(1)

Regulation (EU) No 1380/2013 aims to progressively eliminate discards in all Union fisheries through the introduction of a landing obligation for catches of species subject to catch limits.

(2)

Article 15(6) of that Regulation empowers the Commission to adopt discard plans by means of delegated acts for a period of no more than three years on the basis of joint recommendations developed by Member States in consultation with the relevant Advisory Councils.

(3)

Belgium, Denmark, Germany, France, the Netherlands, Sweden and the United Kingdom have direct fisheries management interest in the North Sea. After consulting the North Sea Advisory Council, those Member States have submitted on 3 June 2016 a joint recommendation to the Commission concerning a new discard plan for certain demersal fisheries in the North Sea. Scientific contributions were obtained from relevant scientific bodies and reviewed by the Scientific, Technical and Economic Committee for Fisheries (STECF). On 14 July an expert group meeting consisting of 28 Member States and the Commission as well European Parliament as an observer, took place and the measures concerned were discussed.

(4)

The measures included in the joint recommendation comply with Article 18(3) of Regulation (EU) No 1380/2013.

(5)

For the purposes of that Regulation, the North Sea comprises ICES zones IIIa and IV. As some demersal stocks relevant to the proposed discard plan are also to be found in Union waters of ICES Division IIa, the Member States concerned recommend that ICES Division IIa be also covered by the discard plan.

(6)

As regards the North Sea, in accordance with Article 15(1)(c) of Regulation (EU) No 1380/2013 the landing obligation applies at the latest from 1 January 2016 in:

In accordance with Article 15(5) of Regulation (EU) No 1380/2013, Commission Delegated Regulation (EU) 2015/2440 (3) identified the species which have to be landed as from 1 January 2016. Those species are saithe, haddock, Norway lobster, common sole, plaice, hake and Northern prawn. Delegated Regulation (EU) 2015/2440 also established an obligation to land bycatches of Northern prawn. This Regulation should reinstate the provisions regarding the species to be landed from Delegated Regulation (EU) 2015/2440 and should specify additional species and fisheries to which the landing obligation applies in 2017 and 2018.

(7)

The Member States concerned claim that the fishing effort rules set out in Chapter III of Council Regulation (EC) No 1342/2008 (4) constitute an obstacle to the successful implementation of the landing obligation for cod due to the fact that the fishing effort regime set out in that Chapter would hamper the flexibility needed to adapt fishing patterns, such as choice of area and gear, once the landing obligation is introduced. Regulation (EC) No 1342/2008 is currently subject to a revision process by the co-legislators. To prevent the fishing effort regime and the landing obligation for cod from applying simultaneously, the landing obligation for cod should apply only once the fishing effort regime ceases to be applicable.

(8)

Delegated Regulation (EU) 2015/2440 introduced an exemption from the obligation to land all catches for species for which scientific evidence demonstrates high survival rates (‘high survivability exemption’) for catches of Norway lobster in ICES division IIIa under the condition that pots or certain bottom trawls are used. That Delegated Regulation required Member States having a direct management interest in the North Sea to submit to the Commission additional scientific information supporting the exemptions for the bottom trawls specified. That information has been submitted and STECF has concluded that the information is sufficient. Therefore, that exemption should be included in the new discard plan.

(9)

The joint recommendation includes a high survivability exemption for catches of Norway lobster in ICES subarea IV for certain gears on the condition that a netgrid selectivity device is used.

(10)

The joint recommendation includes a high survivability exemption for catches of common sole in ICES subarea IV with certain gears and on certain conditions that favour the survivability of sole.

(11)

Based on the scientific evidence provided in the joint recommendation and reviewed by STECF and taking into account the characteristics of the gear, of the fishing practices and of the ecosystem, these exemptions should be included in this Regulation for the year 2017. Member States should submit additional data in order to enable STECF to further assess the survival rates of Norway lobster and common sole caught in ICES subarea IV with the trawls concerned and to enable the Commission to review the relevant exemption.

(12)

Delegated Regulation (EU) 2015/2440 introduced de minimis exemptions for

The joint recommendation suggests the continued application of those exemptions. They should therefore be included in the new discard plan.

(13)

The joint recommendation includes a de minimis exemption for common sole, haddock and whiting combined for catches with certain bottom trawls in ICES division IIIa, a de minimis exemption for sole, haddock and whiting combined for catches with creels in ICES division IIIa and, for 2018, a de minimis exemption for whiting caught with bottom trawls in ICES division IVc.

(14)

The Commission, on the basis of compelling evidence provided by Member States for those exemptions as reviewed by the STECF, which concluded that those exemptions contained reasoned arguments that further improvements in selectivity are difficult to achieve and/or imply disproportionate costs in handling unwanted catches, considers it appropriate to establish the de minimis exemptions in accordance with the percentage level proposed in the joint recommendation, within the limits set out in Article 15(5)(c) of Regulation (EU) No 1380/2013.

(15)

Article 18a of Regulation (EC) No 850/98 empowers the Commission to establish, for the purpose of adopting discard plans and for the species subject to the landing obligation, minimum conservation reference size (MCRS) with the aim of ensuring the protection of juveniles of marine organisms. Those minimum conservation reference sizes may derogate, where appropriate, from the sizes established in Annex XII to Regulation (EC) No 850/98. For Norway lobster in ICES Division IIIa it is appropriate to maintain the minimum conservation reference sizes set out in Delegated Regulation (EU) 2015/2440, i.e. a total length of 105 mm and a carapace length of 32 mm. A minimum tail length of 59 mm should be added, based on the Joint Recommendation and STECF's assessment which states that such tail length corresponds to the existing values for total length and carapace length.

(16)

Discard plans may also include technical measures for fisheries or species covered by the landing obligation. To increase gear selectivity and reduce unwanted catches in the Skagerrak, it is appropriate to maintain a number of technical measures, which were agreed between the Union and Norway in 2011 (5), and 2012 (6).

(17)

To ensure appropriate control, specific requirements for the Member States to establish lists of vessels covered by this Regulation should be laid down.

(18)

As the measures provided for in this Regulation have a direct impact on the economic activities linked to and the planning of the fishing season of Union vessels, this Regulation should enter into force immediately after its publication. It should apply from 1 January 2017 until 31 December 2018 in order to comply with the time-frame set out in Article 15 of Regulation (EU) No 1380/2013,

(1)

‘Seltra panel’ means a selectivity device consisting of a top panel of at least 270 mm mesh size (diamond mesh) placed in a four-panel section and mounted with a joining ratio of three meshes of 90 mm to one mesh of 270 mm, or of a top panel of at least 140 mm mesh size (square mesh). The panel is at least 3 metres long, positioned no more than 4 metres from the cod line, and is the full width of the top sheet of the trawl (i.e. from selvedge to selvedge).

(2)

‘Netgrid selectivity device’ means a selectivity device consisting of a four panel section inserted into a two-panel trawl with an inclined sheet of diamond mesh netting with a mesh size of at least 200 mm, leading to an escape hole in the top of the trawl.

(a)

for common sole, up to a maximum of 3 % of the total annual catches of this species by vessels using trammel nets and gill nets (GN, GNS, GND, GNC, GTN, GTR, GEN, GNF) in ICES Division IIIa, ICES Subarea IV and Union waters of ICES Division IIa;

(b)

for common sole below minimum conservation reference size, up to a maximum of, in 2017, 7 % and, in 2018, 6 % of the total annual catches of this species by vessels using beam trawl (TBB) of mesh size 80-119 mm with increased mesh size in the extension of the beam trawl in ICES Subarea IV;

(c)

for Norway lobster below minimum conservation reference size, up to a maximum of 6 % of the total annual catches of this species by vessels using bottom trawls (OTB, TBN, OTT, TB) of mesh size 80-99 mm in ICES Subarea IV and Union waters of ICES Division IIa;

(d)

in 2017, for common sole and haddock combined, below minimum conservation reference size, up to a maximum of 2 % of the total annual catches of Norway lobster, common sole, haddock and Northern prawn in the fishery for Norway lobster by vessels using bottom trawls (OTB, TBN) of mesh size equal to or larger than 70 mm equipped with a species selective grid with bar spacing of maximum 35 mm in ICES Division IIIa;

(e)

in 2018, for common sole, haddock and whiting combined, below minimum conservation reference size, up to a maximum of 4 % of the total annual catches of Norway lobster, common sole, haddock, whiting and Northern prawn in the fishery for Norway lobster by vessels using bottom trawls (OTB, TBN) of mesh size equal to or larger than 70 mm equipped with a species-selective grid with bar spacing of maximum 35 mm in ICES Division IIIa;

(f)

for common sole, haddock and whiting below minimum conservation reference size combined, up to a maximum of 1 % of the total annual catches of Norway lobster, common sole, haddock, whiting and Northern prawn in the fishery for Northern prawn by vessels using bottom trawls (OTB) with a mesh size equal to or larger than 35 mm equipped with a species selective grid with bar spacing of maximum 19 mm, with unblocked fish outlet, in ICES Division IIIa.

(g)

for common sole, haddock and whiting combined, up to a maximum of 0,5 % of the total annual catches of Norway lobster, common sole, haddock, whiting and Northern prawn in the fishery for Norway lobster conducted with creels (FPO), in ICES division IIIa.

(h)

in 2018, for whiting, up to a maximum of 7 % of the total annual catches of Norway lobster, haddock, sole, Northern prawn, whiting, plaice, saithe and cod in the mixed fishery for sole, whiting and species without catch limits by vessels using bottom trawls (OTB, OTT) of mesh size 70-99 mm in ICES Division IVc.

(a)

total length of 105 mm;

(b)

tail length of 59 mm;

(c)

carapace length of 32 mm.

(1)

Counterparties have an obligation to protect themselves against credit exposures to derivatives counterparties by collecting margins where those contracts are not cleared by a central counterparty. This Regulation lays out the standards for the timely, accurate and appropriately segregated exchange of collateral. These standards should apply on a mandatory basis to the collateral that counterparties are required to collect or post pursuant to this Regulation. However, counterparties which agree to collecting or posting collateral beyond the requirements of this Regulation should be able to choose whether or not to exchange such collateral in accordance with these standards.

(2)

Counterparties subject to the requirements of Article 11(3) of Regulation (EU) No 648/2012 should take into account the different risk profiles of non-financial counterparties that are below the clearing threshold referred to in Article 10 of that Regulation when establishing their risk management procedures for over-the-counter (‘OTC’) derivative contracts concluded with such entities. It is therefore appropriate to allow counterparties to determine whether or not the level of counterparty credit risk posed by those non-financial counterparties that is below that clearing threshold needs to be mitigated through the exchange of collateral. Given that non-financial counterparties established in a third country that would be below the clearing threshold if established in the Union can be assumed to have the same risk profiles as non-financial counterparties below the clearing threshold established in the Union, the same approach should be applied to both types of entities in order to prevent regulatory arbitrage.

(3)

Counterparties to non-centrally cleared OTC derivatives contracts need to be protected from the risk of a potential default of the other counterparty. Therefore, two types of collateral in the form of margins are necessary to properly manage the risks to which those counterparties are exposed. The first type is variation margin, which protects counterparties against exposures related to the current market value of their OTC derivative contracts. The second type is initial margin, which protects counterparties against potential losses which could stem from movements in the market value of the derivatives position occurring between the last exchange of variation margin before the default of a counterparty and the time that the OTC derivative contracts are replaced or the corresponding risk is hedged.

(4)

Since central counterparties (‘CCPs’) might be authorised as a credit institution according to Union legislation, it is necessary to exclude non-centrally cleared OTC derivative contracts that CCPs enter into during a default management process from the requirements of this Regulation since those contracts are already subject to the provisions of Commission Delegated Regulation (EU) No 153/2013 (2) and therefore they are not subject to the provisions of this Regulation.

(5)

For non-centrally cleared OTC derivative contracts that involve the payment of a premium upfront to guarantee the performance of the contract, the counterparty receiving the payment of the premium (‘option seller’) does not have a current or potential future exposure to the counterparty. Also, the daily mark-to-market value of such contracts is already covered by the payment of this premium. Therefore, where the netting set consists of such option positions, the option seller should be able to choose not to collect initial or variation margins for these types of OTC derivatives as long as the option seller is not exposed to any credit risk. The counterparty paying the premium (‘option buyer’) should however collect both initial and variation margins.

(6)

While dispute resolution processes contained in bilateral agreements between counterparties are useful for minimising the length and frequency of disputes, counterparties should, in the first instance, collect at least the undisputed amount in case the amount of a margin call is disputed. This will mitigate the risk arising from the disputed transactions and therefore ensure that non-centrally cleared OTC derivative contracts are collateralised to the extent possible.

(7)

In order to guarantee a level playing field across jurisdictions, where a counterparty established in the Union enters into a non-centrally cleared OTC derivative contract with a counterparty that is established in a third country, initial and variation margins should be exchanged in both directions. Counterparties established in the Union transacting with counterparties established in third countries should remain subject to the obligation of assessing the legal enforceability of the bilateral agreements and the effectiveness of the segregation agreements.

(8)

It is appropriate to allow counterparties to apply a minimum transfer amount when exchanging collateral in order to reduce the operational burden of exchanging limited sums when exposures move only slightly. However, it should be ensured that such minimum transfer amount is used as an operational tool and not with the view to serving as an uncollateralised credit line between counterparties. Therefore, a maximum level should be set out for that minimum transfer amount.

(9)

For operational reasons, it might be more appropriate in some cases to have separate minimum transfer amounts for the initial and the variation margin. In those cases it should be possible for counterparties to agree on separate minimum transfer amounts for variation and initial margin. However, the sum of the separate minimum transfer amounts should not exceed the maximum level of the minimum transfer amount. For practical reasons, it should be possible to define the minimum transfer amount in the currency in which margins are normally exchanged, which may not be the euro.

(10)

Some third-country jurisdictions may determine a different scope to Regulation (EU) No 648/2012 for the purposes of their requirements for the exchange of collateral in relation to OTC derivative contracts that are not centrally cleared. Therefore, were this Regulation to require that only non-centrally cleared OTC derivative contracts governed by Regulation (EU) No 648/2012 are included in the margin calculations for cross-border netting sets, counterparties in different jurisdictions would potentially have to duplicate required calculations to take into account different definitions or different scopes of products under the respective margin requirements. This could lead to distorted margin calculations. Furthermore, this would likely increase the risk of disputes. Therefore, allowing the use of a broader set of products in cross-border netting sets that includes all the OTC derivative contracts that are subject to exchange of collateral in one or the other jurisdiction would facilitate a smoother process of margin collection. This approach is consistent with the systemic risk-reduction goal of Regulation (EU) No 648/2012, since a broader range of products would be subject to the margin requirements.

(11)

Counterparties may choose to collect initial margins in cash, in which case the collateral should not be subject to any haircut, provided that the currency of the collateral matches the currency in which the contract is expressed. However, where initial margins are collected in cash in a currency different than the currency in which the contract is expressed, currency mismatch may generate foreign exchange risk. For this reason, a currency mismatch haircut should apply to initial margins collected in cash in another currency. For variation margins collected in cash no haircut is necessary in line with the BCBS-IOSCO framework, even where the payment is executed in a different currency than the currency of the contract.

(12)

When setting the level of initial margin requirements, the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions have explicitly considered two aspects, as reflected in their framework, ‘Margin requirements for non-centrally cleared derivatives’ of March 2015 (‘BCBS-IOSCO framework’). The first aspect is the availability of high credit quality and liquid assets covering the initial margin requirements. The second is the proportionality principle, as smaller financial and non-financial counterparties might be hit in a disproportionate manner from the initial margin requirements. In order to maintain a level playing field, this Regulation should introduce a threshold that is exactly the same as in the BCBS-IOSCO framework below which two counterparties are not required to exchange initial margin. This should substantially alleviate costs and operational burden for smaller participants and address the concern about the availability of high credit quality and liquid assets without undermining the general objectives of Regulation (EU) No 648/2012.

(13)

While the thresholds should always be calculated at group level, investment funds should be treated as a special case as they can be managed by a single investment manager and captured as a single group. However, where the funds are distinct pools of assets and they are not collateralised, guaranteed or supported by other investment funds or the investment manager itself, they are relatively risk remote in relation to the rest of the group. Such investment funds should therefore be treated as separate entities when calculating the thresholds, in line with the BCBS-IOSCO framework.

(14)

With regard to initial margin, the requirements of this Regulation are likely to have a measurable impact on market liquidity, as assets provided as collateral cannot be liquidated or otherwise reused for the duration of the non-centrally cleared OTC derivative contract. Such requirements represent a significant change in market practice and present certain operational and practical challenges that will need to be managed as the new requirements come into effect. Taking into account that the variation margin already covers realised fluctuations in the value of non-centrally cleared OTC derivatives contracts up to the point of default, it is considered proportionate to apply a threshold of EUR 8 billion in gross notional amounts of outstanding contracts to the application of the initial margin requirements. This threshold applies at the group level or, where the counterparty is not part of a group, at the level of the single entity. The aggregated gross notional amount of outstanding contracts should be used as an adequate reference given that it is an appropriate metric for measuring the size and complexity of a portfolio of non-centrally cleared OTC derivative contracts. It is also a reference that is easy to monitor and report. These thresholds are also in line with the BCBS-IOSCO framework for non-centrally cleared OTC derivative contracts and are therefore consistent with international standards.

(15)

Exposures arising either from contracts or counterparties that are permanently or temporarily exempted or partially exempted from margins, should also be included in the calculation of the aggregated gross notional amount. This is due to the fact that all the contracts contribute to the determination of the size and complexity of a counterparty's portfolio. Therefore, non-centrally cleared OTC derivative contracts that may be exempted from the requirements of this Regulation are also relevant for determining the size, scale and complexity of the counterparty's portfolio and should therefore also be included in the calculation of the thresholds.

(16)

It is appropriate to set out special risk management procedures for certain types of non-centrally cleared OTC derivative contracts that show particular risk profiles. In particular, the exchange of variation margin without initial margin should, consistent with the BCBS-IOSCO framework, be considered an appropriate exchange of collateral for physically-settled foreign exchange contracts. Similarly, as cross-currency swaps can be decomposed into a sequence of foreign exchange forwards, only the interest rate component should be covered by initial margin.

(17)

Account should be taken of the impediments faced by covered bonds issuers or cover pools in providing collateral. Under a specific set of conditions, covered bonds issuers or cover pools should therefore not be required to post collateral. This should allow for some flexibility for covered bonds issuers or cover pools while ensuring that the risks for their counterparties are limited. Covered bond issuers or cover pools may face legal impediments to posting and collecting non-cash collateral for initial or variation margin or posting variation margin in cash since variation margin payment could be considered a claim that ranks senior to the bond holder claims, which could result in a legal impediment. Similarly, the possibility to substitute or withdraw initial margin could be considered a claim that ranks senior to the bond holder claims facing the same type of constraints. However, there are no constraints on a covered bond issuer or cover pool to return cash previously collected as variation margin. Counterparties of covered bond issuers or cover pools should therefore be required to post variation margin in cash and should have the right to get back part or all of it, but the covered bond issuers or cover pools should only be required to post variation margin for the amount in cash that was previously received.

(18)

Counterparties should always assess the legal enforceability of their netting and segregation agreements. Where, with respect to the legal framework of a third country, these assessments turn out to be negative, counterparties should rely on arrangements different from the two-way exchange of margins. With a view to ensuring consistency with international standards, to avoid that it becomes impossible for Union counterparties to trade with counterparties in those jurisdictions, and to ensure a level playing field for Union counterparties, it is appropriate to set out a minimum threshold below which counterparties can trade with counterparties established in those jurisdictions without exchanging initial or variation margins. Where the counterparties have the possibility to collect margins and can ensure that for collected collateral, as opposed to posted collateral, the provisions of this Regulation can be met, Union counterparties should always be required to collect collateral. Exposures from contracts with counterparties established in third-country jurisdictions that are not covered by any exchange of collateral because of the legal impediments in those jurisdictions should be constrained by setting a limit, as capital is not considered equivalent to margin exchange in relation to the exposures arising from non-centrally cleared OTC derivative contracts and not all counterparties subject to the margin requirements under this Regulation are also subject to capital requirements. This limit should be set in such a way that it is simple to calculate and verify. To avoid the build-up of systemic risk and to avoid that such specific treatment creates the possibility to circumvent the provisions of this Regulation, the limit should be set at a conservative level. These treatments would be considered sufficiently prudent, because there are also other risk mitigation techniques as an alternative to margins.

(19)

In order to safeguard against the case where collateral cannot be liquidated immediately after the default of a counterparty, it is necessary, when calculating initial margin to take into account the time period from the most recent exchange of collateral covering a netting set of contracts with a defaulting counterparty until the contracts are closed out and the resulting market risk is re-hedged. This time period is known as the ‘margin period of risk’ (‘MPOR’) and is the same tool as that used in Article 272(9) of Regulation (EU) No 575/2013 of the European Parliament and of the Council (3), with respect to counterparty credit risk of credit institutions. Nevertheless, as the objectives of the two Regulations differ, and Regulation (EU) No 575/2013 sets out rules for calculating the MPOR for the purpose of own funds requirements only, this Regulation should include specific rules on the MPOR that are required in the context of the risk management procedures for non-centrally cleared OTC derivative contracts. The MPOR should take into account the processes required by this Regulation for the exchange of margins.

(20)

Initial and variation margin should generally be exchanged no later than the end of the business day following the day of execution. However, an extension of the time for the exchange of variation margin is permitted where compensated by an adequate calculation of the MPOR. Alternatively, where no initial margin requirements apply, an extension should be allowed if an appropriate amount of additional variation margin is collected.

(21)

When developing initial margin models and when calculating the appropriate MPOR, counterparties should take into account the need to have models that capture the liquidity of the market, the number of participants in that market and the volume of the relevant OTC derivative contracts. At the same time there is the need to develop a model that both parties can understand, reproduce and on which they can rely to resolve disputes. Therefore counterparties should be allowed to calibrate the model and calculate MPOR dependent only on market conditions, without the need to adjust their estimates to the characteristics of specific counterparties. This in turn implies that counterparties may choose to adopt different models to calculate the amounts of initial margin to be exchanged between them, and that those amounts of initial margin may not be symmetrical.

(22)

While there is a need for recalibrating an initial margin model with sufficient frequency, a new calibration might lead to unexpected levels of margin requirements. For this reason, an appropriate time period should be established, during which margins may still be exchanged based on the previous calibration. This should give counterparties enough time to comply with margin calls resulting from the recalibration.

(23)

Collateral should be considered as being freely transferable if, in the case of a default of the poster of collateral, there are no regulatory or legal impediments or third-party claims, including those of the third-party custodian. However, certain claims, such as costs and expenses incurred for the transfer of the collateral, in the form of liens routinely imposed on all securities transfers, should not be considered an impediment as that would lead to a situation where an impediment would always be identified.

(24)

The collecting counterparty should have the operational capability to liquidate the collateral in the case of a default of the poster of collateral. The collecting counterparty should also be able to use the cash proceeds of liquidation to enter into an equivalent contract with another counterparty or to hedge the resulting risk. Having access to the market should therefore be a pre-requisite for the collector of collateral to enable it to either sell the collateral or repo it within a reasonable amount of time. This capability should be independent of the poster of collateral.

(25)

Collateral collected must be of sufficiently high liquidity and credit quality to allow the collecting counterparty to liquidate the positions without suffering a loss due to significant changes in value in case the other counterparty defaults. The credit quality of the collateral should be assessed relying on recognised methodologies such as the ratings of external credit assessment institutions. In order to mitigate the risk of mechanistic reliance on external ratings, however, a number of additional safeguards should be introduced. Those safeguards should include the possibility to use an approved Internal Rating Based (‘IRB’) model and the possibility to delay the replacement of collateral that becomes ineligible due to a rating downgrade, with the view to efficiently mitigating potential cliff effects that may arise from excessive reliance on external credit assessments.

(26)

While haircuts mitigate the risk that collected collateral is not sufficient to cover margin needs in a time of financial stress, other risk mitigants are also needed when accepting non-cash collateral in order to ensure that it can be effectively liquidated In particular, counterparties should ensure that the collateral collected is reasonably diversified in terms of individual issuers, issuer types and asset classes.

(27)

The impact on financial stability of liquidating the collateral posted by non-systemically important counterparties is limited. Further, concentration limits on initial margin might be burdensome for counterparties with small OTC derivative portfolios as they might have only a limited range of eligible collateral available to post. Therefore, even though collateral diversification is a valid risk mitigant, non-systemically important counterparties should not be required to diversify collateral. On the other hand, systemically important financial institutions and other counterparties with large OTC derivative portfolios trading with each other should apply the concentration limits at least to initial margin including with respect to eligible collateral comprising Member States' sovereign debt securities. Those counterparties are sophisticated enough to either transform collateral or to access multiple markets and issuers to sufficiently diversify the collateral posted. Article 131 of Directive 2013/36/EU of the European Parliament and of the Council (4) provides for the identification of institutions as systemically important under Union law. However, given the broad scope of Regulation (EU) No 648/2012, a quantitative threshold should be introduced so that the requirements for concentration limits apply also to counterparties that might not fall under those existing classifications of systemically important institutions but which should nonetheless be subject to concentration limits because of the size of their OTC derivative portfolios.

(28)

Pension scheme arrangements are subject to bilateral collateralisation requirements. It is, however, important to avoid excessive burden from those requirements on the expected performance of those schemes and, consequently, on the retirement income of future pensioners. Pension scheme arrangements' liabilities to retirees are denominated in local currencies and their investments must therefore be denominated in the same currency in order to avoid the costs and risks of foreign currency mismatches. It is therefore appropriate to provide that concentration limits do not apply to pension scheme arrangements in the same manner as for other counterparties. However, it is important that adequate risk management procedures are in place to monitor and address potential concentration risks arising from that special regime. The application of these provisions with regard to pension scheme arrangements should be monitored and reviewed in light of market developments.

(29)

Difficulties in segregating cash collateral should be acknowledged by allowing counterparties to post a limited amount of initial margin in the form of cash and by allowing custodians to reinvest this cash collateral. However, cash held by a custodian is a liability that the custodian has towards the posting counterparty, which generates a credit risk for the posting counterparty. Therefore, in order to reduce systemic risk, the use of cash as initial margin should be subject to diversification requirements at least for systemically important institutions. Systemically important institutions should be required to either limit the amount of initial margin collected in cash or to diversify the exposures by using more than one custodian.

(30)

The value of collateral should not exhibit a significant positive correlation with the creditworthiness of the poster of collateral or the value of the underlying non-centrally cleared derivatives portfolio since this would undermine the effectiveness of the protection offered by the collateral collected. Accordingly, securities issued by the poster of collateral or its related entities should not be accepted as collateral. Counterparties should also be required to monitor that collateral collected is not subject to other forms of wrong way risk.

(31)

It should be possible for the non-defaulting counterparty to liquidate assets collected as collateral as initial or variation margin in a sufficiently short time in order to protect against losses on non-centrally cleared OTC derivative contracts in the event of a counterparty default. These assets should therefore be highly liquid and should not be exposed to excessive credit, market or foreign exchange risk. To the extent that the value of the collateral is exposed to these risks, appropriately risk-sensitive haircuts should be applied.

(32)

In order to ensure the timely transfer of collateral, counterparties should have efficient operational processes in place. This requires that the processes for the bilateral exchange of collateral are sufficiently detailed, transparent and robust. A failure by counterparties to agree upon and establish an operational framework for efficient calculation, notification and finalisation of margin calls can lead to disputes and failed exchanges of collateral that result in uncollateralised exposures under OTC derivative contracts. As a result, it is essential that counterparties set clear internal policies and standards in respect of collateral transfers. Any deviation from those policies should be rigorously reviewed by all relevant internal stakeholders that are required to authorise those deviations. Furthermore, all applicable terms in respect of operational exchange of collateral should be accurately recorded in detail in a robust, prompt and systematic way.

(33)

An exchange of collateral agreement should be concluded between counterparties entering into non-centrally cleared OTC derivative contracts in order to provide legal certainty. As a result, the exchange of collateral agreement should include all material rights and obligations of the counterparties applicable to non-centrally cleared OTC derivative contracts.

(34)

Collateral protects the collecting counterparty in the event of the default of the posting counterparty. However, both counterparties are also responsible for ensuring that the manner in which collateral collected is held does not increase the risk of a loss of excess posted collateral for the posting counterparty in case the collecting counterparty defaults. For this reason, the bilateral agreement between the counterparties should allow both counterparties to access the collateral in a timely manner when they have the right to do so, hence the need for rules on segregation and for rules providing for an assessment of the effectiveness of the agreement in this respect, taking into account the legal constraints and the market practices of each jurisdiction.

(35)

The re-hypothecation, re-pledge or re-use of collateral collected as initial margins would create new risks for counterparties due to claims of third parties over the assets in the event of a default. Legal and operational complications could delay the return of the collateral in the event of a default of the initial collateral collector or the third party or even make it impossible. In order to preserve the efficiency of the framework and ensure a proper mitigation of counterparty credit risks, the re-hypothecation, re-pledge or re-use of collateral collected as initial margin should therefore not be permitted.

(36)

Given the difficulties in segregating cash, the current practices for the exchange of cash collateral in certain jurisdictions and the need for reliance on cash instead of securities in certain circumstances where transferring securities may be impeded by operational constraints, cash collateral collected as initial margin should always be held by a central bank or third-party credit institution, since this ensures the separation from the two counterparties to the contract. To ensure such separation, the third-party credit institution should not belong to the same group as either of the counterparties.

(37)

When a counterparty notifies the relevant competent authority regarding its intention to take advantage of the exemption of intragroup transactions, in order for the competent authority to decide whether the conditions for the exemption are met, the counterparty should provide a complete file including all relevant information necessary for the competent authority to complete its assessment.

(38)

For a group to be deemed to have adequately sound and robust risk management procedures, a number of conditions have to be met. The group should ensure a regular monitoring of the intragroup exposures, and the timely settlement of the obligations resulting from the intragroup OTC derivative contracts should be guaranteed based on the monitoring and liquidity tools at group level that are consistent with the complexity of the intragroup transactions.

(39)

In order for the exemption for intragroup transactions to be applicable, it must be certain that no legislative, regulatory, administrative or other mandatory provisions of applicable law could legally prevent the intragroup counterparties from meeting their obligations to transfer monies or repay liabilities or securities under the terms of the intragroup transactions. Similarly, there should be no operational or business practices of the intragroup counterparties or the group that could result in funds not being available to meet payment obligations as they fall due on a day-to-day basis, or in prompt electronic transfer of funds not being possible.

(40)

This Regulation includes a number of detailed requirements to be met for a group to obtain the exemption from posting margin for intragroup transactions. In addition to those requirements, where one of the two counterparties in the group is domiciled in a third country for which an equivalence determination under Article 13(2) of Regulation (EU) No 648/2012 has not yet been provided, the group has to exchange, variation and appropriately segregated initial margins for all the intragroup transactions with the subsidiaries in those third countries. In order to avoid a disproportionate application of the margin requirements and taking into account similar requirements for clearing obligations, this Regulation should provide for a delayed implementation of that particular requirement. This would allow enough time for completion of the process to produce the equivalence determination, while not requiring an inefficient allocation of resources to the groups with subsidiaries domiciled in third countries.

(41)

Taking into account the principle of proportionality, counterparties that have smaller portfolios and therefore generally smaller operations should be allowed more time to adapt their internal systems and processes in order to comply with the requirements of this Regulation. In order to achieve a proper balance between mitigating the risks arising from non-centrally cleared OTC derivatives and the proportionate application of this Regulation, as well as to achieve international consistency and minimise possibilities of regulatory arbitrage with the view to avoiding market disruption, a phase-in period of the requirements is necessary. The phase-in period for the requirements introduced in this Regulation takes into account the schedule agreed in the BCBS-IOSCO framework, which was established by reference to a quantitative impact study involving Union credit institutions.

(42)

Commission Delegated Regulation (*1) specifies the definition of physically settled foreign exchange forwards within the Union. However, at this juncture, that definition is not applicable and those products are defined in a non-homogenous way in the Union. Therefore, in order to avoid creating an un-level playing field within the Union, it is necessary that the application of the corresponding risk mitigation techniques are aligned to the date of application of the relevant Delegated Act. A specific date on which the relevant requirements should in any case apply is also set out to avoid excess delays in the introduction of the risk mitigation techniques.

(43)

In order to avoid market fragmentation and ensure a level playing field for Union counterparties established in the Union on a global level, and acknowledging the fact that in some jurisdictions the exchange of variation and initial margin for single-stock options and equity index options is not subject to equivalent margin requirements, the treatment of those products should be phased-in. This phase-in period will provide time for monitoring regulatory developments in other jurisdictions and ensuring that appropriate requirements are in place in the Union to mitigate counterparty credit risk in respect of such contracts whilst avoiding scope for regulatory arbitrage.

(44)

For reasons of legal certainty and to avoid potential disruptions in financial markets, it is appropriate to clarify the treatment of existing contracts.

(45)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.

(46)

The European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority have conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (5), the opinion of the Insurance and Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1094/2010 of the European Parliament and of the Council (6), and the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (7).

(47)

In accordance with the procedure set out in the fifth, sixth and seventh sub-paragraphs of Article 10(1) of Regulation (EU) No 1093/2010, in the fifth, sixth and seventh sub-paragraphs of Article 10(1) of Regulation (EU) No 1095/2010 and in the fifth, sixth and seventh sub-paragraphs of Article 10(1) of Regulation (EU) No 1094/2010, this Regulation incorporates amendments to the draft regulatory technical standards, resubmitted in the form of a formal opinion to the Commission by the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, on the basis of the Commission's proposed amendments,

(1)

Pursuant to Article 50(2)(a) of Regulation (EU) No 1151/2012, Italy's application to register the name ‘Oliva di Gaeta’ was published in the Official Journal of the European Union (2).

(2)

As no statement of objection under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the name ‘Oliva di Gaeta’ should therefore be entered in the register,

(1)

By Decision (EU) 2016/1623 of 1 June 2016 (2), the Council authorised the signing and the provisional application of the Economic Partnership Agreement between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part (3) (‘the Agreement’).

(2)

The Agreement stipulates that customs duties on imports into the Union of goods originating in the SADC EPA States are to be reduced or eliminated in accordance with the tariff elimination schedule in Annex I to the Agreement. Annex I provides that for certain goods originating in South Africa the reduction or elimination of customs duties is granted within tariff quotas.

(3)

Part 1, Section B, of Annex I to the Agreement stipulates that the Union is to manage those tariff quotas on a first-come, first-served basis. The Commission shall manage those tariff quotas in accordance with the rules on the management of tariff quotas laid down in Commission Implementing Regulation (EU) 2015/2447 (4).

(4)

Protocol 4 to the Agreement stipulates that, in the case of provisional application of this Agreement by the EU and ratification by South Africa, the application of the Articles of the Trade, Development and Cooperation Agreement with South Africa (5) which are laid down in Title II on trade and Title III on trade-related issues and its corresponding annexes and Protocols, with the exception of its Article 31 on maritime transport, shall be suspended. Therefore, Council Regulation (EC) No 2793/1999 (6) should be suspended as of the date of provisional application of the Agreement.

(5)

Article 16 of Protocol 3 of the Agreement stipulates that the agricultural market access concessions shall only be granted to the Party that lodges the notification pursuant to Article 3(3) of this Protocol from the first day of the month following receipt by the other Party of such notification. As the related notification has been received in October 2016, the related concessions should be granted as from 1 November 2016.

In order to ensure the effective application and management of the tariff quotas granted under the Agreement which the Commission shall manage on a first-come first-served basis, this Regulation should apply from 1 November 2016.

(6)

The measures provided for in this Regulation are in accordance with the opinion of the Customs Code Committee,

(1)

Implementing Regulation (EU) No 543/2011 lays down, pursuant to the outcome of the Uruguay Round multilateral trade negotiations, the criteria whereby the Commission fixes the standard values for imports from third countries, in respect of the products and periods stipulated in Annex XVI, Part A thereto.

(2)

The standard import value is calculated each working day, in accordance with Article 136(1) of Implementing Regulation (EU) No 543/2011, taking into account variable daily data. Therefore this Regulation should enter into force on the day of its publication in the Official Journal of the European Union,

(1)

Pursuant to Article 8(2) of Decision (CFSP) 2016/610, the Council authorised the Political and Security Committee to take the relevant decisions on the acceptance of proposed contributions by third States to the European Union CSDP Military Training Mission in the Central African Republic (EUTM RCA).

(2)

In accordance with the recommendation by the EU Mission Commander of EUTM RCA on a proposed contribution from the Republic of Serbia and the advice provided by the European Union Military Committee in that regard, that contribution should be accepted and considered to be significant.

(3)

In accordance with Article 5 of Protocol No 22 on the position of Denmark, annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union, Denmark does not participate in the elaboration and implementation of decisions and actions of the Union which have defence implications. Consequently, Denmark is not participating in the adoption of this Decision and is neither bound by it nor subject to its application,

(1)

The transfer of applicants for international protection to Greece under Regulation (EU) No 604/2013 of the European Parliament and of the Council (1) (hereafter ‘the Dublin Regulation’) has been suspended by Member States since 2011, following two judgments of the European Court of Human Rights (ECHR) and the Court of Justice of the European Union (CJEU) (2), which identified systemic deficiencies in the Greek asylum system, resulting in a violation of the fundamental rights of applicants for international protection transferred from other Member States to Greece under Council Regulation (EC) No 343/2003 (3).

(2)

The Committee of Ministers of the Council of Europe has been monitoring the situation in Greece since the M.S.S v Belgium and Greece judgment was delivered by the ECHR in 2011 on the basis of progress reports that Greece is required to submit as evidence of the execution of the judgment and on the basis of evidence from NGOs and international organisations, such as the United Nations High Commissioner for Refugees (UNHCR), that operate in Greece. At the request of Greece submitted in June 2016, the Ministerial Committee has accepted to postpone the evaluation procedure on the basis of the argument that Greece is currently under enormous migratory pressure, that the situation is exceptional, unstable and not the same as it was when the M.S.S judgment was delivered five years ago.

(3)

As a result of the M.S.S judgment, Greece committed to reform its asylum system on the basis of a national Action Plan on Asylum Reform and Migration Management presented in August 2010 and revised in January 2013 (hereafter ‘the Greek Action Plan’). On 1 October 2015, Greece presented a Roadmap on the implementation of the relocation scheme and the hotspots approach to the Council, which also outlines certain actions to be prioritised to ensure implementation of agreed pending actions in the areas of asylum and reception.

(4)

At the same time, the current refugee and migration crisis continues to place pressure on the Greek asylum and migration systems as the main country of first entry from the Eastern Mediterranean route. Between January and 4 December 2016, 171 909 migrants arrived irregularly in Greece (4). Even if the EU-Turkey Statement (5) has led to a significant decrease in the number of daily arrivals to Greece from Turkey (6), it has also placed new responsibilities on the Greek authorities. The average daily number of arrivals to Greece has moreover increased in the period since the beginning of August 2016 compared to the period 1 May until 31 July 2016 (7). Furthermore, the situation in Greece has also changed significantly, following the de facto closure of the Western Balkans route, which prevents third-country nationals from onward travel. As a result, more than 62 000 third-country nationals having arrived irregularly are currently present in Greece (8). At the same time, the emergency relocation scheme based on two Council Decisions (9) (hereafter ‘Relocation Decisions’), is showing a positive trend particularly in Greece where relocation transfers have moved upwards and stand presently at around 1 000 per month. However, more efforts are needed from all Member States to alleviate the pressure on Greece. For this purpose, the Commission is calling on all Member States to pledge and relocate on a monthly basis to achieve at least 2 000 relocation transfers per month as of December 2016 and progressively increase monthly relocations (10).

(5)

On 10 February and 15 June 2016, the Commission addressed respectively two Recommendations to the Hellenic Republic on the urgent measures to be taken by Greece in view of the resumption of transfers under the Dublin Regulation (11). Those Recommendations concluded that the situation in Greece still needed considerable improvement before a further assessment could be made by the Commission on the possible resumption of transfers to Greece under the Dublin Regulation. On 28 September 2016, the Commission addressed a third Recommendation to the Hellenic Republic on the specific urgent measures to be taken by Greece in view of the resumption of transfers under the Dublin Regulation (12) (hereafter ‘the third Recommendation’). The third Recommendation concluded that Greece is still facing a challenging situation in dealing with a large number of new asylum applicants, notably arising from the implementation of the so called ‘pre-registration’ exercise and the continuing irregular arrivals of migrants. There were moreover further important steps to be taken to remedy the remaining systemic deficiencies in the Greek asylum system, in particular given the capacity shortfalls. On the basis of the further progress achieved, any future resumption of transfers to Greece under the Dublin Regulation should, in accordance with the third Recommendation, take account of the impact this challenging situation has on the overall functioning of the asylum system, and should therefore start gradually, on a case by case basis.

(6)

By letter of 22 November 2016, Greece provided the Commission with further information regarding the latest situation of asylum applicants in Greece and of the progress it has made to reform its asylum system. Greece also expressed concerns about the prospect of a possible resumption of Dublin transfers, given the number of migrants in Greece, noting an enormous burden on it disproportionate to its size and which result in a situation where the asylum and reception capacities have reached their limit. Greece equally pointed to the level of relocations from Greece to other Member States which remain well below the level foreseen in the Relocation Decisions. However, Greece underlined that it is not aiming at any permanent exclusion from the Dublin system and requested genuine solidarity and support until the situation has been fully regularised in Greece.

(7)

According to Greek data of 22 November 2016, approximately 39 000 asylum applications have been lodged with the Greek Asylum Service since 1 January 2016. The pending cases to be examined at first instance were on 30 September more than 17 000. It is estimated by the Greek authorities that up to a total of 50 000 asylum applications will have been lodged by the end of 2016 (13). Due to the regularisation of the situation in Greece and the improved access to the asylum procedure, among other factors, the asylum application case load that the Greek Asylum Service is facing is significantly greater than in previous years.

(8)

In its previous Recommendations, the Commission has noted the improvements that Greece has made to its legislative framework to ensure that the new legal provisions of Directive 2013/32/EU of the European Parliament and of the Council (14) (the recast Asylum Procedures Directive) and some of Directive 2013/33/EU of the European Parliament and of the Council (15) (the recast Reception Conditions Directive) have been transposed into the national legislation. A new law (Law 4375/2016) was adopted by the Greek Parliament on 3 April 2016 (16). On 22 June 2016, the Parliament approved an amendment to Law 4375/2016 which, inter alia, modified the composition of the Appeals Committees and the right of asylum seekers to an oral hearing before them (17). On 31 August 2016, the Greek Parliament also adopted a law regarding school-aged refugee children residing in Greece (18).

(9)

As regards reception capacity, in the past year, Greece has significantly increased its overall reception capacity for both irregular migrants and applicants for international protection. According to the daily information released by the Greek authorities on 6 December 2016, there are 71 539 places available mostly in temporary reception facilities, including accommodation being provided by UNHCR (see recital 11), for both irregular migrants and applicants for international protection in Greece (19). However, there are serious challenges as regards capacity in the Aegean islands which have become overcrowded: maximum reception capacity remains around 8 200 while the total number of registered migrants on the islands was 16 295 as of 5 December 2016 (20).

(10)

Greece has also increased the accommodation for vulnerable applicants, in particular for unaccompanied minors. On 17 November 2016, 1 191 places were available in shelters for unaccompanied minors irrespective of whether they are asylum seekers or not. An additional 130 places suitable for unaccompanied minors is foreseen to be established by the end of 2016. However, the capacity for vulnerable applicants is still far from sufficient as facilities are currently full and there is a waiting list for 1 199 unaccompanied minors who need to be placed in appropriate facilities (21). The progress is, therefore, too slow in this area, and it is clear that Greece needs to step up its efforts to ensure that an appropriate number of reception facilities for unaccompanied minors are in place to deal with the demand for such accommodation.

(11)

In January 2016, a Delegation Agreement for a total of EUR 80 million was signed between the Commission and the UNHCR in order to establish 20 000 places in open accommodation (rental apartment schemes, hotel vouchers and family host programmes) primarily for the benefit of applicants for international protection eligible for relocation. The Delegation Agreement was revised in July 2016 in order to include in the accommodation scheme also the possibility to establish places in relocation sites managed by UNHCR, and to make it clearer in the text that the target group of the accommodation scheme includes not only relocation candidates but also other asylum seekers, particularly Dublin family reunification candidates and vulnerable categories, including unaccompanied and separated children, persons with disabilities, elderly, single parents, chronically ill, pregnant women, and others. Since September, the accommodation places available have been significantly increased (by around 8 100). UNHCR had committed in December 2015 to create 20 000 places for applicants eligible for relocation under the rental scheme, and as of 6 December, 20 145 places were available, including 6 344 places in hotels/entire buildings, 11 711 places in apartments, 484 places in host families, and 960 in relocation sites and 646 places in dedicated facilities for unaccompanied minors (22). As the current Delegation Agreement ends on 31 December 2016, the Commission started discussions with UNHCR for the extension of the scheme in 2017, on the basis of an updated assessment of Greece's reception needs.

(12)

In terms of quality, many of the reception facilities in Greece still fall short of the requirements stipulated in the Reception Conditions Directive 2013/33/EU for applicants for international protection, in particular on the islands and in some of the mainland temporary facilities. The ‘Hotspot’ facilities on the islands are not only overcrowded but have substandard material conditions in terms of sanitation and hygiene, access to essential services such as health care, in particular for vulnerable groups. Security is insufficient, and tensions persist between different nationalities. In the mainland, while the UNHCR accommodation scheme provides adequate conditions, much of the remaining reception capacity consists of encampments (currently 53 sites are being used) and emergency facilities with widely varying and often inadequate standards, both in terms of material conditions and security. Winterisation of some of these facilities has commenced but progress is slow. Even with improvements, it will be difficult to turn some camps into suitable permanent reception facilities, and there may be a need to close them down, while consolidating others.

(13)

Moreover, overall coordination of the organisation of reception in Greece appears to be deficient, due to the lack of a clear legal framework and monitoring system, with an ad hoc management of some camps by the Ministry for Migration and others by the Reception and Identification Service. No decision has been taken yet regarding which facilities should be made permanent. The Reception Service is still in the process of building up capacity.

(14)

It follows from the above that Greece still needs to make progress in establishing sufficient and adequate dedicated permanent open reception capacity for asylum applicants, all of which should be of an appropriate standard in accordance with the EU acquis. This should include a centralized management of all reception facilities together with a system for constantly monitoring the material standards for those facilities and the services provided there. Some temporary facilities should be transformed into permanent ones, but a sufficient capacity in terms of temporary facilities to accommodate any shortfall in capacity resulting from unexpected inflows should nevertheless also be maintained. Furthermore, as already requested in the third Recommendation, it is of utmost importance that the Greek authorities provide more exact data on the reception capacity and a comprehensive and continuously updated needs assessment in terms of total reception capacity and the nature of that capacity.

(15)

Substantial improvements have been noted regarding the establishment of the Regional Asylum Offices in the previous Recommendations. Greece's law provides for the establishment of Regional Asylum Offices in the regions of Attica, Thessaloniki, Thrace, Epirus, Thessaly, Western Greece, Crete, Lesvos, Chios, Samos, Leros and Rhodes (23). By decision of the Director of the Asylum Service it is also possible to set up Autonomous Asylum Units in order to cover increased needs of the Asylum Service. According to the information given by Greece in the letter of 22 November 2016, up till now seven Regional Offices have become operational, in the regions of Attica, Thrace, Thessaloniki, Lesvos, Samos, Rhodes and Patras. In addition, nine Autonomous Asylum Units are operational in Piraeus, Evros, Xanthi, Leros, Kos, Corinth and a Relocation Unit in Alimos. As the law stipulates, a further three Regional Asylum Offices are to become operational in the area of Kos, Epirus (Ioannina), Crete (Heraklio) and Thessaly (Volos).

(16)

The Greek Asylum Service is in the process of increasing its capacity. Currently, there are 478 persons working in the Asylum Service (24). This number covers posts of the Central Service as well as established Regional Offices and Asylum Units. The National budget covers 250 posts, whereas the rest is funded by different EU and EEA sources. By the end of the year it is planned that the staff will be increased to 659. This is in addition to the fixed-term staff hired by the UNHCR as well as the EASO staff members and the Member States' experts deployed via EASO to the Greek Asylum Service for a fixed period. The Greek authorities' intention is to replace all contractual staff with permanent staff by the end of 2017 and not to further increase the capacity; the Greek Asylum Service has indicated to the Commission services that a more rapid expansion of staffing is not feasible due to the lack of senior staff to train, mentor and supervise newly recruited ones. As the Asylum Service will have tripled in size during the course of 2016, it has indicated that it urgently needs to consolidate, especially to build middle management and staff expertise.

(17)

Given the scale of the increase in the number of asylum applications in Greece, it is not yet clear whether the current and planned staffing levels for the Asylum Service are sufficient for what is required to process the current and likely future case-load in a timely and adequate manner. One of the main priorities of the Asylum Service should be to reduce the time elapsing between the making and the lodging of an application which is currently often too long, with an impact on the rights enjoyed by the persons concerned and causing frustration among those affected. It should be reduced in accordance with Article 6(2) of the Asylum Procedures Directive which requires that a person who made an asylum application has an effective opportunity to lodge the application ‘as soon as possible’. It is also essential that, once lodged, an application is processed within the time limits set out in the Directive, and so normally within 6 months. The processing of a lodged asylum application currently takes at its best several months, apart from relocation cases that are processed more rapidly, and there is considerable uncertainty about the speed in which the current backlog of applications will be cleared. The Commission, however, takes due note of the concerns Greece expressed in the letter of 22 November 2016 according to which an even more rapid increase of the staff of the Asylum Service would threaten to affect the coherence and the quality of the decisions.

(18)

There is an urgent need to assess whether the increase so far in human resources of the Asylum Service is sufficient, and also to assess how the Commission, relevant EU Agencies and also the Member States could best assist Greece in dealing with these applications in a shorter time limit. A comprehensive and continuously updated needs assessment should be carried out that takes into account the number of asylum applications that are currently pending and that are likely to be handled by the Greek Asylum Service at any one time and the number of available staff required or likely to be required to process those applications. This staff could be comprised of additional resources to be provided by Greece itself and via deployment of Member States experts in the form of an EASO support team. While maintaining quality, it should be explored how to rationalise working methods and make them more efficient to speed up the interviews and procedures, with the support of EASO where appropriate.

(19)

Asylum seekers must be able to have effective access to a remedy against a negative decision on their claim. Important progress has been made in this regard. The Appeals Authority and Appeals Committees were established by Law 4375/2016 adopted in April 2016. Law 4399/2016 adopted in June 2016 establishes new Appeals Committees. They are responsible for examining all appeals against decisions of the Greek Asylum Service lodged since 20 July 2016. As a priority, the Appeals Committees are focusing primarily on cases lodged on the Greek islands, so as to contribute to the implementation of the EU-Turkey Statement. There are currently six of them. One Appeals Committee has also been established since 21 July as alternate to the permanent ones (25). In order to cope with the increasing caseload and manage the backlog cases, Greece intends to establish a further seven committees expected to be operational by the end of December 2016 and bring the total to 20 by the end of February 2017.

(20)

Law 4399/2016 also amended the structure of these Committees which are now composed of three members: two judges of the Administrative Court and one Greek citizen with relevant background and experience to be put forward by UNHCR or the National Committee for Human Rights.

(21)

According to the information given by the Greek authorities in the letter of 22 November 2016 since 21 July 2016, 2 347 appeals have been brought before the Appeals Committees but only 573 decisions have been issued.

(22)

The old ‘Backlog’ Appeal Committees that were established to hear asylum appeals from Greece's backlog of cases had been initially given an additional mandate to hear, in addition to substantive appeals on first instance decisions, the appeals against the decisions based on grounds of admissibility as part of the EU-Turkey Statement. According to the information given by the Greek authorities on 22 November, more than 2 000 appeals lodged between April and 20 July 2016 have been brought before the Backlog Committees. The establishment of the New Appeals Committees on 24 June 2016 (26) has alleviated the burden of the 20 ‘Backlog’ Appeal Committees allowing them to accelerate the pace of the proceedings of the backlog appeal cases.

(23)

More progress has been made on the long-standing backlog of appeals under the ‘old procedure’ regulated by Presidential Decree 114/2010. The current backlog stands at approximately 6 589 cases as of 22 November 2016 (down from a total of approximately 51 000 cases that were considered as part of the backlog at the beginning of 2013 and approximately 8 075 cases in September 2016). The Greek authorities have granted permits for humanitarian purposes to persons whose applications for asylum have been pending for a considerable time and who are eligible to acquire residence permits on humanitarian or other exceptional grounds, according to the Greek Law 4375/2016. The residence permits are issued for a period of two years and can be renewed (27). They provide to beneficiaries the same rights and benefits as to those granted subsidiary protection status in Greece (28), and these persons are then no longer considered as asylum applicants. Some of the backlog appeals are, however, examined as to their substance. Despite the significant progress made since the previous Recommendations, Greece should continue its efforts to clear the backlog of pending appeals in this regard, ensuring that applicants with an outstanding appeal have an opportunity to exercise their right to an effective remedy.

(24)

Given the increase in the number of applications made in Greece since the implementation of the EU-Turkey Statement, a fully staffed Appeals Authority, capable of handling an expected significant increase in the number of appeals, is all the more essential. While maintaining quality and without prejudice to the independence of the committee members, the efficiency of the committees should be increased. This could include in particular the Appeals Committees meeting more frequently, the use of legal assistance in drafting decisions and specialization of the committees as well as full time engagement of the members. Also more support staff should be engaged (29). A continuous needs assessment should also be carried out on the basis of the number of appeals that are currently pending in the different appeal bodies and that are likely to be handled by them with a view to assessing whether the number of committees is sufficient and working methods appropriate.

(25)

The provision of free legal aid has been included in the new law (Law 4375/2016) for applicants at the appeal stage. However, all the measures to implement this law in practice have not yet been taken. A Ministerial Decision implementing the provision for legal aid under Law 4375/2016 was adopted on 9 September 2016. Funding for the implementation of free legal assistance has been secured through the national programme under the Asylum, Migration and Integration Fund (AMIF). Additionally, a grant agreement was awarded to the UNHCR under AMIF emergency assistance funding for the total amount of EUR 30 million (30). This funding is, amongst other things, being used by the UNHCR to provide free legal assistance to applicants for international protection at the appeals stage until the beginning of 2017, by when the Greek authorities are expected to put in place their own free legal aid scheme. Two projects are being implemented in partnership with non-governmental organisations (Metaction and the Greek Council for Refugees): one on the islands, with full coverage of all appeals and the other one on the mainland, only with partial coverage, for appeals lodged in Athens and Thessaloniki, and not for asylum seekers in detention. On 19 September, Greece informed the Commission that the roster of lawyers to be maintained by the Asylum Service will be established by early 2017. Greece should take the necessary steps to guarantee without delay the right to free legal aid for all asylum applicants lodging appeals.

(26)

Serious concerns remain regarding the protection of vulnerable applicants, including unaccompanied minors, in particular given the lack of a properly functioning guardianship system, inadequacies in terms of suitable accommodation and general concerns regarding their security. The new Law 4375/2016 provides for a new Directorate for Reception and a Directorate for Social Integration that both include specialised departments for the reception and integration of unaccompanied minors within the Ministry of Interior and Administrative Reconstruction, including the provision of a legal representative. Despite this, implementing measures still need to be adopted by the Greek authorities to ensure that appropriate procedural guarantees and reception conditions are provided in practice to unaccompanied minors. A further legislative framework that should include provisions for an efficient guardianship system still needs to be adopted. The Greek authorities have confirmed that the Ministry of Labour and Social Solidarity (MoL), which is in charge of unaccompanied minors, is preparing a new law on guardianship that should be ready before the end of 2016. Within this law a special service, possibly a department, would be established for the guardianship system. While a Ministerial Decision concerning the age assessment of unaccompanied minors seeking asylum has already been adopted by the Greek government (31), there continue to be reported concerns about the implementation of the assessment in practice due to lack of identification and the lack of a legal remedy concerning the age assessment carried out by the police.

(27)

There has been significant progress as regards access to education. Law 4415/2016 in August 2016 aims, inter alia, at securing psychosocial support and education for the children of asylum seekers, as well as the smooth integration into the Greek educational system of those who will remain in Greece, following a preparatory, transitional period. Despite local resistance Greek authorities are taking significant measures to implement this legal framework fully and effectively.

(28)

According to various stakeholders, the situation for unaccompanied minors is still in general precarious, with many concerns about their security in the reception facilities on the mainland and on the islands, and with some indicating that children are still held in detention, or in ‘protected’ areas within open reception facilities, for prolonged periods in crowded and unsanitary conditions without a representative or access to legal aid, until appropriate accommodation can be found for them (32). As stated in recital 10, the lack of appropriate accommodation for minors is an important problem which still needs to be urgently remedied.

(29)

The European Commission has provided substantial funding to Greece to support the country in its efforts to bring its asylum management system up to EU standards. Since the beginning of 2015, more than EUR 352 million in emergency assistance has been awarded through Home Affairs Funds (AMIF and Internal Security Fund (ISF)) to Greece, either directly to the Greek authorities or through Union Agencies and international organisations operating in Greece. Out of this amount, some EUR 90 million was directly awarded to the Greek authorities in July 2016 to strengthen their capacities to improve living conditions and provide primary healthcare services at refugee accommodation centres, as well as to provide reception and healthcare services to the migrants. Substantial funding (approximately EUR 198 million) aiming at covering the migrants' and refugees' basic humanitarian needs is also being provided to humanitarian partner organisations through the recently created Emergency Support Instrument. This funding contributes to the implementation of the emergency response plan developed together by the Commission, the Greek authorities and/or relevant stakeholders to address the ongoing humanitarian situation on the ground and/or to support the implementation of the EU-Turkey Statement.

(30)

This emergency assistance comes on top of the EUR 509 million allocated to Greece for the period 2014-2020 through its national programmes under the AMIF and ISF Funds, thus making Greece the first beneficiary of EU Home Affairs funds amongst EU Member States.

(31)

Greece should ensure that such financial resources are fully used in the most efficient and effective manner and without further delay. To this purpose, Greece's national programmes under the Home Affairs funds (AMIF, ISF) are being revised to adjust them to the new priorities. The revision of the AMIF national programme has been completed, while the revision of the ISF national programme is at its final stages and should soon be completed. Furthermore, although the formal designation of the new Responsible Authority has been completed, in accordance with the requirements set in the legal basis, procedures and operational measures still need to be streamlined to ensure that Greek authorities start fully mobilising the funding available under the national programmes in order to cater for urgent needs especially in the field of reception and other services for the migrants present in the country.

(32)

As acknowledged in the Commission's Communication of 4 March 2016 on ‘Back to Schengen’ (33), ensuring a fully functioning Dublin system is an indispensable part of the wider efforts needed to stabilise the asylum, migration and border policy. These efforts to normalise the functioning of the Dublin system should in turn lead to a return to a normal functioning of the Schengen area. The incentive for asylum seekers arriving irregularly to Greece to move on to other Member States, which the suspension of Dublin transfers to Greece since 2011 has engendered, is one of the factors leading to the secondary movements which have been undermining the proper functioning of the Schengen system. It is therefore important that Greece takes as a matter of urgency the outstanding actions identified in this Recommendation. At the same time, reforming the Dublin rules as proposed by the Commission (34), based on the objective of solidarity and fair burden-sharing between Member States, should be a priority. Negotiations on this proposal are ongoing.

(33)

The Commission acknowledges the important progress made by Greece, assisted by the Commission, EASO, Member States and international and non-governmental organisations, to improve the functioning of the Greek asylum system since the M.S.S judgement in 2011. However, Greece is still facing a challenging situation in dealing with a large number of new asylum applicants, notably arising from the implementation of the pre-registration exercise, the continuing irregular arrivals of migrants, albeit at lower levels than before March 2016, and from its responsibilities under the implementation of the EU-Turkey Statement. There are moreover further important steps to be taken to remedy the remaining shortcomings in the Greek asylum system, in particular as regards the quality of reception facilities, the treatment of vulnerable applicants and the speed with which asylum applications are registered, lodged and examined in the two instances. In order to take account of the impact of this challenging situation on the overall functioning of the asylum system and in order to avoid placing an unsustainable burden on Greece, it is not yet possible to recommend a full resumption of Dublin transfers to Greece, although it remains the ultimate goal.

(34)

However, significant progress has been attained by Greece in putting in place the essential institutional and legal structures for a properly functioning asylum system and, there is a good prospect for a fully functioning asylum system being in place in the near future, once all the remaining shortcomings have been remedied, in particular as regards reception conditions and the treatment of vulnerable persons, including unaccompanied minors. It is, therefore, appropriate to recommend that transfers should resume gradually and on the basis of individual assurances, taking account of the capacities for reception and treatment of applications in conformity with relevant EU legislation, and taking account of the currently inadequate treatment of certain categories of persons, in particular vulnerable applicants, including unaccompanied minors. The resumption should, moreover, not be applied retroactively but concern asylum applicants for whom Greece is responsible starting from a specific date in order to avoid that an unsustainable burden is placed on Greece. It should be recommended that this date is set at 15 March 2017.

(35)

On the basis of the above, this Recommendation sets out the measures that need to be taken or sustained by the Greek authorities in view of resuming Dublin transfers concerning asylum applicants who have entered Greece irregularly at external borders from 15 March 2017 onwards, or for whom Greece is responsible under the criteria other than Article 13 in Chapter III of Regulation (EU) No 604/2013 from that date. With this objective in mind, Greece should urgently take all of the steps set out in this Recommendation. In compliance with the principle of solidarity and fair sharing of responsibility, the other Member States should also contribute to attaining this objective, in particular by deploying experts to assist the Greek authorities by responding to EASO's various calls as well as by fully complying with their relocation obligations resulting from the Relocation Decisions.

(36)

This Recommendation also sets out the modalities for the resumption of transfers which should include close cooperation between the Greek authorities and the authorities of the transferring Member State in individual cases of transfer, based on the duty of sincere cooperation between Member States, including for ensuring that the person will be suitably accommodated in accordance with the standards set out in Directive 2013/33/EU and that his or her request will be processed in accordance with Directive 2013/32/EU. This will require that Greece provides specific assurances in respect of each individual to be transferred concerning the manner in which he or she will be treated. Furthermore, a support and reporting mechanism consisting of an EASO team of Member States' experts should be set up in order to assist in ensuring that such standards are applied in practice with regard to the transferred persons.

(37)

Regular reporting by Greece on the progress being made in implementing these actions is essential in order to ensure full implementation of this Recommendation. Greece should accordingly provide a first report by 15 February 2017 as set out in this Recommendation which should in particular include a description of how the Greek authorities are putting in place the procedure for providing assurances in individual cases of transfer in respect of the relevant EU legislation. Thereafter, Greece should report every two months on the implementation of this Recommendation.

(38)

Based on these reports and any other relevant information at its disposal or other developments, the Commission will regularly report on the progress made in the implementation of this Recommendation and update where necessary the recommendations set out therein.

(39)

The responsibility for deciding on the resumption of transfers in individual cases lies exclusively with Member States' authorities under the control of the courts, which may make preliminary references to the European Court of Justice on the interpretation of the Dublin Regulation.