How useful are off-the-shelf instruments and how could they be improved?

In the 2014-20 regulations, the Commission introduced the option for MAs to use template FIs which comply with standard terms and conditions.159 _{The template models}

are intended to facilitate FI set up; if the template is adhered to, MAs can be assured of the compliance of the proposed FIs across a range of regulatory issues, including selection of financial intermediaries, funding agreements, State aid and management costs and fees. This topic is also explored in a separate case study – see Annex 1.

The first three standardised instruments were made available in 2014 and included a portfolio risk sharing loan, a capped portfolio guarantee, and a renovation loan. These were joined by a further two models in 2016 - a co-investment facility and an Urban Development Loan Fund.

The online survey of Managing Authorities explored the use and planned use of OTS FIs, barriers to their use and scope for improvement.

159 _{Commission Implementing Regulation (EU) No 964/2014 of 11 September 2014 laying down}

rules for the application of Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards standard terms and conditions for financial instruments; OJ L271; 12.9.2014; Commission Implementing Regulation (EU) 2016/1157 of 11 July 2016 amending Implementing Regulation (EU) No 964/2014 as regards standard terms and conditions for financial instruments for a co-investment facility and for an urban development fund; OJ L192; 16.7.2016.

Figure 4.16: Plans to use ‘off-the-shelf’ instruments (Managing Authorities planning to use FIs)

Note: 15 MAs reported planned OTS instruments, of which two were SME Initiatives; seven MAs reported OTS FIs in set up, of which one was an SME Initiative.

Source: EPRC online survey of Managing Authorities.

Figure 4.16 suggests that the uptake of off-the-shelf instruments has been rather limited. At the time of the survey, it appeared that 13 OTS FIs were planned and six were in set up (excluding the SME Initiative, which some respondents considered as OTS FIs). However, it did not appear that any of the OTS FIs were operational at that stage. Although uptake of OTS FIs was somewhat limited, the survey also made clear that OTS FIs were of interest in general terms and might be considered for other purposes later. This was confirmed by the Managing Authority interviews, which revealed generally positive views, despite the low take-up. The OTS FIs were described as ‘commendable’, ‘helpful’ and ‘incorporating best practices’. Their potential to speed up implementation and facilitate management is widely accepted.

“[The OTS FIs] make the use of FIs accessible to public authorities in a simple way.” (Managing Authority interview)

“[They] remove the vast majority of risks.” (Managing authority interview)

“[They are] especially suitable if an MA does not have prior experience of FIs.” (Managing authority interview)

Several MAs stated that they had used the OTS instruments as ‘inspiration’, to help design final products tailored more closely to their own needs.

As Figure 4.17 shows, the main reason for not using OTS FIs was a preference for building on existing FIs. This is hardly surprising since many Managing Authorities took considerable time to establish appropriate instruments in 2007-13. Moreover, the available OTS FIs contain no State aid, which means that may be less generous than FIs which MAs have designed themselves and which build on the scope for compatible aid under the GBER.

0 10 20 30 40 50 60 70

Yes - planned Yes - in set up Not currently planned but will consider in

future

None planned

Figure 4.17: Barriers to take-up of ‘off-the-shelf’ instruments

Note: MAs planning to use FIs, but not ‘off-the-shelf’ FIs Source: EPRC online survey of Managing Authorities.

Managing Authorities also noted that the Regulation had not been ready soon enough for them to establish whether it would be useful, and many considered the mechanisms proposed to be too simple for their needs. However, a large number of MAs cited other considerations beyond those suggested in the survey.

The main reason by far was that the design of the OTS FIs available do not meet the current needs of the OP, for a variety of reasons:

“The program does not provide support to companies that could benefit from these instruments” (Managing authority interview)

“We planned instruments tailor-made to regional needs” (Managing authority interview)

“All OTS financial instruments are unsuitable because they cover risks which do not exist here.” (Managing authority interview)

“Not suitable for our needs” (Managing authority interview)

“Not suitable for the market failures identified” (Managing authority interview)

Another reason for not using OTS FIs was related to timing. Specifically, that the ex ante had not yet been concluded or the type of financial product to be used had not been decided.

Two more specific reasons were also mentioned. First, that the OTS FIs require too great a contribution from financial intermediaries and are therefore unattractive to them. Second, that OTS FIs are inflexible – they do not offer scope to adjust or amend elements that do not fit well with the national context. This second point, while understandable at one level, also presents a circular problem since the very purpose of OTS FIs is that, by following the letter of the Regulation, the MA is assured that the FI complies with the relevant State aid, procurement and selection criteria. Clearly this assurance cannot hold if those terms have been amended.

0 5 10 15 20 25 30 35 40 45

Too simple for needs Preferred to build on previously implemented

FIs

Regulation not ready early enough State aid conditions were not suitable Other

Figure 4.18: Improvements to ‘off-the-shelf’ instruments (MAs planning to use FI)

Source: EPRC online survey of Managing Authorities.