13.5.2020

Official Journal of the European Union

C 164/3

COMMUNICATION FROM THE COMMISSION

Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak

(2020/C 164/03)

1. INTRODUCTION

On 19 March 2020, the Commission adopted its Communication ‘Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak’ (1) (the ‘Temporary Framework’). On 3 April 2020, it adopted a first amendment to enable aid to accelerate research, testing and production of COVID-19 relevant products, to protect jobs and to further support the economy during the current crisis (2).

A targeted and proportionate application of EU State aid control ensures that national support measures effectively help affected undertakings during the COVID-19 outbreak, whilst limiting undue distortions to the Internal Market, maintaining the integrity of the Internal Market and ensuring a level playing field. This will contribute to the continuity of economic activity during the COVID-19 outbreak and provide the economy with a strong platform to recover from the crisis, keeping in mind the importance of meeting the green and digital transitions, in line with EU law and objectives.

The aim of this Communication is to identify additional temporary State aid measures that the Commission considers compatible under Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) in light of the COVID-19 outbreak.

First, the Commission considers that otherwise viable non-financial undertakings subject to a temporary liquidity crisis due to the COVID-19 outbreak may face longer-term solvency issues. For a large number of these undertakings, the emergency measures put in place to control the spread of the COVID-19 outbreak have resulted in a decrease or even suspension of their production of goods and/or the provision of services, as well as a significant demand shock. The resulting losses will be reflected in a decrease of undertakings’ equity and will negatively affect their ability to take on loans from financial institutions.

Reduced equity for undertakings in markets with low demand and disrupted supply aggravates the risk of a serious economic downturn affecting potentially the whole EU economy for a longer period. Well-targeted public interventions providing equity and/or hybrid capital instruments to undertakings could reduce the risk for the EU economy of a significant number of insolvencies. They could thereby contribute to preserving the continuity of economic activity during the COVID-19 outbreak and to supporting subsequent economic recovery.

This Communication therefore sets out the criteria under EU State aid rules, based on which Member States may provide public support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak. It aims at ensuring that the disruption of the economy does not result in the unnecessary exit from the market of undertakings that were viable before the COVID-19 outbreak. Recapitalisations must therefore not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak.

The Commission underlines that providing national public support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak, as part of schemes or in specific individual cases, should only be considered if no other appropriate solution can be found and be subject to stringent conditions. This is because such instruments are highly distortive for competition between undertakings. Such interventions should therefore also be subject to clear conditions as regards the State’s entry, remuneration and exit from the undertakings concerned, governance provisions and appropriate measures to limit distortions of competition.

If support were to be granted at EU level, taking into account the EU common interest, the risk of distortion to the Internal Market could be lower, and may therefore require less stringent conditions to be imposed. The Commission considers that additional EU level support and funds are necessary to make sure that this global symmetric crisis does not transform into an asymmetric shock to the detriment of Member States with less possibility to support their economy and the EU’s competitiveness as a whole.

The green transition and the digital transformation will play a central and priority role in ensuring a successful recovery. The Commission welcomes steps taken by Member States to take these challenges into account when designing national support measures, and recalls their responsibility in ensuring that such measures do not hinder the achievement of EU climate and digital objectives. Furthermore, the Commission notes that designing national support measures in a way that meets the EU’s policy objectives related to green and digital transformation of their economies will allow for a more sustainable long term growth, and promote the transformation to the agreed EU’s objective of climate neutrality by 2050. In this context of aid to remedy a serious disturbance in the economy of Member States, it is primarily the responsibility of Member States to design national support measures in a way that meets their policy objectives. For aid under this Communication, large undertakings shall report on how the aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation.

10.

Furthermore, a number of Member States are considering taking an equity stake in strategic companies, to ensure that their contribution to the proper functioning of the EU economy is not jeopardised. The Commission recalls that the TFEU is neutral as regards public versus private ownership (Article 345 TFEU). If Member States purchase existing shares of undertakings at market price or invest pari passu with private shareholders, this normally does not constitute State aid (3). Similarly, if Member States decide to purchase newly issued shares and/or provide undertakings with other types of equity support or hybrid capital instruments on market terms, i.e. under conditions complying with the Market Economy Operator Principle, this also does not constitute State aid.

11.

The Commission also recalls that there are a number of additional tools to deal with acquisitions of strategic companies. In its Communication issued on 25 March 2020 (4), the Commission called upon Member States that already have an existing foreign direct investment screening mechanism in place to make full use of such tools to prevent capital flows from non-EU countries that could undermine EU’s security or public order. The Commission also called on Member States that currently do not have a screening mechanism, or whose screening mechanisms do not cover all relevant transaction to set up a fully-fledged screening mechanism, in full compliance with Union law, including the FDI Screening Regulation (5) and free movement of capital (Article 63 TFEU), and international obligations.

12.

Second, the Commission considers that subordinated debt can also be an appropriate means to support undertakings facing financial difficulties due to the COVID-19 outbreak. In particular, it is a less distortive instrument than equity or hybrid capital, given that it cannot be converted into equity when the company is a going concern. This Communication therefore introduces the possibility for Member States to grant aid in this additional form in section 3.3 of the Temporary Framework, which concerns debt instruments, subject to additional safeguards to protect the level playing field in the Internal Market. However, if subordinated debt goes beyond the ceilings set out in section 3.3, such subordinated debt measure should be assessed in line with the conditions for COVID-19 recapitalisation measures set out in section 3.11 to ensure equal treatment.

13.

Third, the application of the Temporary Framework has shown the need to introduce clerical modifications as well as additional clarifications and amendments as regards certain provisions in section 3.1, section 3.2, section 3.3, section 3.4, section 3.7, section 4 and section 5.

14.

Finally, the Commission recognises that to ensure a successful recovery, additional large-scale private and public investments will be needed to meet the challenges and seize the opportunities of the green and digital twin transitions. In this context, the Commission recalls that this amendment to the Temporary Framework complements rather than replaces existing possibilities under EU State aid rules for Member States to provide support. For example, as regards capital support, in particular to innovative companies, the Commission’s Risk Finance Guidelines (6) and the General Block Exemption Regulation (7) provide ample possibilities for Member States.

15.

Similarly, Member States can decide to grant State aid to support green and digital innovation and investment, and increase the level of environmental protection in line with existing State aid rules (8). As already announced in the Commission’s Communication of 14 January 2020, relevant State aid rules, in particular the Environmental and Energy State aid guidelines, will be revised by 2021 in light of the policy objectives of the European Green Deal and support a cost-effective and socially-inclusive transition to climate neutrality by 2050. This will contribute to a recovery strategy for the European economy that meets the important green and digital twin transitions in line with EU and national objectives.

2. AMENDMENTS TO THE TEMPORARY FRAMEWORK

16.

The following amendments to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak will take effect as of 8 May 2020.

17.

Point 7 is replaced by the following:

‘7.

If due to the COVID-19 outbreak, banks would need extraordinary public financial support (see Article 2(1)(28) BRRD and Article 3(1)(29) SRMR) in the form of liquidity, recapitalisation or impaired asset measure, it will have to be assessed whether the measure meets the conditions of Article 32(4)(d)(i), (ii) or (iii) of the BRRD and Article 18(4)(d)(i), (ii) or (iii) of the SRMR. Where the latter conditions are fulfilled, the bank receiving such extraordinary public financial support would not be deemed to be failing-or-likely-to-fail. To the extent such measures address problems linked to the COVID-19 outbreak, they would be deemed to fall under point 45 of the 2013 Banking Communication (9), which sets out an exception to the requirement of burden-sharing by shareholders and subordinated creditors.’

18.

Point 9 is replaced by the following:

‘9.

The COVID-19 outbreak poses the risk of a serious downturn affecting the whole economy of the EU, hitting businesses, jobs and households. Well-targeted public support is needed to ensure that sufficient liquidity remains available in the markets, to counter the damage inflicted on healthy undertakings and to preserve the continuity of economic activity during and after the COVID-19 outbreak. Furthermore, Member States can decide support to operators in the travel and tourism industry to ensure that reimbursement claims caused by the COVID-19 outbreak are satisfied with a view to ensuring the protection of passenger and consumer rights, and equal treatment of passengers and travellers. Given the limited size of the EU budget, the main response will come from Member States’ national budgets. EU State aid rules enable Member States to take swift and effective action to support citizens and undertakings, in particular SMEs, facing economic difficulties due to the COVID-19 outbreak.’

19.

Point 13 is replaced by the following:

‘13.	Member States may also design support measures in line with Block Exemption Regulations (10) without the involvement of the Commission.’

20.

Point 20 is replaced by the following:

‘20.

Temporary aid measures covered by this Communication may be cumulated with one another in line with the provisions in the specific sections of this Communication. Temporary aid measures covered by this Communication may be cumulated with aid under de minimis Regulations (11) or with aid under Block Exemption Regulations (12) provided the provisions and cumulation rules of those Regulations are respected.’

21.

Point 20bis is introduced:

‘20bis.

Aid to credit and financial institutions is not to be assessed under this Communication except for: (i) indirect advantages to credit or financial institutions channelling aid in the form of loans or guarantees under sections 3.1 to 3.3 pursuant to the safeguards of section 3.4, and (ii) aid under section 3.10 provided the scheme is not targeting exclusively employees from the financial sector.’

22.

The title of section 3.1 is replaced by the following:

‘3.1.

Limited amounts of aid’

23.

In point 22, footnote 16 is replaced by the following:

‘If the aid is granted in the form of a tax advantage, the tax liability in relation to which that advantage is granted must have arisen no later than 31 December 2020.’

24.

Point 23bis is replaced by the following:

‘23bis.

Where an undertaking is active in several sectors to which different maximum amounts apply in accordance with points 22(a) and 23(a), the Member State concerned shall ensure, by appropriate means, such as separation of accounts, that the relevant ceiling is respected for each of those activities and that the overall maximum amount of EUR 800 000 is not exceeded per undertaking. Where an undertaking is active in the sectors covered by point 23(a), the overall maximum amount of EUR 120 000 should not be exceeded per undertaking.’

25.

Point 24bis is introduced:

‘24bis.

Aid granted under section 3.2 shall not be cumulated with aid granted for the same underlying loan principal under section 3.3 and vice versa. Aid granted under section 3.2 and section 3.3 may be cumulated for different loans provided the overall amount of loans per beneficiary does not exceed the ceilings set out in point 25(d) or in point 27(d). A beneficiary may benefit in parallel from multiple measures under section 3.2 provided the overall amount of loans per beneficiary does not exceed the ceilings set out in point 25(d) and (e).’

26.

Letter (iii) in point 25(d) is replaced by the following:

‘iii.

with appropriate justification provided by the Member State to the Commission (for example in connection with the characteristics of certain type of undertakings), the amount of the loan may be increased to cover the liquidity needs from the moment of granting for the coming 18 months for SMEs (13) and for the coming 12 months for large enterprises. The liquidity needs should be established through self-certification by the beneficiary (14).’

27.

Point 25(e) is replaced by the following:

‘e.

For loans with a maturity until 31 December 2020, the amount of the loan principal may be higher than under point 25(d) with appropriate justification provided by the Member State to the Commission, and provided that the proportionality of the aid remains assured and is demonstrated by the Member State to the Commission.’

28.

Point 26 is replaced by the following:

‘26.

In order to ensure access to liquidity to undertakings facing a sudden shortage, subsidized interest rates for a limited period and loan amount may be an appropriate, necessary and targeted solution during the current circumstances. In addition, subordinated debt, which is subordinated to ordinary senior creditors in the case of insolvency proceedings, may also be an appropriate, necessary and targeted solution during the current circumstances. Such debt is a less distortive instrument than equity or hybrid capital, since it cannot be converted automatically into equity when the company is a going concern. Therefore, aid in form of subordinated debt (15) must fulfil the respective conditions under section 3.3, which concerns debt instruments. However, as it increases the ability of companies to take on senior debt in a way similar to capital support, a credit risk mark-up and a further limitation as to the amount compared to senior debt (one third for large enterprises and half the amount for SMEs, as defined in point 27(d) (i) or (ii)), shall apply in addition. Beyond these ceilings, subordinated debt should be assessed in line with the conditions for COVID-19 recapitalisation measures set out in section 3.11 to ensure equal treatment.’

29.

A new point 26bis is introduced as follows:

‘26bis.

Aid granted under section 3.3 shall not be cumulated with aid granted for the same underlying loan principal under section 3.2 and vice versa. Aid granted under section 3.2 and section 3.3 may be cumulated for different loans provided the overall amount of loans per beneficiary does not exceed the thresholds set out in point 25(d) or in point 27(d). A beneficiary may benefit in parallel from multiple measures under section 3.3 provided the overall amount of loans per beneficiary does not exceed the ceilings set out in points 27(d) and (e).’

30.

Letter (iii) in point 27(d) is replaced by the following:

‘iii.

with appropriate justification provided by the Member State to the Commission (for example in connection with the characteristics of certain type of undertakings), the amount of the loan may be increased to cover the liquidity needs from the moment of granting for the coming 18 months for SMEs (16) and for the coming 12 months for large enterprises. The liquidity needs should be established through self-certification by the beneficiary (17).’

31.

Point 27(e) is replaced by the following:

‘e.

For loans with a maturity until 31 December 2020, the amount of the loan principal may be higher than under point 27(d) with appropriate justification provided by the Member State to the Commission, and provided that the proportionality of the aid remains assured and is demonstrated by the Member State to the Commission;’

32.

Point 27bis is introduced as follows:

‘27bis

Debt instruments, which are subordinated to ordinary senior creditors in the case of insolvency proceedings may be granted at reduced interest rates, which are at least equal to the base rate and the credit risk margins referred to in the table of point 27(a) plus 200 bps for large enterprises and 150 bps for SMEs. The alternative possibility of point 27(b) applies to such debt instruments. Points 27(c), 27 (f) and 27 (g) shall also be complied with. If the amount of subordinated debt exceeds both of the following ceilings (18), the compatibility of the instrument with the Internal Market is determined pursuant to section 3.11:

i.	Two thirds of the annual wage bill of the beneficiary for large enterprises and the annual wage bill of the beneficiary for SMEs, as defined in point 27(d)(i), and

ii.	8,4 % of the beneficiary’s total turnover in 2019 for large enterprise and 12,5 % of the beneficiary’s total turnover in 2019 for SMEs.’

33.

Point 28 is replaced by the following:

‘28.

Aid in the form of guarantees and loans pursuant to section 3.1, section 3.2 and section 3.3 of this Communication may be provided to undertakings facing a sudden liquidity shortage directly or through credit institutions and other financial institutions as financial intermediaries. In the latter case, the conditions set out below must be complied with.’

34.

Point 31 is replaced by the following:

‘31.

The credit institutions or other financial institutions should, to the largest extent possible, pass on the advantages of the public guarantee or subsidised interest rates on loans to the final beneficiaries. The financial intermediary must be able to demonstrate that it operates a mechanism that ensures that the advantages are passed on to the largest extent possible to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates than without such public guarantees or loans.’

35.

Letter (j) in point 37 is replaced by the following:

‘j.	The testing and upscaling infrastructures shall be open to several users and access shall be granted on a transparent and non-discriminatory basis. Undertakings, which have financed at least 10 % of the investment costs may be granted preferential access under more favourable conditions.’

36.

Point 43bis is introduced:

‘43bis.

To the extent that such a scheme includes also employees of credit or financial institutions, any aid to those institutions does not have the objective to preserve or restore their viability, liquidity or solvency, given the predominantly social objective of such aid (19). As a result, the Commission considers that such aid should not be qualified as extraordinary public financial support according to Article 2(1) (28) BRRD and Article 3(1) (29) SRMR, and should not be assessed under the State aid rules applicable to the banking sector (20).’

37.

The following section is inserted:

‘3.11. Recapitalisation measures

44.

This Temporary Framework sets out the criteria under EU State aid rules, based on which Member States may provide public support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak (21). It aims at ensuring that the disruption of the economy does not result in the unnecessary exit from the market of undertakings that were viable before the COVID-19 outbreak. Recapitalisations must therefore not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak. Large undertakings must report on how the aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation, including the EU objective of climate neutrality by 2050.

45.

At the same time, the Commission underlines that providing national public support in the form of equity and/or hybrid capital instruments, as part of schemes or in individual cases, should only be considered if no other appropriate solution can be found. Moreover, the issuing of such instruments should be subject to stringent conditions because they are highly distortive for competition between undertakings. Such interventions must therefore be subject to clear conditions as regards the State’s entry, remuneration and exit from the equity of the undertakings concerned, governance provisions and appropriate measures to limit distortions of competition. Against this background, the Commission notes that designing national support measures in a way that meets the EU’s policy objectives related to green and digital transformation of their economies will allow for a more sustainable long-term growth, and promote the transformation to the agreed EU objective of climate neutrality by 2050.

3.11.1. Applicability

46.

The following conditions shall apply to recapitalisation schemes and individual recapitalisation measures of Member States for non-financial undertakings (collectively referred to as ‘COVID-19 recapitalisation’ measures) under this Communication, which are not covered by section 3.1 of this Communication. They apply to COVID-19 recapitalisation measures for large undertakings and SMEs (22).

47.

The following conditions shall also apply to subordinated debt instruments that exceed both of the ceilings referred to in point 27bis (i) and (ii) in section 3.3 of this Communication.

48.

COVID-19 recapitalisation measures shall not be granted later than 30 June 2021.

3.11.2. Eligibility and entry conditions

49.

The COVID-19 recapitalisation measure must fulfil the following conditions:

(a)	without the State intervention the beneficiary would go out of business or would face serious difficulties to maintain its operations. Such difficulties may be shown by the deterioration of, in particular, the beneficiary’s debt to equity ratio or similar indicators;

(b)

it is in the common interest to intervene. This may relate to avoiding social hardship and market failure due to significant loss of employment, the exit of an innovative company, the exit of a systemically important company, the risk of disruption to an important service, or similar situations duly substantiated by the Member State concerned;

(c)	the beneficiary is not able to find financing on the markets at affordable terms and the horizontal measures existing in the Member State concerned to cover liquidity needs are insufficient to ensure its viability; and

(d)	the beneficiary is not an undertaking that was already in difficulty on 31 December 2019 (within the meaning of the General Block Exemption Regulation (23)).

50.

Member States shall grant COVID-19 recapitalisation measures under an aid scheme approved by the Commission only following a written request for such aid by the prospective beneficiary undertakings. As regards individually notifiable aid, Member States shall provide evidence of such a written request as part of the notification of the individual aid measure to the Commission.

51.

The requirements of this section and sections 3.11.4, 3.11.5, 3.11.6 and 3.11.7 apply to both COVID-19 recapitalisation schemes and individual aid measures. When approving a scheme, the Commission will request the separate notification of individual aid above the threshold of EUR 250 million. In relation to such notifications the Commission will assess whether existing financing in the market or horizontal measures to cover liquidity needs are insufficient to ensure the viability of the beneficiary; that the selected recapitalisation instruments and the conditions attached to them are appropriate to address the beneficiary’s serious difficulties; that the aid is proportionate; and that the conditions in this section and sections 3.11.4, 3.11.5, 3.11.6 and 3.11.7 are complied with.

3.11.3. Types of recapitalisation measures

52.

Member States can provide COVID-19 recapitalisation measures using two distinct sets of recapitalisation instruments:

(a)	equity instruments, in particular, the issuance of new common or preferred shares; and/or

(b)	instruments with an equity component (referred to as ‘hybrid capital instruments’) (24), in particular profit participation rights, silent participations and convertible secured or unsecured bonds.

53.

The State intervention can take the form of any variation of the above instruments, or a combination of equity and hybrid capital instruments. Member States may also underwrite the above instruments in the context of a market offering, under the condition that any resulting State intervention in a beneficiary meets the conditions set out in this section 3.11 of the Communication. The Member State must ensure that the selected recapitalisation instruments and the conditions attached thereto are appropriate to address the beneficiary’s recapitalisation needs, while at the same time being the least distortive to competition.

3.11.4. Amount of the recapitalisation

54.

In order to ensure proportionality of the aid, the amount of the COVID-19 recapitalisation must not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak, i.e. the situation on 31 December 2019. In assessing the proportionality of the aid, State aid received or planned in the context of the COVID-19 outbreak shall be taken into account.

3.11.5. Remuneration and exit of the State

General principles

55.

The State shall receive appropriate remuneration for the investment. The closer the remuneration is to market terms, the lower the potential competition distortion caused by the State intervention.

56.

The COVID-19 recapitalisation should be redeemed when the economy stabilises. The Commission considers it appropriate to give the beneficiary sufficient time to redeem the recapitalisation. The Member State must put a mechanism in place to gradually incentivise redemption.

57.

The remuneration of the COVID-19 recapitalisation measure should be increased in order to converge with market prices to provide an incentive to the beneficiary and to the other shareholders to redeem the State recapitalisation measure and to minimise the risk of distortions of competition.

58.

It follows that COVID-19 recapitalisation measures need to contain appropriate incentives for undertakings to redeem the recapitalisation and look for alternative capital when market conditions permit, by requiring a sufficiently high remuneration for the recapitalisation.

59.

As an alternative to the remuneration methodologies set out below, Member States may notify schemes or individual measures where the remuneration methodology is adapted in accordance with the features and seniority of the capital instrument provided they overall lead to a similar outcome with regard to the incentive effects on the exit of the State and a similar overall impact on the State’s remuneration.

Remuneration of equity instruments

60.

A capital injection by the State, or an equivalent intervention, shall be conducted at a price that does not exceed the average share price of the beneficiary over the 15 days preceding the request for the capital injection. If the beneficiary is not a publicly listed company, an estimate of its market value should be established by an independent expert or by other proportionate means.

61.

Any recapitalisation measure shall include a step-up mechanism increasing the remuneration of the State, to incentivise the beneficiary to buy back the State capital injections. This increase in remuneration can take the form of additional shares (25) granted to the State or other mechanisms, and should correspond to a minimum of 10 % increase in the remuneration of the State (for the participation resulting from the State’s COVID-19 equity injection that has not been repaid), for each of the step-up steps:

(a)	Four years after the COVID-19 equity injection, if the State has not sold at least 40 percent of its equity participation resulting from the COVID-19 equity injection, the step-up mechanism will be activated.

(b)	Six years after the COVID-19 equity injection, if the State has not sold in full its equity participation resulting from the State’s COVID-19 equity injection, the step-up mechanism will again be activated (26).

If the beneficiary is not a publicly listed company, Member States may decide to implement each of the two steps one year later, i.e. five years and seven years after granting of the COVID-19 equity injection, respectively.

62.

The Commission may accept alternative mechanisms, provided they overall lead to a similar outcome with regard to the incentive effects on the exit of the State and a similar overall impact on the State’s remuneration.

63.

The beneficiary should, have at any time, the possibility to buy back the equity stake that the State has acquired. To ensure that the State receives appropriate remuneration for the investment, the buy-back price should be the higher amount of (i) the nominal investment by the State increased by an annual interest remuneration 200 basis points higher than presented in the table below (27); or (ii) the market price at the moment of the buy-back.

64.

As an alternative, the State may sell at any time its equity stake at market prices to purchasers other than the beneficiary. Such a sale requires, in principle, an open and non-discriminatory consultation of potential purchasers or a sale on the stock exchange. The State may give existing shareholders priority rights to buy at the price resulting from the public consultation.

Remuneration of hybrid capital instruments

65.

The overall remuneration of hybrid capital instruments must adequately factor in the following elements:

(a)	the characteristics of the instrument chosen, including its level of subordination, risk and all modalities of payment;

(b)	built-in incentives for exit (such as step-up and redemption clauses); and

(c)	an appropriate benchmark interest rate.

66.

The minimum remuneration of hybrid capital instruments until they are converted into equity-like instruments shall be at least equal to the base rate (1 year IBOR or equivalent as published by the Commission (28)), plus the premium as set out below.

Remuneration of hybrid capital instruments: 1-year IBOR +

Type of recipient	1st year	2nd and 3rd year	4th and 5th year	6th and 7th year	8th year and after
SMEs	225 bps	325 bps	450 bps	600 bps	800 bps
Large enterprises	250 bps	350 bps	500 bps	700 bps	950 bps

67.

The conversion of hybrid capital instruments into equity shall be conducted at 5 percent or more below TERP (Theoretical Ex-Rights Price) at the time of the conversion.

68.

After conversion into equity, a step-up mechanism must be included to increase the remuneration of the State, to incentivise the beneficiaries to buy back the State capital injections. If the equity resulting from the State’s COVID-19 intervention is still owned by the State two years after the conversion into equity the State shall receive an additional share of ownership of the beneficiary in addition to its remaining participation resulting from the State’s conversion of the COVID-19 hybrid capital instruments. This additional share of ownership shall be at a minimum 10 percent of the remaining participation resulting from the State’s conversion of the COVID-19 hybrid capital instruments. The Commission may accept alternative step-up mechanisms provided they have the same incentive effect and a similar overall impact on the State’s remuneration.

69.

Member States may choose a pricing formula that includes additional step-up or payback clauses. Such features should be designed so that they encourage an early end to the State’s recapitalisation support of the beneficiary. The Commission may also accept alternative pricing methodologies, provided they lead to remunerations that are higher than or similar to those resulting from the above methodology.

70.

Since the nature of hybrid instruments varies significantly, the Commission does not provide guidance for all types of instruments. Hybrid instruments shall in any event follow the principles mentioned above, with remuneration reflecting the risk of the particular instruments.

3.11.6. Governance and prevention of undue distortions of competition

71.

In order to prevent undue distortions of competition beneficiaries must not engage in aggressive commercial expansion financed by State aid or beneficiaries taking excessive risks. As a general principle, the smaller the equity stake of the Member State and the higher the remuneration, the less there is a need for safeguards.

72.

If the beneficiary of a COVID-19 recapitalisation measure above EUR 250 million is an undertaking with significant market power on at least one of the relevant markets in which it operates, Member States must propose additional measures to preserve effective competition in those markets. In proposing such measures, Member States may in particular offer structural or behavioural commitments foreseen in Commission Notice on remedies acceptable under the Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004.

73.

Beneficiaries receiving a COVID-19 recapitalisation measures are prohibited from advertising it for commercial purposes.

74.

As long as at least 75 % of the COVID-19 recapitalisation measures have not been redeemed, beneficiaries other than SMEs shall be prevented from acquiring a more than 10 % stake in competitors or other operators in the same line of business, including upstream and downstream operations.

75.

In exceptional circumstances, and without prejudice to merger control, such beneficiaries may acquire a more than 10 % stake in operators upstream or downstream in their area of operation, only if the acquisition is necessary to maintain the beneficiary’s viability. The Commission may authorise the acquisition if it is necessary to maintain the beneficiary’s viability. The acquisition may not be implemented before the Commission has taken a decision on this issue.

76.

State aid shall not be used to cross-subsidise economic activities of integrated undertakings that were in economic difficulties already on 31 December 2019. A clear account separation shall be put in place in integrated companies to ensure that the recapitalisation measure does not benefit those activities.

77.

As long as the COVID-19 recapitalisation measures have not been fully redeemed, beneficiaries cannot make dividend payments, nor non-mandatory coupon payments, nor buy back shares, other than in relation to the State.

78.

As long as at least 75 % of the COVID-19 recapitalisation measures has not been redeemed, the remuneration of each member of the beneficiaries’ management must not go beyond the fixed part of his/her remuneration on 31 December 2019. For persons becoming members of the management on or after the recapitalisation, the applicable limit is the lowest fixed remuneration of any of the members of the management on 31 December 2019. Under no circumstances, bonuses, other variable or comparable remuneration elements shall be paid.

3.11.7. Exit strategy of the State from the participation resulting from the recapitalisation and reporting obligations

79.

Beneficiaries other than SMEs that have received a COVID-19 recapitalisation of more than 25 % of equity at the moment of intervention must demonstrate a credible exit strategy for the participation of the Member State, unless the State’s intervention is reduced below the level of 25 % of equity within 12 months from the date of the granting of the aid (29).

80.

The exit strategy shall lay out:

(a)	the plan of the beneficiary on the continuation of its activity and the use of the funds invested by the State, including a payment schedule of the remuneration and of the redemption of the State investment (together ‘the repayment schedule’); and

(b)	the measures that the beneficiary and the State will take to abide by the repayment schedule.

81.

The exit strategy should be prepared and submitted to the Member State within 12 months after aid is granted and must to be endorsed by the Member State.

82.

Beyond the obligation set out in points 79 to 81, beneficiaries must report to the Member State on the progress in the implementation of the repayment schedule and the compliance with the conditions in section 3.11.6 within 12 months of the schedule’s presentation, and thereafter periodically every 12 months.

83.

As long as the COVID-19 recapitalisation measures has not been fully redeemed, beneficiaries of a COVID-19 recapitalisation, other than SMEs, shall, within 12 months from the date of the granting of the aid and thereafter periodically every 12 months, publish information on the use of the aid received. In particular, this should include information on how their use of the aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation, including the EU objective of climate neutrality by 2050.

84.

The Member State should report to the Commission annually on the implementation of the repayment schedule and compliance with the conditions in section 3.11.6. Where the beneficiary received a COVID-19 recapitalisation above EUR 250 million, the report shall include information on compliance with the conditions set in point 54.

85.

If six years after the COVID-19 recapitalisation the State’s intervention has not been reduced below 15 % of beneficiary’s equity, a restructuring plan in accordance with the Rescue and Restructuring Guidelines must be notified to the Commission for approval. The Commission will assess whether the actions contemplated in the restructuring plan ensure the beneficiary’s viability, also with a view of EU objectives and national obligations linked to the green and digital transformation, and the exit of the State without adversely affecting trade to an extent contrary to the common interest. If the beneficiary is not a publicly listed company, or is an SME, the Member State may decide to notify a restructuring plan only if the State’s intervention has not been reduced below the level of 15 % of equity seven years after the COVID-19 recapitalisation.’

38.

Point 44 is renumbered as point 86 and is amended as follows:

‘86.

Except aid granted under sections 3.9, 3.10 and 3.11, Member States must publish relevant information (30) on each individual aid granted under this Communication on the comprehensive State aid website or Commission’s IT tool (31) within 12 months from the moment of granting. Member States must publish relevant information (32) on each individual recapitalisation granted under section 3.11 on the comprehensive State aid website or Commission’s IT tool within 3 months from the moment of the recapitalisation. The nominal value of the recapitalisation shall be included per beneficiary.’

39.

Points 45-52 are renumbered as points 87-94.

40.

Point 49 is renumbered as point 91 and is replaced by the following:

‘91.

The Commission applies this Communication from 19 March 2020, having regard to the economic impact of the COVID-19 outbreak, which required immediate action. This Communication is justified by the current exceptional circumstances and will not be applied after 31 December 2020, except for section 3.11, which will be applied until 1 July 2021. The Commission may review this Communication before 31 December 2020 on the basis of important competition policy or economic considerations. Where helpful, the Commission may also provide further clarifications on its approach to particular issues.’

(1) Communication from the Commission of 19 March 2020, C(2020)1863 (OJ C 91 I, 20.3.2020, p. 1).

(2) Communication from the Commission of 3 April 2020, C(2020) 2215 (OJ C 112 I, 4.4.2020, p. 1).

(3) See section 4.2.3 of the Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, C/2016/2946 (OJ C 262, 19.7.2016, p. 1).

(4) Communication from the Commission – Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final of 25.3.2020.

(5) Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79 I, 21.3.2019, p. 1).

(6) Communication from the Commission – Guidelines on State aid to promote risk finance investments (OJ C 19, 22.1.2014, p. 4).

(7) Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187, 26.6.2014, p. 1).

(8) For example, Guidelines on State aid for environmental protection and energy 2014-2020 (OJ C 200, 28.6.2014, p. 1), Guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks (OJ C 25, 26.1.2013, p. 1), Guidelines on regional State aid for 2014-2020 (OJ C 209, 23.7.2013, p. 1), Framework for State aid for research and development and innovation (OJ C 198, 27.6.2014, p. 1) and Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common European interest (OJ C 188, 20.6.2014, p. 4).

(9) Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis (OJ C 216, 30.7.2013, p. 1).

(10) Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187, 26.6.2014, p. 1), Commission Regulation (EC) No 702/2014 of 25 June 2014 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 193, 1.7.2014, p. 1) and Commission Regulation (EU) No 1388/2014 of 16 December 2014 declaring certain categories of aid to undertakings active in the production, processing and marketing of fishery and aquaculture products compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 369, 24.12.2014, p. 37).

(11) Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, p. 1), Commission Regulation (EU) No 1408/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the agriculture sector (OJ L 352, 24.12.2013, p. 9), Commission Regulation (EU) No 717/2014 of 27 June 2014 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the fishery and aquaculture sector (OJ L 190, 28.6.2014, p. 45) and Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest (OJ L 114, 26.4.2012, p. 8).

(12) Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (General Block Exemption Regulation), Commission Regulation (EC) No 702/2014 of 25 June 2014 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 193, 1.7.2014, p. 1) and Commission Regulation (EU) No 1388/2014 of 16 December 2014 declaring certain categories of aid to undertakings active in the production, processing and marketing of fishery and aquaculture products compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 369, 24.12.2014, p. 37).

(13) As defined in Annex I of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (General Block Exemption Regulation).

(14) The liquidity plan may include both working capital and investment costs.

(15) Except if such aid complies with the conditions of section 3.1 of this Communication.

(16) As defined in Annex I of the General Block Exemption Regulation.

(17) The liquidity plan may include both working capital and investment costs.

(18) If coupon payments are capitalised this must be taken into account when determining these ceilings, provided that such capitalisation was planned or foreseeable at the time of notification of the measure. Also any other State aid measure in the form of subordinated debt granted in the context of the COVID-19 outbreak, even outside this Communication, must be included in such calculation. However, subordinated debt granted in compliance with section 3.1 of this Communication does not count for these ceilings.

(19) See by analogy Commission decision SA.49554- CY- Cypriot scheme for non-performing loans collateralized with primary residences (Estia), recital 73 and Commission decision SA.53520-EL- Primary Residence Protection Scheme, recital 71.

(20) See point 6 of this Communication.

(21) The possibility of offering aid in the form of equity and/or hybrid capital instruments, but for much lower nominal amounts, is already provided under the conditions of section 3.1 of this Communication.

(22) As set out in point 16 of the Communication, notification of alternative approaches remains possible in line with Article 107(3)(b) TFEU.

(23) As defined in Article 2(18) of the Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187, 26.6.2014, p. 1).

(24) Hybrid capital instruments are instruments that have characteristics of debt as well as of equity. For instance, convertible bonds are remunerated like bonds until they are converted into equity. The assessment of the overall remuneration of hybrid capital instruments thus depends on the one hand on their remuneration while they are debt-like instruments and on the other hand on the conditions for conversion into equity-like instruments.

(25) Additional shares can, for instance, be granted via the issuance of convertible bonds at the date of the recapitalisation, which will be converted into equity at the date of trigger of the step-up mechanism.

(26) For instance, if the step-up takes the form of the grant to the State of additional shares. If the State’s participation in a beneficiary is 40 % as a result of its capital injection, and if the State does not sell its participation before the requested date, the State’s participation should increase by at least 0,1 x 40 % = 4 % to reach 44 % four years after the COVID-19 equity injection, and to reach 48 % six years after COVID-19 equity injection, resulting in a corresponding dilution of the stakes of other shareholders.

(27) The 200 bps increase does not apply in year 8 and onwards.

(28) Base rates calculated in accordance with the Communication from the Commission on the revision of the method for setting the reference and discount rates (OJ C 14, 19.1.2008, p. 6), published on the website of DG Competition at https://ec.europa.eu/competition/state_aid/legislation/reference_rates.html

(29) For the purpose of this subsection 3.11.7, hybrid instruments granted by the State should be counted as equity.

(30) Referring to information required in Annex III of the Commission Regulation (EU) No 651/2014 of 17 June 2014 and of Annex III of the Commission Regulation (EU) No 702/2014 and Annex III of the Commission Regulation (EU) No 1388/2014 of 16 December 2014. For repayable advances, guarantees, loans, subordinated loans and other forms the nominal value of the underlying instrument shall be inserted per beneficiary. For tax and payment advantages, the aid amount of the individual aid may be indicated in ranges.

(31) The state aid transparency public search gives access to state aid individual award data provided by Member States in compliance with the European transparency requirements for state aid and can be found at https://webgate.ec.europa.eu/competition/transparency/public?lang=en.

(32) Referring to information required in Annex III of the Commission Regulation (EU) No 651/2014 of 17 June 2014 and of Annex III of the Commission Regulation (EU) No 702/2014 and Annex III of the Commission Regulation (EU) No 1388/2014 of 16 December 2014.

13.5.2020

Official Journal of the European Union

C 164/17

COMMUNICATION FROM THE COMMISSION

Publication of the total number of allowances in circulation in 2019 for the purposes of the Market Stability Reserve under the EU Emissions Trading System established by Directive 2003/87/EC

(2020/C 164/05)

1. Introduction

In 2015, the Council and the European Parliament took the decision to establish a Market Stability Reserve (MSR) (1) under the EU Emissions Trading System (ETS) established by Directive 2003/87/EC of the European Parliament and of the Council (2). The MSR began operating in January 2019. The purpose of the MSR is to avoid that the EU carbon market operates with a large structural surplus of allowances, with the associated risk that this prevents the EU ETS from delivering the necessary investment signal to achieve the EU’s emission reduction target in a cost-efficient manner. Its purpose is also to make the EU ETS more resilient in relation to supply-demand imbalances, so as to enable the EU ETS market to function in an orderly way.

The Decision states that, by 15 May each year and starting in 2017, the Commission shall publish the total number of allowances in circulation (TNAC). This figure determines whether some of the allowances intended to be auctioned should be placed into the reserve, or be released from the reserve.

On 14 May 2019, the Commission published the total number of allowances in circulation in 2018, amounting to around 1,65 billion allowances (3). In line with MSR rules, following this publication, 397 178 358 allowances were to be placed in the reserve over the period from 1 September 2019 to 31 August 2020 (4), in the form of a reduced amount of allowances auctioned.

This Communication is the fourth publication for the purposes of the MSR, and concerns the year 2019. It contains the total number of allowances in circulation, and sets out in detail how this figure has been calculated. This publication will determine the number of allowances that will be placed in the reserve from September 2020 to August 2021.

2. Functioning of the Market Stability Reserve

The MSR functions in an automatic manner when the total number of allowances in circulation is outside of a predefined range. Allowances are added to the reserve if the total number of allowances in circulation exceeds the threshold of 833 million allowances. Allowances are released from the reserve, if the total number of allowances in circulation is lower than 400 million allowances. In practical terms, allowances are added to the reserve by auctioning less, and released from the reserve by auctioning 100 million more allowances in the future.

The publication of the total number of allowances in circulation, on the basis of which allowances will be added to or released from the reserve, is therefore a key element for the operation of the reserve.

In the context of the revision of the EU ETS (5), important changes were made to the functioning of the MSR. During the period from 2019 to 2023, the percentage of the total number of allowances in circulation determining the number of allowances put in the reserve if the threshold of 833 million allowances is exceeded is temporarily doubled from 12 % to 24 %. In addition, as from 2023, allowances held in the MSR above the previous year’s auction volume will no longer be valid.

On the basis of this Communication, 24 % (6) of the total number of allowances in circulation will therefore be placed in the reserve over a period of 12-months starting as of 1 September 2020. A corresponding amount will be deducted from the auction volumes of the Member States and of the UK, following their respective auction shares. In this context, it is recalled that until 31 December 2025, allowances redistributed for the purposes of solidarity and growth within the Union are not taken into account to determine the relevant shares.

3. The total number of allowances in circulation

According to Article 1(4) of Decision (EU) 2015/1814, the total number of allowances in circulation ‘shall be the cumulative number of allowances issued in the period since 1 January 2008, including the number issued pursuant to Article 13(2) of Directive 2003/87/EC in that period and entitlements to use international credits exercised by installations under the EU ETS in respect of emissions up to 31 December of that given year, minus the cumulative tonnes of verified emissions from installations under the EU ETS between 1 January 2008 and 31 December of that same given year, any allowances cancelled in accordance with Article 12(4) of Directive 2003/87/EC and the number of allowances in the reserve.’

In short, the total number of allowances in circulation relevant for MSR feeds and releases is calculated by the following formula:

TNAC = Supply – (Demand + allowances in the MSR)

There are three different elements that determine the total number of allowances in circulation: first, the supply of allowances since 1 January 2008; second, the demand for allowances (number of allowances surrendered and cancelled); and third, the holdings of the reserve.

As foreseen in Decision (EU) 2015/1814, aviation allowances and verified aviation emissions are not considered in this context.

3.1. Supply

The supply of allowances to the market is determined by five different elements:

—	allowances banked from 2008–2012 (phase 2),

—	free allowances allocated between 1 January 2013 until 31 December 2019 (7), including allowances allocated from the new entrants’ reserve (NER),

—	allowances issued for auctioning between 1 January 2013 (8) and 31 December 2019 (9), including allowances deducted from auctioning volumes during the period 2014–2016 and allowances deducted from auctioning volumes in 2019 following the Commission Communications of 15 May 2018 and 14 May 2019,

—	allowances monetised by the European Investment Bank (EIB) for the purposes of the ‘NER300’ programme,

—	international credit entitlements exercised by installations in respect of emissions up to 31 December 2019.

The number of allowances banked from phase 2 of the EU ETS is 1 749 540 826 allowances (10). This ‘banking total’ represents the total number of allowances issued during phase 2 of the EU ETS, which were not surrendered to cover verified emissions or cancelled. For the purpose of the determination of the total number of allowances in circulation it therefore represents the number of ETS allowances in circulation at the start of the period 2013-2020 (phase 3) on 1 January 2013 and is taken into account as such in the calculation.

The number of free allowances allocated between 1 January 2013 until 31 December 2019, including allowances allocated from the NER is 5 850 263 308 (11).

According to the reports from the auctions on the common auction platform and on the relevant opt-out platforms (12), the number of allowances auctioned between 1 January 2013 and 31 December 2019, including the so-called early auctions, is 5 229 748 000.

The number of allowances deducted from auctioning volumes during the period 2014-2016 is, in line with Article 1(2) of Decision (EU) 2015/1814, 900 000 000.

The number of allowances deducted from auctioning volumes in 2019 following the Commission Communications of 15 May 2018 and 14 May 2019 is respectively 264 731 936 and 132 392 786 allowances.

300 000 000 allowances have been monetised by the EIB for the purposes of the NER300 programme (13).

The international credit entitlements exercised by installations in respect of emissions up to 31 December 2019 correspond to 450 221 816 (14).

3.2. Demand

The demand consists of the total verified emissions from installations between 1 January 2013 (15) and 31 December 2019, which is 12 193 929 203 (16), and allowances cancelled in that same period, which corresponds to 348 581 allowances.

3.3. Holdings of the MSR

In line with Article 1(2) of Decision (EU) 2015/1814, the 900 million allowances deducted from auctioning volumes during the period 2014–2016 were placed in the reserve when it began operating on 1 January 2019.

Following the Commission Communication of 15 May 2018 (17), 264 731 936 allowances were placed in reserve in the period from 1 January 2019 to 31 August 2019.

Following the Commission Communication of 14 May 2019 (18), 132 392 786 allowances were placed in the reserve in the period from 1 September 2019 to 31 December 2019.

For the period up to 31 December 2019, there were therefore 1 297 124 722 allowances in the reserve.

3.4. Total number of allowances in circulation

In the light of the foregoing, the total number of allowances in circulation amounts to 1 385 496 166 allowances.

4. Conclusion

In line with the MSR rules, over a 12-month period – from 1 September 2020 to 31 August 2021 – a total of 332 519 080 allowances will be placed in the MSR.

The next publication will be made in May 2021 to determine reserve feeds from September 2021 until August 2022.

Overview

Supply

(a)	Banking from phase 2

1 749 540 826

(b)	Free allowances for the period between 1 January 2013 until 31 December 2019, including from NER

5 850 263 308

(c)	Total number of allowances auctioned between 1 January 2013 and 31 December 2019, including early auctions

5 229 748 000

(d)	Allowances deducted from auctioning volumes during the period 2014–2016

900 000 000

(e)	Allowances deducted from auctioning volumes in 2019 following the Commission Communications of 15 May 2018 and 14 May 2019

397 124 722

(f)	The number of allowances monetised by the European Investment Bank for the purposes of the NER300 programme

300 000 000

(g)	International credit entitlements exercised by installations in respect of emissions up to 31 December 2019

450 221 816

Sum (supply)

14 876 898 672

Demand

(a)	Tonnes of verified emissions from installations under the EU ETS between 1 January 2013 and 31 December 2019

12 193 929 203

(b)	Allowances cancelled in accordance with Article 12(4) of Directive 2003/87/EC by 31 December 2019

348 581

Sum (demand)

12 194 277 784

MSR holdings

Number of allowances in the reserve

1 297 124 722

Total number of allowances in circulation

1 385 496 166

(1) Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/87/EC (OJ L 264, 9.10.2015, p. 1).

(2) Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ L 275, 25.10.2003, p. 32).

(3) See Communication from the Commission, C(2019) 3288 final, available at: https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2019_3288_en.pdf

(4) The contributions of each Member State to the Market Stability Reserve from 1 September to 31 December 2019, and from 1 January to 31 August 2020 were published in the Report from the Commission to the European Parliament and the Council – Report on the Functioning of the European Carbon market, COM(2019) 557 final, published on 31 October 2019.

(5) Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814 (OJ L 76, 19.3.2018, p. 3).

(6) Representing 2 % per month.

(7) Free allocation by the UK was suspended from 1 January 2019. The free allocation for 2019 was released in February 2020 and is therefore not taken into account for the calculation of the supply of allowances up to 31 December 2019 (see Commission Decision of 17 December 2018 on instructing the central administrator to temporarily suspend the acceptance by the European Union Transaction Log of relevant processes for the United Kingdom relating to free allocation, auctioning and the exchange of international credits C(2018) 8707). It will instead be included in the calculation next year.

(8) This figure includes the so-called early auctions, i.e. allowances valid for the period 2013–2020, which have been auctioned before 1 January 2013.

(9) Auctioning of allowances by the UK was also suspended from 1 January 2019. Auctioning of allowances by the UK resumed in March 2020, and is therefore also not taken into account for the calculation of the supply of allowances up to 31 December 2019. It will instead be included in the calculation next year.

(10) See Carbon Market Report 2015; COM (2015) 576

(11) Based on an extract of the EU Transaction Log (EUTL) on 1 April 2020.

(12) Available at: http://www.eex.com/en/products/environmental-markets/emissions-auctions/archive and https://www.theice.com/marketdata/reports/148

(13) A first tranche of 200 million allowances – sold in 2011 and 2012 – and a second tranche of 100 million allowances – sold in 2013 and 2014; see for further detailshttps://ec.europa.eu/clima/sites/clima/files/lowcarbon/ner300/docs/summary_report_ner300_monetisation_en.pdf

(14) Based on an extract of the EUTL on 1 April 2020.

(15) With respect to verified emissions in the period 2008–2012, please see explanations on the banking total (Section 3.1).

(16) The total verified emissions are based on an extract from the EUTL on 1 April 2020 to take into account verified emissions reported by 31 March 2020. Emissions reported after that date are therefore not reflected in this total.

(17) C(2018) 2801

(18) C(2019) 3288.

13.5.2020

Official Journal of the European Union

C 164/21

COMMUNICATION FROM THE COMMISSION

on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing

(2020/C 164/06)

I. Introduction

The Commission is strongly committed to the fight against money laundering and terrorist financing both within the EU and globally. There should be zero tolerance for illicit money within the European Union. The recent increase in criminal activities in the context of the COVID-19 pandemic (1) is a reminder that criminals will exploit all possible avenues to pursue their illicit activities to the detriment of society. The EU needs to be equally determined in ensuring that they do not benefit from the proceeds of these crimes.

Over thirty years, the EU has developed a solid regulatory framework for preventing and combatting money laundering and terrorist financing, substantiated by case law of the EU Court of Justice (2). EU rules are far-reaching and go beyond the international standards adopted by the Financial Action Task Force (FATF) (3). The scope of the undertakings and professions subject to these rules has expanded steadily.

Recent developments in legislation have aimed to strengthen the EU anti-money laundering and countering the financing of terrorism (AML/CFT) framework. These include amendments to the 4th Anti-Money Laundering Directive (4AMLD) introduced by the 5th Anti-Money Laundering Directive (5AMLD) (4), an upgraded mandate for the European Banking Authority (5), new provisions that will apply to cash controls (6) starting from June 2021, amendments to the Capital Requirements Directive (CRDV) (7), new rules on access to financial information by law enforcement authorities (8) and a harmonised definition of offences and sanctions related to money laundering (9).

In addition, the EU established a new comprehensive whistle-blower protection regime, to be transposed by December 2021 (10), which complements existing rules on whistle-blower protection in the 4AMLD. The new regime will strengthen the ability of national and EU authorities to prevent, detect and address breaches to, amongst other, anti-money laundering and countering the financing of terrorism rules.

Nevertheless, there is growing consensus that the framework needs to be significantly improved. Major divergences in the way it is applied and serious weaknesses in the enforcement of the rules need to be addressed.

In its Communication Towards better implementation of the EU’s anti-money laundering and countering the financing of terrorism framework (11) and accompanying reports of July 2019, the Commission set out the measures needed to ensure a comprehensive EU policy on preventing money laundering and countering the financing of terrorism (AML/CFT). These include better implementation of existing rules, a more detailed and harmonised rulebook, high-quality and consistent supervision, including by conferring specific supervisory tasks to an EU body, interconnection of centralised bank account registries and a stronger mechanism to coordinate and support the work of the Financial Intelligence Units (FIUs).

This view is supported by the European Parliament and the Council. In its resolution of 19 September 2019 (12), the European Parliament called for more impetus to be given to initiatives that could reinforce AML/CFT actions at EU level and for speedy transposition of EU rules by Member States. On 5 December 2019, the Economic and Financial Affairs Council adopted conclusions on strategic priorities for AML/CFT (13), inviting the Commission to explore actions that could enhance the existing framework.

The Commission intends to implement a comprehensive AML/CFT policy, adapted to the specific threats, risks and vulnerabilities currently facing the EU (14) and designed in a manner that can evolve efficiently while taking into account innovation. A stronger AML/CFT framework will further promote the integrity of the EU financial system, which is necessary to complete the implementation of the Banking Union and the Economic and Monetary Union.

Subject to an impact assessment, including of impacts on fundamental rights, an integrated EU AML/CFT system should be put in place. Building on the example of the reforms introduced in the field of prudential banking regulation and supervision, the system should rest on a harmonised rulebook and an EU-level supervisor that works in close cooperation with national competent authorities, with a view to ensuring high-quality and consistent supervision across the Single Market. This should be coupled with the establishment of an EU support and coordination mechanism for FIUs, which enhances their effectiveness, and with the interconnection of the national centralised bank account registries, which will speed up cross-border access by law enforcement authorities and FIUs to bank account information.

This action plan outlines how the Commission intends to deliver on these objectives, building on six pillars:

—	Ensuring the effective implementation of the existing EU AML/CFT framework;

—	Establishing an EU single rule book on AML/CFT;

—	Bringing about EU level AML/CFT supervision;

—	Establishing a support and cooperation mechanism for FIUs;

—	Enforcing Union-level criminal law provisions and information exchange;

—	Strengthening the international dimension of the EU AML/CFT framework.

II. Ensuring the effective implementation of the existing EU AML/CFT framework

The first priority is to ensure that EU AML/CFT rules are rigorously and effectively implemented by Member States, competent authorities and obliged entities. This requires action on several fronts.

Ensuring effective transposition and implementation of the AMLD

In relation to the transposition of the 4AMLD, the Commission launched infringement proceedings against all Member States for failure to fully transpose the Directive. Several Member States responded to such infringements by adopting new laws, leading to the closure of the relevant infringement proceedings. Infringements against other Member States are still ongoing. A study assessing the effective application of the 4AMLD in the Member States will be completed by mid-2021 and will feed into the Report that the Commission has to present on the effective application of the 4AMLD (15).

In relation to the transposition of the 5AMLD, which was due by 10 January 2020, the Commission has already launched a number of infringement proceedings against those Member States that failed to notify any transposing measures. The Commission will closely monitor the setting up of the central bank account mechanisms and the beneficial ownership registers by Member States in order to ensure that they are populated with high-quality data.

Work on interconnecting the beneficial ownership registers has already started and the interconnection will be operational in 2021. The Commission will also issue the 3rd Supranational Risk Assessment (SNRA) in 2021 in order to inform the risk-based approach.

Monitoring the capacity of Member States to prevent and fight money laundering and terrorist financing

Money laundering is detrimental not only to the stability of the EU financial system, but also to the economy, to good governance and to investor confidence. Under the European Semester cycle, the Commission analyses how AML/CFT rules are applied in practice in the Member States, which results in AML/CFT-related country specific recommendations adopted by the Council. The Commission furthermore provides technical support to Member States in implementing these necessary reforms in order to close some of the most important loopholes in the EU AML/CFT system through its Structural Reform Support Programme. These include insufficient staffing in the competent authorities, shortcomings in the application of the risk-based approach, and mitigating risks from the misuses of shell companies, golden visas and citizenship schemes.

The European Banking Authority (EBA)

The mandate of the EBA has recently been strengthened through Regulation (EU) 2019/2175 (16), which entrusted the EBA with the responsibility to lead, coordinate and monitor AML/CFT efforts of all EU financial services providers and competent authorities. The EBA is also empowered to establish an EU-wide AML/CFT database of risks and supervisory actions, performing risk assessments on competent authorities and, when required, asking authorities to investigate and consider taking action in relation to individual financial institutions. The Commission expects the EBA to make full use of its strengthened powers, particularly in relation to investigating whether a national supervisor has breached Union law in carrying out its tasks. The EBA has already started carrying out implementation reviews and published a first report in February 2020 (17). This report points to a number of challenges and finds that ‘competent authorities’ approaches to the AML/CFT supervision of banks were not always effective’.

As set out in Section IV, establishing an EU-level supervisor will increase compliance with the rules. This will ensure that adequate action is taken in order to prevent money laundering from occurring in the first place and that, when this cannot be achieved, effective sanctions are imposed. The new EU-level supervisor will be designed in such a manner that ensures it has the necessary AML/CFT competences, investigative capacity and powers, and decision making structure to implement rules more effectively and act in a preventive way whenever suspicions arise to ensure effective application of the single rulebook. The Commission is of the view that on-site inspections to assess the effectiveness of the AML/CFT framework in Member States will be critical to bring about high-quality standards across the Union.

The Commission will continue to ensure complete and correct transposition of AML/CFT rules and will propose country-specific recommendations on AML/CFT in Q2 2020.

III. Delivering a reinforced rulebook

The EU legal framework is far-reaching. It has progressively expanded the scope of so-called obliged entities (18) and the list of predicate crimes, put greater emphasis on beneficial ownership and the risk-based approach and largely removed obstacles to communication and cooperation between relevant authorities. This framework provides Member States with a comprehensive regulatory environment to combat money laundering and terrorism financing.

However, the current approach to EU legislation has resulted in diverging implementation of the framework across Member States and, partly, in the setting of additional requirements that go beyond those implied by EU law. Examples of such measures are the identification of additional obliged entities like crowdfunding platforms or diamond dealers, the granting of powers to FIUs to freeze assets and the introduction of limitations to payments in cash (19). The consequence is a fragmented legislative landscape across the EU, creating additional costs and burdens for those providing cross-border services or causing regulatory shopping, with businesses registering where rules are more relaxed.

The lack of detail in the applicable rules and on the division of responsibilities with regard to cross-border issues results in differing interpretations of the Directive across Member States. Inadequate cooperation among competent authorities (FIUs, supervisors, law enforcement and customs and tax authorities), both domestically and across borders, creates potential loopholes that can be exploited by criminals. The European Supervisory Authorities have further noted (20) that divergences in regulatory approach to supervision and in the application of the risk-based approach undermine the provision of cross-border services and increase costs for undertakings, while also undermining the smooth functioning of the EU AML/CFT framework. This issue is particularly relevant in the area of FinTech, and the EBA has recommended that the Commission harmonise the requirements that should apply to these firms (21), when they pose money laundering / terrorism financing risks.

EU AML/CFT legislation needs to become more granular, more precise and less subject to diverging implementations. Certain additional requirements imposed by Member States when transposing AML Directives might however contribute to a stronger AML/CFT framework and could be integrated into the future EU rulebook. To limit divergences in the interpretation and application of the rules, certain parts of the AMLD should be turned into directly applicable provisions set out in a Regulation. At a minimum, this should include the provisions laying down the list of obliged entities, customer due diligence requirements, internal controls, reporting obligations, as well as the provisions on beneficial ownership registers and central bank account mechanisms. A more harmonised approach to the identification of politically exposed persons should also be considered. Particular attention should be paid to the effectiveness of the system by providing more details regarding the structure and tasks of supervision in respect of all obliged entities and the tasks of FIUs (see next sections). An integrated EU AML/CFT system will also need a sufficiently detailed rulebook to facilitate direct supervision.

In addition, in respect of specific rules, further harmonisation could be achieved by means of empowerments to adopt more detailed rules through delegated or implementing acts to adapt to evolving situations.

The scope of EU legislation needs to be expanded to address the implications of technological innovation and developments in international standards. Work at international level suggests a need to expand the scope of sectors or entities covered by AML/CFT rules and to assess how they should apply to virtual assets service providers not covered so far (22). Other measures might include facilitating the use of digital identification for remote customer identification and verification of customer identity as well as to establish business relationships remotely, or introducing a ceiling for large cash payments. In addition, an EU-wide interconnection of central bank account mechanisms is necessary to speed up access by law enforcement authorities and FIUs to financial information and facilitate cross-border cooperation.

Given the increase in cyber-related financial crime and fraud in particular, provisions could be considered that facilitate administrative freezing for FIUs and that oblige financial institutions to follow up and execute recall requests. Further risks arise from investor citizenship and residence schemes. Due consideration will have to be given to how these risks can be mitigated. Consideration should also be given to risky sectors identified through the SNRA exercise.

While working on introducing such new measures, it will be important to keep additional financial and administrative burdens for Member States and obliged entities to a minimum, and to follow a risk-based approach.

Faced with increased penalties for AML/CFT shortcomings, obliged entities have looked for ways to reinforce compliance, from allocating extra resources and setting up extensive remediation programs, to radically reviewing their business models, to exiting some products, clients or markets, including correspondent banking. This might create unintended consequences to the provision of financial services and to the financing of the economy. Technological solutions, which might help to improve detection of suspicious transactions and activities, must be in line with international and EU standards on AML/CFT and conform to other EU rules, including on data protection and antitrust.

As the Union’s AML/CFT rules do not intend to deny access to legitimate financial services, more clarity is needed on how AML/CFT rules link up with other legislation in the financial sector (23). Consideration should be given as to whether and in what circumstances money laundering or terrorism financing could lead to the declaration of failing or likely to fail and potentially trigger the resolution of a bank under the Bank Recovery and Resolution Directive (24) or the winding up according to normal insolvency proceedings and the need to reimburse depositors. The Deposit Guarantee Schemes Directive (25) could benefit from clearer provisions in order to further reduce the risk that depositors suspected of money laundering or terrorism financing (ML/TF) activities are reimbursed in a pay-out by a deposit guarantee scheme (DGS), while also clarifying the roles of the DGSs and other relevant AML/CFT authorities. How to reconcile the obligation under the Payment Account Directive (26) to provide a basic account to any customer with the AML/CFT obligation to terminate the business relationship if obliged entities have suspicions about the customer or cannot obtain updated client information would also merit further consideration. Finally, a review will be needed to assess whether the categories of payment service providers currently covered by AML/CFT legislation are adequate.

The financial services frameworks could be further developed to ensure that prudential supervisors have concrete obligations to share information with their AML/CFT counterparts. The fit and proper tests required in financial services legislations should apply stricter AML/CFT conditions.

The obliged entities, when accessing information relevant for carrying out customer due diligence, and public authorities exchanging information between them, including outside the EU, must fully comply with the EU data protection legislation. For example, providing obliged entities with access to certain publicly owned registers might raise data protection concerns. The difficulty to ensure compliance with data protection and confidentiality was also mentioned in the context of exchange of information between competent authorities. These issues should be duly addressed.

The Commission will table legislative proposals in Q1 2021 to deliver a single rulebook in the field of AML/CFT, based on a thorough impact assessment.

IV. Bringing about EU-level AML/CFT supervision

Supervision sits at the heart of an effective AML/CFT framework. The importance of adequate supervision was confirmed in the AML package of July 2019, where the analysis of several money laundering cases revealed significant shortcomings with respect to credit institutions’ risk management and their surveillance by both AML/CFT and prudential supervisors. At the same time, recent alleged money laundering cases brought to light by investigative media outlets also point to flawed supervision of non-financial entities.

These striking issues are the result of both the design of the supervisory framework and its implementation. AML/CFT supervision within the EU is currently Member State-based. Its quality and effectiveness are uneven across the EU, due to significant variations in human and financial resources, skills and priority devoted to this task. The Union does not have in place sufficiently effective arrangements to handle AML/CFT incidents involving cross-border aspects. The EU’s AML/CFT framework is only as strong as its weakest link, and failings in one national competent authority create risks for the whole of the Single Market. The EU as a whole suffers financial, economic and reputational damage as a consequence.

The EU cannot afford to wait for more issues to arise before building an effective AML/CFT supervisory system that contributes to the smooth functioning of the Single Market and the Banking Union. High-quality AML/CFT supervision throughout the EU is imperative for restoring trust among its citizens and the wider international community.

There is a clear and evidenced need to have in place an integrated AML/CFT supervisory system at EU level that ensures consistent high-quality application of the AML/CFT rulebook throughout the EU and promotes efficient cooperation between all relevant competent authorities. While the sectors and issues at stake may widely differ, experiences from the establishment and functioning of existing EU-level mechanisms entrusted with centralised supervisory tasks, such as the Single Supervisory Mechanism, the Single Resolution Board and the European System of Financial Supervisors, can provide useful insights.

Creating an EU-level AML/CFT supervisory system to integrate and supplement the national ones will address supervisory fragmentation, ensure harmonised application of AML/CFT rules in the EU and their effective enforcement, offer support for on-the-spot supervisory activities and ensure a constant flow of information regarding ongoing measures and significant identified shortcomings. The national supervisors will continue to be a vital element of this system and will remain in charge of most day-to-day supervision. Establishing the EU core of this system is a priority, and its functions, competences and interaction with national supervisors will need to be clearly defined in a legislative proposal.

The functions of the EU-level AML/CFT supervisor

The EU-level AML/CFT supervisor will need to be entrusted with very clear powers to oversee and instruct national authorities to carry out different AML/CFT related tasks, and to enhance coordination with supervisors from outside the EU. A formalised process should define the interplay and respective powers of EU and national supervisors.

The need to ensure high-quality supervision in cross-border cases and to avoid weak links in the EU supervisory framework provide compelling reasons for an EU body to be entrusted with direct AML/CFT supervisory tasks over certain obliged entities for which it could have exclusive or joint responsibility. This implies the ability to review the internal policies, procedures and controls as well as their effective implementation by supervised entities, along with reviewing documentation on transactions and customers. The Union supervisor could be tasked, on its own or jointly with the national supervisor, with carrying out supervision of clearly defined obliged entities or types of activities for a given period of time, based on the degree of risk posed. The EU supervisor would bring added value by monitoring and assessing risks across the EU. Drawing inspiration from the set-up of EU bodies active in other fields, EU supervision could be ensured by a mechanism featuring decisions taken at EU level and enforced by EU desks in the Member States.

Another option could be to combine direct supervisory powers for some types of obliged entities, to be carried out in coordination with Member States, with coordination and oversight powers for other entities. The Commission will propose a supervisory mechanism that accounts for the principles of proportionality and subsidiarity and complies with existing case law in relation to powers that may be conferred upon Union agencies.

Scope of EU-level supervision

Money laundering risks occur both within and outside the financial sector and evolve over time and from one Member State to another. Bringing about more effective supervision would require the mandate of an EU AML/CFT supervisor to cover all risk areas from the outset, recognising the serious nature of risks facing all sectors. This would ensure that the EU supervisor has, from the outset, all necessary tools to harmonise practices across the EU and ensure high-level supervision across all sectors. Given the complexity of the tasks and the sheer number of obliged entities EU-wide, the AML/CFT supervisor may also be devised in an incremental way, allowing it, as it consolidates and proves its effectiveness, to cover all (financial and non-financial) sectors subject to AML/CFT obligations.

As an alternative, the EU supervisor could be directly in charge of the financial sector as part of an integrated system with national supervisor and be responsible for the indirect supervision of the non-financial sector. Indirect supervision of the non-financial sector would allow the EU body to step in, where deemed necessary to ensure high quality supervision of the non-financial sector across the Union.

Other options, implying a narrower scope, would entail the EU supervisor overseeing only financial institutions, which account for the largest part of all financial transactions. Centralising supervision in this sector could be achieved more easily given it is already regulated and supervised to a large extent. However, this option would leave weak links in the EU supervisory framework and fail to ensure an effective AML/CFT system.

In all cases, the risk-based approach to AML/CFT supervision, as enshrined in both Union law and international standards, requires the identification of ML/TF risk factors and allocating supervisory resources based on the outcomes of a dedicated risk assessment. The EU-level supervision must be designed to account for risk and further develop the expertise gained in this respect by national supervisors.

Finally, it could also be explored whether such supervisor should be entrusted with some competences to monitor and to support the implementation of asset freezes under EU restrictive measures (sanctions) across Member States. While the tasks and challenges at hand might differ in various dimensions between AML/CFT and restrictive measures, there are also some common challenges and synergies that are worth assessing.

Which EU body?

The task of ensuring EU-level supervision may either be granted to an existing EU agency, namely the EBA, or to a new, dedicated body.

Recently adopted legislation requires the EBA to lead, coordinate and monitor efforts to strengthen AML/CFT measures across the EU in respect of financial institutions. Entrusting the EBA with additional AML/CFT supervisory responsibilities would have clear advantages in terms of ensuring continuity and swift operation. However, this option would also require a significant reform of the EBA as well as significant building of knowledge and competences in AML/CFT. Its governance and decision-making processes would need to be significantly reviewed to guarantee that supervisory decisions are always taken independently, in the sole interest of the EU. Furthermore, it would need to enhance its investigatory capacity and power. Given its mandate and capabilities, supervision of obliged entities beyond the financial sector might prove challenging to organise at EBA level.

Alternatively, a new, dedicated EU AML supervisory body could be established that would be competent for supervising obliged entities in both the financial and the non-financial sector. This would allow maximum flexibility to design a tailored system in terms of organisation and governance, with simplified and swift decision-making processes to respond to risks quickly, as well as synergies with the coordination and support mechanism for FIUs (see next section). It may however take longer before a new body could become operational, costs could be relatively higher and execution risks would have to be accounted for. Depending on the tasks this body would receive, the risk of unnecessary overlaps and/or inconsistencies with the work of other supervisory authorities like the EBA should be avoided.

The budgetary impact of any option would be a key consideration. Particularly in the current economic context, a strong case could be made for ensuring funding of the supervisory activities through contribution by the supervised private sector entities, as is already the case for several EU bodies.

The Commission will table proposals to set up an EU-level AML/CFT supervisor in Q1 2021, based on a thorough impact assessment of options regarding its functions, scope and structure.

V. Establishing a coordination and support mechanism for FIUs

The current EU framework requires obliged entities to report all suspicious transactions to the national FIU. Reporting by obliged entities and cash-related data provided by customs authorities form the basis on which FIUs produce financial analyses, which are then transmitted to law enforcement authorities, supervisors, tax authorities or other FIUs. These are used, for example, by law enforcement authorities in criminal investigations. The strategic analysis of trends and patterns by FIUs also feeds into guidance and feedback to obliged entities to assist them in identifying patterns in money laundering and terrorist financing.

A number of weaknesses have been identified with respect to how they apply the rules and cooperate between themselves and with other authorities at domestic level and across the EU.

Domestically, the use of templates for reporting by obliged entities is still limited, and these are often tailored to the needs of specific businesses (e.g. banks). Several FIUs still lack the necessary IT tools to effectively process and analyse the information.

FIUs are obliged to give feedback to obliged entities in relation to their reporting. However, such feedback remains limited. Feedback is close to non-existent when obliged entities’ reports concern another Member State. This lack of feedback leaves obliged entities without the necessary tools to adjust or target their preventive measures.

The limited information exchange between FIUs and other competent authorities is of great concern given the cross-border nature of much money laundering and terrorism financing. For example, although customs authorities in the EU provide FIUs with cash-related data on a regular basis, they very rarely receive feedback from them, which is crucial for a more concrete and effective risk analysis.

Challenges in the functioning and hosting of the FIU.net – the EU system for information exchange among FIUs – also demand action given that it is an old IT tool, which requires substantial upgrade of both its software and hardware as well as the development of new functionalities to facilitate cooperation.

Most suspicious transactions reported to FIUs have a cross-border dimension, but joint analysis remains limited. This results in missing links to identify cross-border cases. Advanced capabilities to analyse such information in a cross-border context is necessary, especially in the light of the ever-increasing complexity of money laundering cases.

Role of an EU-level coordination and support mechanism

An FIU coordination and support mechanism at EU level would remedy the above weaknesses. This mechanism would take a leading role to coordinate the work of national FIUs. This should include identification of suspicious transactions with a cross-border dimension, joint analysis of cross-border cases, identification of trends and factors relevant to assessing the risks of money laundering and terrorist financing at national and supranational level. The mechanism should also adopt or propose implementing measures or standards as mandated by the more harmonised provisions of the rulebook on FIUs’ reporting obligations and FIUs’ features, activities, cooperation, templates, as well as promote training and capacity building for FIUs. The EU-level coordination and support mechanism should also enhance cooperation among competent authorities (FIUs, supervisors, law enforcement and customs and tax authorities), both domestically and across borders, and with FIUs from outside the EU.

There would be merits in building a more central capacity, based on IT tools, which would identify cross-border suspicious transactions and facilitate the identification of trends.

The sustainability of the FIU.net, currently managed by Europol, is also important in this context. There is an urgent need to invest in its development to overcome the current problems hampering information exchange and data matching. Given the planned transfer of the technical administration of the system from Europol, an appropriate and financially viable solution should be identified. In the short term, the Commission will take over the management of the FIU.net in order to ensure the continuous and uninterrupted functioning of the system (27). In the longer term, the EU coordination and support mechanism could be tasked with hosting the FIU.net or its successor. Other suitable solutions could be considered.

The body responsible for an EU-level coordination and support mechanism

The task of providing a support and coordination mechanism for FIUs will depend on the role that is envisaged for this mechanism.

In keeping with the objective to have a broad role for this coordination and support mechanism that aims at addressing all the elements analysed above, its management could be ensured by an existing EU agency or by a new, dedicated body. In case a new EU body is created for supervisory issues, it could be given the task of administering this mechanism as well. For this purpose, it is worth noting that twelve FIUs in the EU currently have supervisory tasks for at least the non-financial sector, while some of them have supervisory tasks for all sectors.

A narrower role for the coordination and support mechanism would address some of the identified shortcomings, but would not result in an effective EU-level coordination and support mechanism. Several options could be envisaged under such circumstances. For example, if the tasks are confined to issuing draft regulatory standards and guidelines, this could be achieved by transforming the FIU Platform, currently an informal Commission committee, into a comitology committee and leaving it to the Commission to adopt the outcomes of its work through delegated or implementing acts. A formal Network of FIUs with its own mandate and tasks could be an alternative.

Whatever shape the coordination and support mechanism takes, its governance and decision-making processes should be sufficiently independent, while working as a network of national FIUs with an EU centre.

The Commission will table proposals to establish an EU coordination and support mechanism for FIUs in Q1 2021, based on a thorough impact assessment of options regarding its role and structure. The Commission will take over the management of the FIU.net in Q4 2020.

VI. Enforcing Union-level criminal law provisions and Information exchange

Several legislative instruments and institutional arrangements facilitate the enforcement of criminal law provisions and information exchange at EU level.

Recent measures have closed loopholes in the definition and sanctioning of money laundering across the EU and facilitated judicial and police cooperation (28). The Commission will monitor their timely transposition and implementation. The use of financial information for serious offences has also been enhanced by giving law enforcement authorities direct access to the central bank account mechanism, whilst improving cooperation between law enforcement authorities, FIUs and Europol for such serious offences (29). These measures will speed up criminal investigations and enable authorities to combat cross-border crime more effectively. An EU-wide interconnection of central bank account mechanisms will speed up access for law enforcement authorities and FIUs to financial information and facilitate cross-border cooperation, and should in any case also include law enforcement authorities. Such interconnection should be considered as a matter of priority.

Crucial standards for the recovery of criminal proceeds have been established (30). The Commission will publish a report in 2020 to give an overview of how these rules are implemented and present ways to improve the role of asset recovery offices. New measures that will apply as of December 2020 (31) will facilitate cross-border asset recovery and make the freezing and confiscation of criminal assets across the EU quicker and simpler.

At the same time, it is also critical to build capacity at EU level to investigate and prosecute financial crime.

Europol has stepped up its efforts in order to tackle economic and financial crime with the new European Economic and Financial Crimes Centre (EFECC), which should become operational in the course of 2020. The EFECC will concentrate all financial intelligence and economic crime capabilities in a single entity within Europol and will strive to reinforce operational effectiveness, increase operational visibility, and enhanced stakeholder management and funding opportunities. The Commission fully supports the establishment of the EFECC and considers that it underlines the importance of financial investigation across all crime areas for which Europol has competence.

The Commission considers that the EFECC would be a natural counterpart to the EU support and coordination mechanism for FIUs and that the two entities might develop solutions to boost exchanges of information, particularly in cross-border cases.

To improve investigation and prosecution of money laundering cases across the EU, the Commission funds (32) the Anti-Money Laundering Operational Network (AMON), which connects relevant law enforcement authorities. The network facilitates cross-border financial investigations and has global outreach. Its work should be enhanced and promoted and the network should be equipped with an operational budget to support concrete cases. All EU Member States should join it. Moreover, Member States should continue to make use of the support of Eurojust to facilitate cross-border cooperation in support of anti-money laundering prosecutions. Finally, the European Public Prosecutor’s Office, due to take up operations end 2020, will be competent to investigate and prosecute money laundering offences linked to crimes against the EU budget.

There remains scope to enhance and promote information exchange among all competent authorities (FIUs, supervisors, law enforcement and customs and tax authorities), both domestically and across borders.

In the context of making better use of financial intelligence, the role of public-private partnerships (PPPs) should be encouraged to the extent possible, as in some cases the nature of information might limit its sharing and such sharing must comply with data protection law. PPPs involve sharing information between law enforcement authorities, FIUs and the private sector. They can take various forms. Some are limited to exchanges of information on typologies and trends by FIUs and law enforcement to obliged entities. Others consist of sharing operational information on intelligence suspects by law enforcement authorities to obliged entities for the purposes of monitoring the transactions of these suspects. Any sharing of information that includes personal data must fully comply with data protection legislation and respect the mandates of the authorities involved.

The current EU AML/CFT framework already requires FIUs to share typologies and trends with the private sector. This obligation could be clarified and enhanced, as part of facilitating some types of PPPs and improving information sharing. At the same time, due to differences in the legal frameworks and practical arrangements across Member States, the Commission considers it essential to have guidance and share good practices for PPPs in relation, in particular, to antitrust rules, safeguards and limitations in relation to data protection and guarantees on fundamental rights.

The Commission will issue guidance on PPPs by Q1 2021. As regards data protection aspects of PPPs, the Commission will consider the possibility of requesting the European Data Protection Board to issue an opinion. Options to strengthen the AMON network and to enhance domestic and cross-border information exchange among all competent authorities will be considered.

VII. Strengthening the international Dimension of the AML/CFT framework

Money laundering and terrorism financing are global threats, which the EU is determined to fight in cooperation with its international partners. As the global standard-setter, the FATF has led the fight against money laundering and terrorism financing globally. The Commission actively contributes to the work of the FATF and remains committed to implementing FATF standards and to promoting compliance globally. Nevertheless, the new, comprehensive approach to AML/CFT that the EU needs requires a stronger role for the EU in setting such international standards.

The Commission endorsed, on behalf of the EU, the new FATF mandate (33) and intends to play a prominent role in reinforcing global standards and raising them to the level of the EU’s own standards in key areas. One example is transparency of beneficial ownership, where the EU has taken an ambitious approach to tackle the risks posed by opaque structures. Similarly, the Commission will actively support efforts to address new and emerging risks at global level. To succeed, it is essential that the EU speaks with one voice in the FATF. This could be achieved by giving the Commission the task of representing the European Union at FATF, in line with Treaty provisions. As a first step, an enhanced coordination mechanism among the Commission and Member States should be established to have EU representatives voicing coordinated positions at FATF.

Mutual evaluations conducted by the FATF help raise global compliance with international standards, as peer pressure remains a key driver for change. Until now, evaluations of EU Member States’ AML/CFT frameworks have failed to take into account the supranational nature of the EU rules adequately. This issue will become more significant if new structures, such as EU-level AML/CFT supervision and an FIU coordination and support mechanism, are introduced. The Commission’s objective is to ensure that when standards are implemented at EU level, they are assessed in a common manner. In this context, it could also be considered whether to have EU rules assessed by the FATF at EU level.

The Commission also needs to continue implementing an autonomous policy towards third countries to protect the EU financial system. Obliged entities need to take mitigating measures based on geographical and other relevant risk factors. They are also required to apply enhanced vigilance in the case of transactions or business relationships involving countries with strategic deficiencies in their AML/CFT frameworks. Under the 5AMLD, the Commission is required to build an autonomous capacity to identify countries that present such strategic deficiencies (34).

The Commission will identify countries that pose a specific threat to the Union’s financial system using an autonomous methodology that takes due account of the synergy with the FATF listing process, an enhanced dialogue with third countries carried out in cooperation with the European External Action Service (EEAS), and close consultation of Member States experts. Based on the revised methodology (35), which is published at the same time as this Action Plan, this process will involve the Commission, in cooperation with the EEAS, engaging with third countries where shortcomings are identified on a preliminary basis, in view of developing, where possible, an action plan to address those concerns. After an observation period, the Commission will assess progress in implementing those commitments in order to conclude its assessments.

The EU list of high-risk third countries provides a key tool for obliged entities and public authorities, but might also have effects outside the AML/CFT framework. The Commission is committed to monitor whether such listing impacts equivalence decisions (36) and to ensure that adequate safeguards are applied with regard to financial instruments in line with Article 155 of the Financial Regulation (37).

The experience gained from the EU listing process and the setting-up of new AML/CFT functions at EU level might lead to a review of the approach towards risks posed by third countries. As a FATF Member, the Commission should continue taking into account call for actions by the FATF to address risks posed by third countries – and retain a capacity to also apply appropriate measures independently of any FATF call as required by international standards. In that context, an EU-level supervisor could also contribute to mitigating risks from third countries by developing appropriate risk mitigating measures for obliged entities depending on the type and severity of deficiencies. This would include developing more granular and risk-based measures to address risks posed by the AML/CFT framework of other jurisdictions. Such process might also be complemented with a transactions-based approach, given that no jurisdiction is immune to emerging ML/TF risks. Similarly, a coordinating and support function for FIUs could provide valuable input to identify new trends and risks posed by third countries – as well as possible issues in international cooperation.

As part of this set of measures to manage external risks, the Commission is developing a technical facility (38) to provide technical assistance to third countries to raise their capacity and address weaknesses in their domestic AML/CFT frameworks. As one of the main international donors in this field and based on its extensive diplomatic network, the EU would use this capacity in order to strengthen barriers against money laundering and terrorist financing worldwide. Trade policy also contributes to developing adequate safeguards with regard to investments (39) and trade flows. The Commission will seek commitments from the EU’s trade partners to implement AML/CFT measures and will maintain regulatory space to act in case of money laundering and terrorist financing risks facing the EU’s financial system.

A new methodology on the assessment of high-risk third countries is published along with this Action Plan. The Commission will continue working with the Member States and will increase its involvement in the FATF so that the EU can play a stronger role globally.

VIII. The way forward: a Roadmap

As detailed in this Action Plan, the Commission will propose several measures to enhance the AML/CFT framework. An impact assessment, including on fundamental rights and especially the right to the protection of personal data, will be prepared to assess the different options in terms of legislative changes:

Action

Means

Timeline

Effective implementation of the existing EU AML/CFT framework

Infringement/legal proceedings

Study on application of 4AMLD

3rd Supranational Risk Assessment

Work on interconnection of beneficial ownership registers

Country Specific recommendations/ European Semester

Current EBA work

All measures ongoing

Reinforcing and developing the EU AML/CFT single rule book

Legislative proposal:

—	identifying areas to be turned in a Regulation alongside an amended Directive

—	setting out new areas to be regulated at EU level

—	identifying amendments necessary in respect of other existing legislation

Q1 2021

Bringing about EU level AML/CFT supervision

Legislative proposal

Q1 2021

Establishing a support and coordination mechanism for FIUs

Legislative proposal

Q1 2021

Transfer of technical management of FIU.net to the Commission

Q4 2020

Criminal law enforcement and information sharing

Establishment of the EFECC

Q2 2020

Guidance on PPPs and possible EDPB opinion on data protection aspects

Q1 2021

Monitor transposition and implementation of directives on criminal law and law enforcement cooperation

Options to enhance domestic and cross-border information exchange among all competent authorities

Strengthening the international dimension

Commission refined methodology for the identification of high risk third countries

Q1 2020

Delegated acts

As appropriate (tentative planning for 2020: Q2, Q3 and Q4)

The Commission welcomes stakeholder views on the way forward set out in this Action Plan and invites contributions by 29 July 2020 by replying to the questionnaire available on Have your Say.

(1) Europol, ‘Pandemic profiteering: how criminals exploit the COVID-19 crisis’, March 2020. The European Banking Authority also reminded credit and financial institutions of the importance of effective systems and controls and asked competent authorities to support them in this regard. See ‘EBA statement on actions to mitigate financial crime risks in the COVID-19 pandemic’.

(2) The Court recognised that the objective of fighting money laundering is linked to protecting public order and can justify a restriction to the fundamental freedoms guaranteed by the Treaty, including the free movement of capital. Restrictions must be proportionate (see Jyske Bank Gibraltar, C 212/11 and Lhu Zeng, C- 190/17).

(3) The FATF is an inter-governmental body that sets standards and promotes effective implementation of measures to fight money laundering and terrorist financing. The Commission, 14 EU Member States and 2 EFTA-EEA States are FATF members, whereas 13 Member States are members of Moneyval, a regional organisation.

(4) Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (OJ L 156, 19.6.2018, p. 43).

(5) Regulation (EU) 2019/2175 of the European Parliament and of the Council of 18 December 2019 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, and Regulation (EU) 2015/847 on information accompanying transfers of funds (OJ L 334, 27.12.2019, p. 1).

(6) Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005 (OJ L 284, 12.11.2018, p. 6).

(7) Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (OJ L 150, 7.6.2019, p. 253).

(8) Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences, and repealing Council Decision 2000/642/JHA, OJ L 186, 11.7.2019, p. 122).

(9) Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law (OJ L 284, 12.11.2018, p. 22).

(10) Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law (OJ L 305, 26.11.2019, p. 17).

(11) COM(2019) 360 final.

(12) European Parliament resolution of 19 September 2019 on the state of implementation of the Union’s anti-money laundering legislation (2019/2820(RSP)).

(13) Council Conclusions of 5 December 2019 on strategic priorities on anti-money laundering and countering the financing of terrorism (14823/19).

(14) As highlighted in the most recent Union supra-national risk assessment, the Commission report on the assessment of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities, COM(2019) 370 final.

(15) Art. 65(1) 4AMLD.

(16) See footnote 5.

(17) EBA report on competent authorities’ approaches to the anti-money laundering and countering the financing of terrorism supervision of banks, EBA/Rep/2020/06.

(18) In addition to the financial sector, legal professionals and accountants, the EU framework also applies to estate agents, gambling services, persons trading in goods, providers engaged in exchange services between virtual currencies and fiat currencies, custodian wallet providers, persons trading in works of art.

(19) Report from the Commission to the European Parliament and the Council on restrictions on payments in cash, COM(2018) 483 final. Further targeted assessment of this matter will be explored in the course of 2021.

(20) ESAs Joint Opinion of the European Supervisory Authorities on the risks of money laundering and terrorist financing affecting the European Union’s financial sector, 4 October 2019.

(21) EBA Report on potential impediments to the cross-border provision of banking and payment services, 29 October 2019.

(22) The FATF defines virtual assets as digital representations of value that can be digitally traded, or transferred, and that can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets already covered by its standards.

(23) See also the announcement in the Commission Work Programme that the Commission will put forward a legislative framework on crypto-assets.

(24) Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (OJ L 173, 12.6.2014, p. 190).

(25) Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149).

(26) Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features (OJ L 257, 28.8.2014, p. 214).

(27) Duly respecting the nature of the information concerned.

(28) See footnote 9.

(29) See footnote 8.

(30) Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union (OJ L 127, 29.4.2014, p. 39).

(31) Regulation (EU) 2018/1805 of the European Parliament and of the Council of 14 November 2018 on the mutual recognition of freezing orders and confiscation orders (OJ L 303, 28.11.2018, p. 1).

(32) ISF-Police funds.

(33) Approved by the Ministers and Representatives of the Financial Action Task Force on 12 April 2019.

(34) See https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1581497419034&uri=CELEX:02016R1675-20181022

(35) SWD(2020)99.

(36) See COM(2019) 349 final of 29.7.2019.

(37) Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union (OJ L 193, 30.7.2018, p. 1).

(38) EU Global Facility on Money Laundering and Terrorism Financing.

(39) See Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I, 21.3.2019, p. 1).

13.5.2020

Official Journal of the European Union

C 164/36

Publication of the amended single document following the approval of a minor amendment pursuant to the second subparagraph of Article 53(2) of Regulation (EU) No 1151/2012

(2020/C 164/08)

The European Commission has approved this minor amendment in accordance with the third subparagraph of Article 6(2) of Commission Delegated Regulation (EU) No 664/2014 (1).

The application for approval of this minor amendment can be consulted in the Commission’s eAmbrosia database.

SINGLE DOCUMENT

‘AIL VIOLET DE CADOURS’

EU No: PDO-FR-02103-AM01 – 4.2.2020

PDO (X) PGI ( )

1. Name(s)

‘Ail violet de Cadours’

2. Member State or Third Country

France

3. Description of the agricultural product or foodstuff

3.1. Type of product

Class 1.6. Fruit, vegetables and cereals, fresh or processed

3.2. Description of product to which the name in (1) applies

‘Ail violet de Cadours’ is a garlic that is sold dry, with a minimum dry matter content of 30 %. It is produced from the Germidour and Valdour varieties, which were isolated from the local purple garlic population.

It has violet ‘wine-coloured’ striations on its white outer tunics.

‘Ail violet de Cadours’ is distinguished by its size of 45 mm or greater, and the regular, round shape of the bulb. The bulbs are sold whole and well-cleaned. There must be at least one whole, undamaged layer of outer skin. The roots are cut flush with the bulb, their length equal to or less than 2,5 mm. Both the cloves and the root disc of the bulb are firm to the touch. In the case of bulbs sold trimmed, the length of the remaining stem is between 10 mm and 30 mm inclusive.

The skin of the cloves is beige, streaked with violet. The flesh of the cloves when cut ranges from ivory to cream in colour.

Raw, it has a distinctive, persistent garlic smell and an intense sharpness. Cooked, ‘Ail violet de Cadours’ has a garlic fragrance. It has a light piquancy to the taste, with a good aromatic persistence. It is soft in texture and its flavour is slightly sweet.

In order to obtain an aesthetically pleasing sales presentation, the bulbs selected are uniform in colour, shape and size. In particular, the size of the largest bulb may not exceed the size of the smallest by more than 20 mm.

‘Ail violet de Cadours’ may be presented for sale as:

—	a braid, including at least 9 untrimmed bulbs, weighing 500 g, 1 kg or 2 kg depending on the number of bulbs and their size,

—	a sheaf of untrimmed bulbs, minimum weight 8 kg,

—	a bunch of untrimmed bulbs, weighing 500 g, 1 kg or 2 kg,

—	a 5 kg bag, hand-sorted, composed of trimmed bulbs,

—	a crate of trimmed bulbs measuring between 60 mm and 70 mm, or more than 70 mm, hand-sorted,

—	a basket of trimmed bulbs 60 mm to 80 mm in size, hand-sorted,

—	a net of trimmed bulbs, maximum weight 1 kg,

—	a punnet of trimmed bulbs, maximum weight 1 kg.

The product is sold in the original packaging. Only from the crate and the basket may single bulbs be sold individually.

3.3. Feed (for products of animal origin only) and raw materials (for processed products only)

—

3.4. Specific steps in production that must take place in the defined geographical area

All steps in the production of ‘Ail violet de Cadours’ must take place in the geographical area.

3.5. Specific rules concerning slicing, grating, packaging, etc. of the product the registered name refers to

‘Ail violet de Cadours’ must be packaged within the geographical area in order to preserve quality.

In order to ensure that the product remains in sound condition, with at least one intact layer of outer skin over the bulbs, ‘Ail violet de Cadours’ is stored in specific conditions and handled as little as possible.

The packaging process makes use of the operators’ local expertise, which also helps determine the characteristics of ‘Ail violet de Cadours’ through:

—	a meticulous selection of bulbs, making it possible to create presentations that are uniform in colour, size and shape,

—

manual positioning of the bulbs, which allows them to be packaged in a manner that will limit impacts between them during the marketing process: bunching together the foliage of the braids, sheaves and bouquets to obtain a rigid ensemble, ensuring that the bags, nets and punnets are sealed as close to the bulbs as possible, and tightly packing the bulbs in the crates and baskets.

3.6. Specific rules concerning labelling of the product the registered name refers to

In addition to the compulsory information required by law, the labelling must include:

—	the name of the packager,

—	the year of harvest,

—	the identification and traceability system specific to ‘Ail violet de Cadours’.

In packaging that allows for the sale of single bulbs, each bulb must be identified as ‘Ail violet de Cadours’ by a sticker.

4. Concise definition of the geographical area

The geographical area is located where the departments of Haute-Garonne, Gers and Tarn-et-Garonne meet.

Department of Haute-Garonne: Bellegarde-Sainte-Marie, Belleserre, Bragayrac, Brignemont, Cabanac-Séguenville, Cadours, Le Castéra, Caubiac, Cox, Drudas, Empeaux, Garac, Le Grès, Lagraulet-Saint-Nicolas, Laréole, Lasserre, Menville, Mérenvielle, Pelleport, Pradère-les-Bourguets, Puysségur, Saint-Thomas, Sainte-Livrade, Thil, Vignaux.

Department of Tarn-et-Garonne: Auterive, Beaumont-de-Lomagne, Beaupuy, Bouillac, Le Causé, Escazeaux, Faudoas, Gariès, Goas, Marignac, Maubec, Sérignac.

Department of Gers: Ansan, Ardizas, Aubiet, Augnax, Auradé, Aurimont, Avensac, Bajonnette, Beaupuy, Bédéchan, Bézéril, Blanquefort, Castillon-Savès, Catonvielle, Cazaux-Savès, Clermont-Savès, Cologne, Encausse, Endoufielle, Escorneboeuf, Estramiac, Frégouville, Gimont, Giscaro, Homps, L’Isle-Arné, L’Isle-Jourdain, Juilles, Labastide-Savès, Labrihe, Lahas, Lias, Mansempuy, Maravat, Marestaing, Maurens, Mauvezin, Monbrun, Monferran-Savès, Monfort, Montiron, Noilhan, Pessoulens, Pompiac, Puycasquier, Razengues, Roquelaure-Saint-Aubin, Saint-André, Saint-Antonin, Saint-Brès, Saint-Caprais, Saint-Cricq, Saint-Georges, Saint-Germier, Saint-Orens, Saint-Sauvy, Sainte-Anne, Sainte-Gemme, Sainte-Marie, Sarrant, Ségoufielle, Sérempuy, Seysses-Savès, Sirac, Solomiac, Thoux, Tirent-Pontejac, Touget, Tourrenquets.

5. Link with the geographical area

The link between ‘Ail violet de Cadours’ and its environment lies in the use of varieties developed from local populations well adapted to the climatic, soil and landscape conditions of the geographical area, which give it specific qualities (violet colour, size, and uniformity of the bulbs) and benefit from the production expertise within the area. These qualities give ‘Ail violet de Cadours’ its good reputation.

Specificity of the geographical area

Natural factors

The production area of ‘Ail violet de Cadours’, located in the Midi-Pyrénées region between Haute-Garonne, Gers and Tarn-et-Garonne, is characterised by a distinctive climate which comes under oceanic influence during winter and spring and Mediterranean influence during summer and especially autumn. Winter is relatively short and mild. Spring is characterised by regularly rising temperatures and a high rainfall that peaks in May. Summer is hot and dry. Autumn is relatively mild, with little rain. Particularly in summer and autumn, the area is exposed to the Autan wind, a warm, dry, south-easterly wind.

The land is hilly and moderately rugged. The soils, which lie on a foundation of Oligocene-Miocene molasse, are clay-limestone and clay-lime in nature, with a high clay content (at least 30 %), which ensures good available water capacity. These soils also have good natural drainage assured by the slope of the land and their structure.

Human factors

Garlic, which originated in the East, was probably introduced to the region by Roman colonisation in the early centuries.

The steady development of the garlic trade led to the establishment of a weekly market specifically for purple garlic. This market is still held in Cadours every Wednesday from mid-July to mid-December.

The know-how of ‘Ail violet de Cadours’ producers is evident at all stages, from cultivation to preparation for sale.

The Germidour and Valdour varieties were isolated from the local purple garlic population and registered in the official catalogue of varieties in 1991 and 2006 respectively. These varieties are distinguished in particular by a short dormancy period and early germination, the absence of a rigid flowering stem, and a large bulb with violet striations on its white outer skin.

Planting takes place in autumn, from mid-October to mid-December, on plots which have not been used for alliums for three years, nor for maize or sorghum the previous year. The nitrogen, phosphorus and potassium inputs are calculated according to the needs of the crop and the availability of these elements in the soil.

Harvesting takes place when the crop has reached maturity.

Monitored drying makes it possible to guarantee a water loss of at least 20 % of the mass of the harvested product.

Farms in the geographical area are characterised by their small to medium acreage. They are mixed-crop operations where cereals predominate and garlic production is a valuable side activity. The availability of family labour has facilitated the development of garlic farming.

Many steps are still carried out by hand in order to obtain a clean, well-presented product: peeling, which consists of removing damaged layers of outer skin while preserving at least one clean and intact layer, the cutting of the roots, and the packing and presenting of ‘Ail violet de Cadours’ for sale. The operators’ know-how is particularly evident during these steps. The bulbs are meticulously hand-sorted by size, shape and colour to create an aesthetically pleasing ensemble.

Specificity of the product

‘Ail violet de Cadours’ is a dried garlic. It is chiefly distinguished by the violet striations on its outer tunics. The bulbs are 45 mm or larger in size, regular in shape, unburst – meaning that the cloves are not visible (at least one of the outer skin layers is intact). The root disc is cut flush with the bulb.

‘Ail violet de Cadours’ possesses specific visual, olfactory and gustatory traits which clearly distinguish it from dried purple garlic of the Germidour variety grown outside the geographical area. ‘Ail violet de Cadours’ is distinguished by its visual characteristics: larger bulb size, more pronounced violet colour and more regular shape; and by its olfactory characteristics: a more intense garlic smell and a more pronounced sharpness to the nose. Furthermore, when cooked, ‘Ail violet de Cadours’ is distinguished by a more intense aromatic persistence and a stronger piquancy on the palate.

Both the cloves and the root disc of the bulbs are firm to the touch. They remain in sound condition from harvest to marketing.

‘Ail violet de Cadours’ is marketed in presentations that are uniform in size, shape and colour.

When ‘Ail violet de Cadours’ is sold untrimmed, there is a certain rigidity to the presentation due to the bunching together of the foliage. When ‘Ail violet de Cadours’ is sold trimmed, the bulbs are bundled tightly within their packaging.

Causal link

All the favourable conditions for the development of ‘Ail violet de Cadours’ are found in the production area.

Firstly, ‘Ail violet de Cadours’ is distinguished by its colour, which results from the use of varieties developed from local populations with violet striations on the outer skin layers. These are linked to the practice of planting on clay-rich plots of land and the rainfall peak in May. The production of ‘Ail violet de Cadours’ on clay-rich soils, with a good available water capacity, favours the growth of bulbs that are regular in shape. Controlled fertiliser application prevents the bulbs from bursting, so that ‘Ail violet de Cadours’ possesses at least one intact outer skin layer.

It is during the basic stage of physiological development known as bulbing that the plant’s need for water is at its highest. This is a rapid growth phase which directly impacts the size and shape of the bulb and the development of its violet colour. The rainfall peak in May, which satisfies the water and mineral needs of the plant during this crucial stage, enables the production of bulbs with the characteristic features of ‘Ail violet de Cadours’: a size of 45 mm or more, with a round, regular shape and violet colour.

The firmness of ‘Ail violet de Cadours’ bulbs is due to the way in which they are prepared for sale, which avoids impacts between bulbs, and the short marketing process, which ends before early germination can occur.

The sound condition of ‘Ail violet de Cadours’ is due to numerous factors:

—	limiting the spread of cryptogamic and bacterial diseases in the soil via crop rotation and planting on naturally well-drained plots of land,

—	limiting the development of these diseases while the crop is in the field through the supervision of planting dates and the controlled application of fertiliser,

—	harvesting when the crop has reached maturity, followed by drying, and the effect of the Autan wind, which favour the preservation of garlic.

The use of garlic varieties that do not have a rigid flowering stem makes it possible to present ‘Ail violet de Cadours’ for sale untrimmed: in braids, sheaves and bouquets.

Finally, ‘Ail violet de Cadours’ is distinguished by the care with which it is hand-peeled, preserving the outer skin layers intact and making it possible to cut the root disc flush with the bulb. The series of steps carried out by hand makes it possible to create presentations that are uniform in size, shape and colour. The operators’ traditional know-how, which extends to preparation of the product for sale, enhances and preserves the quality of ‘Ail violet de Cadours’.

Thus, the characteristics of the geographical area and natural and human factors all contribute to the specificity of ‘Ail violet de Cadours’.

Reference to publication of the specification

(the second subparagraph of Article 6(1) of this Regulation)

https://info.agriculture.gouv.fr/gedei/site/bo-agri/document_administratif-b9eb2879-fbef-4c10-a287-c0d23d8ef13f

(1) OJ L 179, 19.6.2014, p. 17.

		ISSN 1977-091X
Official Journal of the European Union		C 164

English edition	Information and Notices	Volume 63 13 May 2020

Contents		page
	II Information
	INFORMATION FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES
	European Commission
2020/C 164/01	Non-opposition to a notified concentration (Case M.9774 – Bain Capital Investors/Neuberger Berman/Engineering Ingegneria Informatica) ( 1 )	1
2020/C 164/02	Non-opposition to a notified concentration (Case M.9822 – Bridgepoint/Groupe Financière CEP) ( 1 )	2
2020/C 164/03	Communication from the Commission — Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak	3

	IV Notices
	NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES
	European Commission
2020/C 164/04	Euro exchange rates — 12 May 2020	16
2020/C 164/05	Communication from the Commission — Publication of the total number of allowances in circulation in 2019 for the purposes of the Market Stability Reserve under the EU Emissions Trading System established by Directive 2003/87/EC	17
2020/C 164/06	Communication from the Commission on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing	21
2020/C 164/07	Administrative Commission for the Coordination of Social Security Systems Average costs of benefits in kind	34

	Currency	Exchange rate
USD	US dollar	1,0858
JPY	Japanese yen	116,56
DKK	Danish krone	7,4577
GBP	Pound sterling	0,87773
SEK	Swedish krona	10,5968
CHF	Swiss franc	1,0520
ISK	Iceland króna	158,70
NOK	Norwegian krone	11,0518
BGN	Bulgarian lev	1,9558
CZK	Czech koruna	27,423
HUF	Hungarian forint	350,75
PLN	Polish zloty	4,5449
RON	Romanian leu	4,8301
TRY	Turkish lira	7,5979
AUD	Australian dollar	1,6625
CAD	Canadian dollar	1,5178
HKD	Hong Kong dollar	8,4154
NZD	New Zealand dollar	1,7742
SGD	Singapore dollar	1,5357
KRW	South Korean won	1 326,17
ZAR	South African rand	19,7382
CNY	Chinese yuan renminbi	7,6933
HRK	Croatian kuna	7,5653
IDR	Indonesian rupiah	16 073,64
MYR	Malaysian ringgit	4,6977
PHP	Philippine peso	54,388
RUB	Russian rouble	79,4157
THB	Thai baht	34,854
BRL	Brazilian real	6,2708
MXN	Mexican peso	25,8251
INR	Indian rupee	81,5930

	V Announcements
	OTHER ACTS
	European Commission
2020/C 164/08	Publication of the amended single document following the approval of a minor amendment pursuant to the second subparagraph of Article 53(2) of Regulation (EU) No 1151/2012	36


	(1) Text with EEA relevance.