

Off-the-shelf instruments have been expected to extend the certainty and clarity of rules, thus reducing complexity and providing a ‘quick-start’ model.315 _{They are designed to deal} with a range of compliance issues,316 including ensuring State aid compliance: their terms

312

Regulation (EU) No. 1303/2013 op. cit.

313 _{European Commission (2013a) Draft Standard terms and conditions for financial instruments pursuant to Article}

33(3)(a) of the CPR (2013).

314 _Ibid. 315

Michie and Wishlade (2011) op. cit.

316

and conditions are structured in such a way that either do not involve State aid at all, or do not require State aid notification and subsequent clearance from the European Commission317 (compatibility with State Aid rules). Complementarity of off-the-shelf instruments with some other FIs may also be noted.318

An implementing act of September 2014319 (2014/964/EU) lays down rules concerning the standard terms and conditions for three types of off-the-shelf instruments: risk-sharing loan (RS Loan)320, a capped portfolio guarantee,321 and a loan for energy efficiency and renewable energies in the residential building sector (Renovation loan).322 Two more off-the- shelf FIs – for equity investments for SMEs and urban development – are in preparation at time of writing (September 2015). It is envisaged that, depending on the different programmes and results of ex-ante assessments, additional off-the-shelf instruments may be developed by the Commission.323

The EIB or EIF have no unique role in terms of implementing off-the-shelf instruments. However, the SME off-the-shelf products are based on EIF products used in the 2007-13 period. The CPR provides an option for a managing authority to entrust implementation tasks to the EIB (or other financial institutions) (Art.38 (4)(b)). However, the implementing act does not state any direct role for the EIB.

The EIB’s website refers to the off-the-shelf option, stipulated in the CPR, noting that the EIB’s experience with managing funds (for urban development and SME financing) leaves it ‘perfectly positioned to assume the role of Fund Manager’.324 _{In its Corporate Operational} Plan 2014-2016,325 the EIF mentions among its medium-term objectives one relating to maintaining cooperation with the Commission, Member States and regions and working ‘on the effective deployment of financial instruments, including off-the-shelf and tailor-made products or leveraged holding funds in the context of EU Regional Policy’.326

Early indications are that the uptake of the off-the-shelf instruments has been lower than initially expected. Many MAs in the 2007-13 period have already gained considerable experience with the implementation of FIs and have established the structures needed to operate them. Now they have the necessary mechanisms in place, which provide a workable model. Therefore, the off-the-shelf instruments appear not as valuable as they would have been in 2007-13.327 _{Moreover, certain concerns remain over the ability of the} off-the-shelf instruments to resolve procurement and State aid issues. For example,

317 _{Wishlade and Michie (2015) op. cit.}

318 _{For example, uncapped guarantees and securitisation instruments to support SMEs, not foreseen by off-the-shelf}

instruments, are envisaged under the SME Initiative. Also, the SME Initiative and the off-the-shelf instruments may be seen complementary as the latter address the SMEs’ needs at a given regional level.

319

Commission Implementing Regulation No. 964/2014 op. cit.

320

Provides new loans to SMEs at preferential conditions (interest rate/collateral reduction) by providing financial intermediaries with funding contributions and credit risk-sharing. The RS loan is seen as a potentially effective way of supporting SMEs in a context of limited availability of funding or relatively little risk-appetite of the financial intermediaries for certain sectors or type of SMEs.

321 _{Aims to ‘provide an incentive to financial intermediaries to increase lending to SMEs covered by Union funded}

guarantees’. It seeks to address the existing gap in the debt market for SMEs supporting new loans by providing credit risk coverage up to a certain limit, allowing the financial intermediary to facilitate SMEs’ access to finance.

322 _{Aims to incentivise the energy-saving potential arising from the renovation of residential buildings. It offer loans}

at preferential conditions to natural and legal persons or independent professionals owning premises in order to invest in renewable or energy-efficient assets in undertaking building renovation projects. Lithuania’s large-scale programme to improve home energy efficiency based on a combination of grants, technical assistance and loans served as an inspiration for the ‘Renovation Loan’.

323 _{Commission Implementing Regulation No. 964/2014 op. cit.}

324 _{For more information, see: http://www.eib.org/products/blending/esif/eib-role-in-2014-2020/index.htm} 325 _{EIF (2013a) EIF Corporate Operational Plan 2014-2016, European Investment Bank, Luxembourg.} 326

Ibid.

327

anecdotally, it would seem that many MAs had anticipated that off-the-shelf instruments would provide more creative solutions to State aid compliance than use of the de minimis Regulation. Some regard de minimis as administratively cumbersome and it is perhaps surprising that off-the-shelf instruments did not make use of the General Block Exemption Regulation. In addition, the relative flexibility provided by the ‘off-the-shelf’ models may be insufficient, and it is possible that, given regional particularities, they are not likely to be applicable in all scenarios328 _{and may conflict with local needs, preferences and regulations} of Member States.329 _{Hence ex-ante assessments remain an obligation in order to determine} the suitability, appropriate design and financial parameters of FIs.