(1)

The Union’s geopolitical context has changed dramatically in the last decade. The situation in Europe’s neighbouring regions is unstable and the Union faces a complex and challenging environment, combining the emergence of new threats, such as hybrid attacks and cyber attacks, and the return of more conventional challenges. Given that context, both European citizens and their political leaders share the view that more has to be done collectively in the area of defence.

(2)

The defence sector is characterised by increasing costs of defence equipment and by high research and development (R & D) costs that limit the launch of new defence programmes and have a direct impact on the competitiveness and innovation capacity of the European defence technological and industrial base (EDTIB). In view of that cost escalation, the development of a new generation of major defence systems and of new defence technologies should be supported at Union level in order to increase cooperation between Member States with regard to defence equipment investments.

(3)

In its communication of 30 November 2016‘European Defence Action Plan’, the Commission undertook to complement, leverage and consolidate collaborative efforts by Member States in developing defence technological and industrial capabilities to respond to security challenges, as well as to foster a competitive, innovative and efficient European defence industry throughout the Union and beyond. Moreover, the Commission committed itself to supporting the creation of a more integrated defence market in the Union and fostering the uptake of European defence products and technologies in the internal market, thus increasing the non-dependency on non-Union sources. The Commission proposed in particular to launch a European Defence Fund to support investments in joint research and the joint development of defence products and technologies, thereby fostering synergies and cost-effectiveness, and to promote the Member States’ joint purchase and maintenance of defence equipment. The European Defence Fund should complement national funding already used for that purpose, act as an incentive for Member States to cooperate and invest more in defence and support cooperation during the whole life cycle of defence products and technologies.

(4)

The European Defence Fund should contribute to a strong, competitive and innovative EDTIB and complement the Union’s initiatives towards a more integrated European defence market and, in particular, Directives 2009/43/EC (3) and 2009/81/EC (4) of the European Parliament and of the Council on Union transfers and procurement in the defence sector adopted in 2009.

(5)

In order to contribute to the enhancement of the competitiveness and innovation capacity of the Union’s defence industry, a European Defence Fund (the ‘Fund’) should be established for a period of seven years to align its duration with that of the multiannual financial framework 2021-2027 (MFF 2021-2027) laid down in Council Regulation (EU, Euratom) 2020/2093 (5) on the basis of an integrated approach. The aim of the Fund is to enhance the competitiveness, innovation, efficiency and technological autonomy of the Union’s defence industry, thereby contributing to the Union’s strategic autonomy by supporting the cross-border cooperation between Member States as well as cooperation between enterprises, research centres, national administrations, international organisations and universities throughout the Union, both in the research and in the development phases of defence products and technologies. To achieve more innovative solutions and to foster an open internal market, the Fund should support and facilitate the widening of cross-border cooperation of small- and medium-sized enterprises (SMEs) and middle capitalisation companies (mid-caps) in the defence sector. Within the Union, common defence capability shortfalls are identified within the framework of the Common Security and Defence Policy, in particular through the Capability Development Plan (CDP), while the Overarching Strategic Research Agenda (OSRA) also identifies common defence research objectives.

Other Union processes such as the Coordinated Annual Review on Defence (CARD) and Permanent Structured Cooperation (PESCO) have the purpose of supporting the implementation of relevant priorities by identifying and taking up opportunities for enhanced cooperation with a view to fulfilling the Union’s level of ambition in the area of security and defence. Where appropriate, regional and international priorities, including those in the North Atlantic Treaty Organization context, may also be taken into account if they are in line with Union priorities and do not prevent any Member State or associated country from participating, while seeking to avoid unnecessary duplication.

(6)

The research phase linked to the development of defence capabilities is crucial, as it underpins the capacity and the autonomy of the European industry to develop defence products and the independence of Member States as the end-users of such products. The research phase may include significant risks, in particular in relation to the low level of maturity and the disruptive nature of technologies. The development phase, which usually follows the research phase, also entails significant risks and costs that hamper the further exploitation of the results of research and have an adverse impact on the competitiveness and innovation of the Union’s defence industry. The Fund should thus foster the link between the research and the development phases.

(7)

The Fund does not support basic research, which should instead be supported through other funding programmes, but its support may include defence-oriented fundamental research likely to form the basis of the solution to recognised or expected problems or to create new possibilities.

(8)

The Fund could support actions pertaining to both new defence products and technologies and the upgrade of existing defence products and technologies, including the interoperability thereof. Actions for the upgrade of existing defence products and technologies should be eligible only where pre-existing information needed to carry out the action is not subject to any restriction by a non-associated third country or a non-associated third-country entity in such a way that the action cannot be carried out. When applying for Union funding, legal entities should be required to provide the relevant information to establish the absence of restrictions. In the absence of such information, there should be no Union funding.

(9)

The Fund should support actions that are conducive to developing disruptive technologies for defence. As disruptive technologies can be based on concepts or ideas originating from non-traditional defence actors, the Fund should allow for sufficient flexibility with regard to the consultation of stakeholders and the carrying out such actions.

(10)

In order to ensure that, in the implementation of this Regulation, the international obligations of the Union and its Member States are respected, actions relating to products or technologies the use, development or production of which is prohibited by international law should not be supported by the Fund. In that respect, the eligibility of actions related to new defence products or technologies should also be subject to developments in international law. Moreover, actions for the development of lethal autonomous weapons without the possibility for meaningful human control over selection and engagement decisions when carrying out strikes against humans should not be eligible for support from the Fund, without prejudice to the possibility of providing funding for actions for the development of early warning systems and countermeasures for defensive purposes.

(11)

The fact that it is difficult to agree on harmonised defence capability requirements and common technical specifications or standards hampers cross-border collaboration between Member States and between legal entities established in different Member States. The absence of such requirements, specifications and standards has led to increased fragmentation of the defence sector, technical complexity, delays, inflated costs, unnecessary duplication as well as decreased interoperability. The agreement on common technical specifications should be a prerequisite for actions involving a higher level of technological readiness. Activities leading to harmonised defence capability requirements as well as activities aiming to support the creation of a common definition of technical specifications or standards should also be eligible for support from the Fund, in particular where they foster interoperability.

(12)

As the objective of the Fund is to support the competitiveness, efficiency and innovation of the Union’s defence industry by leveraging and complementing collaborative defence research and technology activities and de-risking the development phase of cooperative projects, actions related to the research and the development phases of a defence product or technology should be eligible for support from the Fund.

(13)

Given that the aim of the Fund is, in particular, to enhance cooperation between legal entities and Member States across the Union, an action should be eligible for funding only if it is to be carried out by legal entities cooperating within a consortium of at least three eligible legal entities which are established in at least three different Member States or associated countries. At least three of those eligible legal entities established in at least two different Member States or associated countries should not, during the entire period in which the action is carried out, be controlled, directly or indirectly, by the same legal entity and should not control each other. In that context, control should be understood to be the ability to exercise a decisive influence on a legal entity directly, or indirectly through one or more intermediate legal entities. Taking into account the specificities of disruptive technologies for defence, as well as of studies, the actions could be carried out by a single legal entity. In order to boost cooperation between Member States, it should also be possible for the Fund to support joint pre-commercial procurement.

(14)

Pursuant to Council Decision 2013/755/EU (6), entities established in overseas countries or territories are eligible for funding subject to the rules and objectives of the Fund and to possible arrangements applicable to the Member State to which the relevant overseas country or territory is linked.

(15)

As the Fund aims to enhance the competitiveness and efficiency of the Union’s defence industry, only legal entities which are established in the Union or in associated countries and are not subject to control by non-associated third countries or by non-associated third-country entities should, in principle, be eligible for support. In that context, control should be understood to be the ability to exercise a decisive influence on a legal entity directly, or indirectly through one or more intermediate legal entities. Additionally, in order to ensure the protection of essential security and defence interests of the Union and its Member States, the infrastructure, facilities, assets and resources of the recipients and subcontractors involved in an action supported by the Fund should be located on the territory of a Member State or of an associated country for the entire duration of an action, and the recipients and subcontractors involved in an action should have their executive management structures in the Union or in an associated country. Accordingly, a legal entity which is established in a non-associated third country or a legal entity which is established in the Union or in an associated country but which has its executive management structures in a non-associated third country should not be eligible to be a recipient or subcontractor involved in an action. In order to safeguard the essential security and defence interests of the Union and its Member States, those eligibility criteria should also apply to funding provided through procurement, by way of derogation from Article 176 of the Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council (7) (the ‘Financial Regulation’).

(16)

In certain circumstances, it should be possible to derogate from the principle that recipients and subcontractors involved in an action supported by the Fund are not subject to control by non-associated third countries or non-associated third-country entities. In that context, legal entities established in the Union or in an associated country that are controlled by a non-associated third country or a non-associated third-country entity should be eligible to be recipients or subcontractors involved in an action provided that strict conditions relating to the security and defence interests of the Union and its Member States are fulfilled. The participation of such legal entities should not contravene the objectives of the Fund. Applicants should provide all relevant information about the infrastructure, facilities, assets and resources to be used in the action. Member States’ concerns regarding security of supply should also be taken into account in that respect.

(17)

In the framework of the Union’s restrictive measures, adopted on the basis of Article 29 of the Treaty on European Union (TEU) and 215(2) of the Treaty on the Functioning of the European Union (TFEU), no funds or economic resources may be made available, directly or indirectly, to or for the benefit of designated legal persons, entities or bodies. Such designated entities, and entities owned or controlled by them, therefore cannot be supported by the Fund.

(18)

Union funding should be granted following competitive calls for proposals issued in accordance with the Financial Regulation. However, in certain duly substantiated and exceptional circumstances, it should also be possible for Union funding to be granted without a call for proposals in accordance with point (e) of the first paragraph of Article 195 of the Financial Regulation. As the award of funding in accordance with point (e) of the first paragraph of Article 195 of the Financial Regulation constitutes a derogation from the general rule that funding is to be granted following competitive calls for proposals, those exceptional circumstances should be interpreted strictly. In that context, for a grant to be awarded without a call for proposals, the degree to which the proposed action corresponds to the objectives of the Fund with respect to cross-border industrial collaboration and competition throughout the supply chain should be assessed by the Commission, with the assistance of a committee of Member States (the ‘committee’).

(19)

If a consortium wishes to participate in an eligible action and the Union support is to take the form of a grant, the consortium should appoint one of its members as a coordinator. The coordinator should be the principal point of contact for the purpose of the consortium’s relations with the Commission.

(20)

Where an action supported by the Fund is managed by a project manager appointed by Member States or associated countries, the Commission should consult the project manager on progress made with regard to the action prior to executing the payment to the recipients, so that the project manager can ensure that the time-frames are respected by the recipients. The project manager should provide the Commission with observations on progress made with regard to the action so that the Commission can determine whether the conditions for proceeding with the payment have been fulfilled.

(21)

The Fund should be implemented under direct management so as to maximise the effectiveness and efficiency of the delivery and to ensure full consistency with other Union initiatives. Therefore, the Commission should remain responsible for the selection and award procedures, including as regards ethics screening and assessment. In substantiated cases, however, the Commission should be able to entrust budget implementation tasks for specific actions supported by the Fund to bodies as referred to in point (c) of the first subparagraph of Article 62(1) of the Financial Regulation, for example where a project manager has been appointed by Member States co-financing an action, provided that the requirements of the Financial Regulation are met. Such entrusting of budget implementation tasks would help to streamline the management of co-financed actions and ensure smooth coordination between the financing agreement and the contract signed by the consortium and the project manager appointed by Member States which co-finance the action.

(22)

In order to ensure that the funded development actions are financially viable, it is necessary that the applicants demonstrate that the costs of the action not covered by Union funding are covered by other means of financing.

(23)

Different types of financial arrangements should be at the disposal of Member States for the joint development and acquisition of defence capabilities. The Commission could provide different types of arrangements that Member States could use on a voluntary basis to address challenges for collaborative development and procurement from a financing perspective. The use of such financial arrangements could further foster the launch of collaborative and cross-border defence projects and increase the efficiency of defence spending, including for projects supported by the Fund.

(24)

Given the specificities of the defence industry, where demand comes almost exclusively from Member States and associated countries, which also control all acquisition of defence-related products and technologies, including exports, the functioning of the defence sector does not follow the conventional rules and business models that govern more traditional markets. Industry therefore cannot undertake substantial self-funded defence R & D projects, and Member States and associated countries often fully fund all R & D costs. To achieve the objectives of the Fund, in particular to foster cooperation between legal entities from different Member States and associated countries, and taking into account the specificities of the defence sector, up to the totality of the eligible costs should be covered for actions that take place before the prototype phase.

(25)

The prototype phase is a crucial phase where Member States or associated countries usually decide on their consolidated investment and start the acquisition process of their future defence products or technologies. This is the reason why, at this specific stage, Member States and associated countries agree on the necessary commitments, including cost-sharing and ownership of the project. To ensure the credibility of their commitment, support from the Fund should, in normal cases, not exceed 20 % of the eligible costs.

(26)

For actions beyond the prototype phase, funding up to 80 % should be provided for. Such actions, which are closer to product and technology finalisation, may still involve substantial costs.

(27)

Stakeholders in the defence sector face specific indirect costs, such as with regard to security. Furthermore, stakeholders work in a specific market where they – absent demand on the buyers’ side – cannot recover the R & D costs in the same manner as those in the civilian sector. Therefore, it is appropriate to allow a flat rate of 25 % of the total direct eligible costs of the action as well as the possibility to charge indirect eligible costs determined in accordance with the usual cost accounting practices of the recipients if those practices are accepted by their national authorities for comparable activities in the defence domain and if they have been communicated to the Commission by the recipient.

(28)

Actions comprising the participation of cross-border SMEs and mid-caps support the opening-up of supply chains and contribute to the objectives of the Fund. Such actions should therefore be eligible for an increased rate of funding that benefits all participating legal entities.

(29)

In order to ensure that the funded actions will contribute to the competitiveness and efficiency of the European defence industry, it is important that Member States intend to jointly procure the final product or use the technology, in particular through joint cross-border procurement, where Member States jointly organise their procurement procedures in particular through a central purchasing body.

(30)

In order to ensure that the actions supported by the Fund contribute to the competitiveness and efficiency of the European defence industry, they should be market-oriented, demand-driven and commercially viable in the medium-to-long term. The eligibility criteria for development actions should therefore take into account the fact that Member States intend, including through a memorandum of understanding or a letter of intent, to procure the final product, or use the technology, in a coordinated manner. The award criteria for development actions should in addition take into account the fact that Member States have undertaken, politically or legally, to jointly use, own or maintain the final product or technology in a coordinated manner.

(31)

The promotion of innovation and technological development in the Union’s defence industry should take place in a manner consistent with the security and defence interests of the Union. Accordingly, the contributions of actions to those interests and to the defence research and capability priorities commonly agreed by Member States should serve as an award criterion.

(32)

Eligible actions developed in the context of PESCO projects in the institutional framework of the Union should ensure enhanced cooperation between legal entities in the different Member States on a continuous basis and should thus directly contribute to the objectives of the Fund. If selected, such actions should therefore be eligible for an increased funding rate.

(33)

The Commission will take into account other activities financed under Horizon Europe – the Framework Programme for Research and Innovation established by Regulation (EU) 2021/695 of the European Parliament and of the Council (8) – in order to avoid unnecessary duplication and ensure cross-fertilisation and synergies between civil and defence research.

(34)

Cybersecurity and cyber defence are increasingly important challenges and the Commission and the High Representative of the Union for Foreign Affairs and Security Policy recognised the need to establish synergies between cyber-defence actions within the scope of this Regulation and Union initiatives in the field of cybersecurity, such as those announced in the joint communication of the Commission of 13 September 2017‘Resilience, Deterrence and Defence: Building strong cybersecurity for the EU’. In particular, stakeholders should seek synergies between the civilian and defence dimensions of cybersecurity, with a view to increasing cyber resilience.

(35)

An integrated approach should be ensured by bringing together activities covered by the Preparatory Action on Defence Research (PADR), launched by the Commission in accordance with point (b) of Article 58(2) of the Financial Regulation and the European Defence Industrial Development Programme (EDIDP) established by Regulation (EU) 2018/1092 of the European Parliament and of the Council (9), as well as by harmonising the conditions for participation. Such an integrated approach should create a more coherent set of instruments and increase the innovative, collaborative and economic impact of the Fund, while avoiding unnecessary duplication and fragmentation. It would also ensure that the Fund contributes to the better exploitation of the results of defence research, covering the gap between the research and the development phases taking into account the specificities of the defence sector, and promoting all forms of innovation, including disruptive technologies for defence. Moreover, positive spillover effects to the civilian sector can also be expected, where applicable.

(36)

Where appropriate in view of the specificities of the action, the objectives of the Fund should also be addressed through financial instruments and budgetary guarantees under the InvestEU Fund established by Regulation (EU) 2021/523 of the European Parliament and of the Council (10).

(37)

Support from the Fund should be used to address market failures or sub-optimal investment situations in a proportionate manner, and actions should not duplicate or crowd out private financing or distort competition in the internal market. Actions should have a clear added value for the Union.

(38)

The forms of Union funding and the methods of implementation of the Fund should be chosen on the basis of their ability to achieve the specific objectives of the actions and to deliver results, taking into account in particular the costs of controls, the administrative burden and the expected risk of non-compliance. That choice should include the consideration of the use of lump sums, flat-rate financing and unit costs, as well as financing not linked to costs as referred to in Article 125(1) of the Financial Regulation.

(39)

The Commission should, by means of implementing acts, adopt annual work programmes in line with the objectives of the Fund, and taking into account the initial lessons learned from the EDIDP and the PADR. The Commission should be assisted in the establishment of the work programmes by the committee. The Commission should endeavour to find solutions which command the widest possible support within the committee. In that context, the committee should be able to meet in the configuration of national defence and security experts to provide specific assistance to the Commission, including advice with regard to the protection of classified information in the framework of the actions. It is for the Member States to designate their respective representatives on that committee. Committee members should be given early and effective opportunities to examine the draft implementing acts and express their views.

(40)

The categories set out in the work programmes should contain functional requirements where appropriate in order to clarify for industry what functionalities and tasks are to be carried out by the capabilities which are to be developed. Such requirements should give a clear indication of the expected performance but should not be directed towards specific solutions or specific legal entities and should not prevent competition at the level of calls for proposals.

(41)

During the development of the work programmes, the Commission should also ensure, through the appropriate consultation of the committee, that the proposed research actions or development actions avoid unnecessary duplication. In that context, the Commission may carry out a prior assessment of possible duplication cases with existing capabilities or already funded research or development projects within the Union.

(42)

The Commission should ensure the coherence of the work programmes throughout the industrial life cycle of defence products and technologies.

(43)

The work programmes should also ensure that a credible proportion of the overall budget benefits actions enabling the cross-border participation of SMEs.

(44)

In order to benefit from its expertise in the defence sector, the European Defence Agency should have observer status within the committee. Given the specificities of the defence area, the European External Action Service should also assist in the committee.

(45)

In order to ensure the effectiveness of this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in order to amend the Annex to this Regulation with regard to the indicators where considered to be necessary as well as to supplement this Regulation with provisions on the establishment of a monitoring and evaluation framework. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (11). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(46)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission as regards the adoption of work programmes and the award of funding to selected research and development actions. In particular, while carrying out research and development actions, the specificities of the defence sector, in particular the responsibility of Member States, associated countries or both for the planning and acquisition process, should be taken into account. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (12).

(47)

The Commission should establish a list of independent experts. The security credentials of those independent experts should be validated by the relevant Member States. That list should not be made public. The independent experts should be chosen on the basis of their skills, experience and knowledge, taking account of the tasks to be assigned to them. As far as possible, when appointing the independent experts, the Commission should take appropriate measures to seek a balanced composition within the independent expert groups and evaluation panels in terms of variety of skills, experience, knowledge, geographical diversity and gender, taking into account the situation in the field of the action. An appropriate rotation of the independent experts and appropriate private-public sector balance should also be sought.

(48)

The independent experts should not evaluate, advise or assist on matters with regard to which they have any conflicts of interest, in particular as regards their position at the time of the evaluation. In particular, they should not be in a position where they could use the information received to the detriment of the consortium that they evaluate.

(49)

After evaluation of the proposals with the help of independent experts, the Commission should select the actions to be supported by the Fund. Member States should be informed of the evaluation results with the ranking list of selected actions and of progress of the funded actions.

(50)

When proposing new defence products or technologies or the upgrade of existing defence products and technologies, applicants should undertake to comply with ethical principles, such as those relating to the welfare of human beings and the protection of the human genome, reflected also in relevant Union, national and international law, including the Charter of Fundamental Rights of the European Union and the European Convention for the Protection of Human Rights and Fundamental Freedoms and, where relevant, the protocols thereto. The Commission should screen the proposals systematically in order to identify those that raise serious ethical issues. Where appropriate, such proposals should be subject to an ethics assessment.

(51)

In order to support an open internal market, the participation of cross-border SMEs and mid-caps, as members of consortia, subcontractors or other legal entities in the supply chain, should be encouraged.

(52)

The Commission should endeavour to maintain a dialogue with Member States and industry to ensure the success of the Fund. As co-legislator and a key stakeholder, the European Parliament should also be engaged in that regard.

(53)

This Regulation lays down a financial envelope for the Fund, which is to constitute the prime reference amount, within the meaning of point 18 of the Inter-institutional Agreement of 16 December 2020 between the European Parliament, the Council and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources (13) (Interinstitutional Agreement of 16 December 2020), for the European Parliament and for the Council during the annual budgetary procedure. The Commission should ensure that administrative procedures are kept as simple as possible and incur a minimum amount of additional expenses.

(54)

The Financial Regulation applies to the Fund, unless otherwise specified. The Financial Regulation lays down rules on the implementation of the Union budget, including the rules on grants, prizes, procurement, indirect management, financial instruments, budgetary guarantees and financial assistance.

(55)

Horizontal financial rules adopted by the European Parliament and by the Council on the basis of Article 322 TFEU apply to this Regulation. Those rules are laid down in the Financial Regulation and determine in particular the procedure for establishing and implementing the budget through grants, prizes, procurement, indirect implementation, and provide for checks on the responsibility of financial actors. Rules adopted on the basis of Article 322 TFEU also include a general regime of conditionality for the protection of the Union budget.

(56)

In accordance with the Financial Regulation, Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (14) and Council Regulations (EC, Euratom) No 2988/95 (15), (Euratom, EC) No 2185/96 (16) and (EU) 2017/1939 (17), the financial interests of the Union are to be protected by means of proportionate measures, including measures relating to the prevention, detection, correction and investigation of irregularities, including fraud, to the recovery of funds lost, wrongly paid or incorrectly used, and, where appropriate, to the imposition of administrative penalties. In particular, in accordance with Regulations (Euratom, EC) No 2185/96 and (EU, Euratom) No 883/2013, the European Anti-Fraud Office (OLAF) has the power to carry out administrative investigations, including on-the-spot checks and inspections, with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests of the Union.

The European Public Prosecutor’s Office (EPPO) is empowered, in accordance with Regulation (EU) 2017/1939, to investigate and prosecute criminal offences affecting the financial interests of the Union as provided for in Directive (EU) 2017/1371 of the European Parliament and of the Council (18). In accordance with the Financial Regulation, any person or entity receiving Union funds is to fully cooperate in the protection of the financial interests of the Union, grant the necessary rights and access to the Commission, OLAF, the Court of Auditors and, in respect of those Member States participating in enhanced cooperation pursuant to Regulation (EU) 2017/1939, the EPPO, and ensure that any third parties involved in the implementation of Union funds grant equivalent rights.

(57)

Third countries which are members of the European Economic Area (EEA) may participate in Union programmes in the framework of the cooperation established under the Agreement on the European Economic Area (19), which provides for the implementation of the programmes on the basis of a decision adopted under that Agreement. A specific provision should be introduced in this Regulation requiring those third countries to grant the necessary rights and access required for the authorising officer responsible, OLAF and the Court of Auditors to comprehensively exercise their respective competences.

(58)

Pursuant to paragraphs 22 and 23 of the Interinstitutional Agreement of 13 April 2016 on Better Law-Making, the Fund should be evaluated on the basis of information collected in accordance with specific monitoring requirements, while avoiding an administrative burden, in particular on Member States, and overregulation. Those requirements, where appropriate, should include measurable indicators as a basis for evaluating the effects of the Fund on the ground. The Commission should carry out an interim evaluation no later than four years after the start of the implementation period of the Fund, including with a view to submitting proposals for any appropriate amendments to this Regulation. The Commission should also carry out a final evaluation at the end of the implementation period of the Fund, examining the financial activities in terms of financial implementation results and to the extent possible at that point in time, results of implementation and impact of the Fund. In that context, the final evaluation report should also help identify where the Union is dependent on third countries for the development of defence products and technologies. The final report should also analyse the cross-border participation of SMEs and mid-caps in projects supported by the Fund as well as the participation of SMEs and mid-caps to the global value chain, and the contribution of the Fund to addressing the shortfalls identified in the CDP, and should include information on the countries of origin of the recipients, the number of Member States and associated countries involved in individual actions and the distribution of the generated intellectual property rights (IPRs). The Commission may also propose amendments to this Regulation to react to possible developments during the implementation of the Fund.

(59)

The Commission should monitor the implementation of the Fund on a regular basis and should submit an annual report on progress made, including how lessons identified and lessons learned from the EDIDP and the PADR are taken into account in the implementation of the Fund, to the European Parliament and to the Council. To that end, the Commission should put in place necessary monitoring arrangements. The report should not contain sensitive information.

(60)

Reflecting the importance of tackling climate change in line with the Union’s commitments to implement the Paris Agreement adopted under the United Nations Framework Convention on Climate Change (20) and the United Nations Sustainable Development Goals, the Fund contributes to the mainstreaming of climate actions in Union policies and to the achievement of an overall target of 30 % of the Union budget expenditure supporting climate objectives. Relevant actions will be identified during the Fund’s preparation and implementation, and reassessed in the context of its interim evaluation.

(61)

Reflecting the importance of tackling the dramatic loss of biodiversity, this Regulation contributes to the mainstreaming of biodiversity action in Union policies and to the achievement of the overall ambition of providing 7,5 % of annual spending under the MFF 2021-2027 to biodiversity objectives in 2024 and 10 % thereof in 2026 and 2027, while considering the existing overlaps between climate and biodiversity goals in accordance with the Interinstitutional Agreement of 16 December 2020.

(62)

As the Fund should support only the research and the development phases of defence products and technologies, the Union should not, in principle, have ownership of or IPRs in the defence products or technologies resulting from the funded actions unless the Union support is provided through public procurement. However, for research actions, interested Member States and associated countries should be able to use the results of funded actions to participate in follow-up cooperative development.

(63)

The Union’s support should not affect the transfer of defence-related products within the Union, in accordance with Directive 2009/43/EC, or the export of products, equipment or technologies. The export of military equipment and technologies by the Member States is regulated by Council Common Position 2008/944/CFSP (21).

(64)

The use of sensitive background information, including data, knowhow or information, generated before or outside the operation of the Fund, or access by unauthorised individuals to results generated in connection to actions supported by the Fund could have an adverse impact on the interests of the Union or of one or more of the Member States. The handling of sensitive information should therefore be governed by relevant Union and national law.

(65)

In order to ensure the security of classified information at the requisite level, the minimum standards on industrial security should be complied with when signing classified funding and financing agreements. To that end, and in accordance with Commission Decision (EU, Euratom) 2015/444 (22), the Commission is to communicate the Programme Security Instructions, including the Security Classification Guide, for advice to the independent experts designated by Member States.

(66)

Since the objectives of this Regulation cannot be sufficiently achieved by the Member States but can rather be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(67)

The Commission should manage the Fund while having due regard to the requirements of confidentiality and security, in particular those relating to sensitive information including classified information.

(68)

In order to ensure continuity in providing support in the relevant policy area and to allow implementation to start from the beginning of the MFF 2021-2027, this Regulation should enter into force as a matter of urgency and should apply, with retroactive effect, from 1 January 2021.

(69)

Regulation (EU) 2018/1092 should therefore be repealed,