(1)

It is important to ensure that Union financial services legislation is fit for the digital age and contributes to a future-proof economy that works for citizens, including by enabling the use of innovative technologies. The Union has a policy interest in exploring, developing and promoting the uptake of transformative technologies in the financial sector, including the uptake of distributed ledger technology (DLT). Crypto-assets are one of the main applications of distributed ledger technology in the financial sector.

(2)

Most crypto-assets fall outside the scope of Union financial services legislation and create challenges in terms of, among other things, investor protection, market integrity, energy consumption and financial stability. Such crypto-assets therefore require a dedicated regulatory framework at Union level. By contrast, other crypto-assets qualify as financial instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council (4). Insofar as crypto-assets qualify as financial instruments under that Directive, a full set of Union financial services legislation, including Regulations (EU) No 236/2012 (5), (EU) No 596/2014 (6), (EU) No 909/2014 (7) and (EU) 2017/1129 (8) and Directives 98/26/EC (9) and 2013/50/EU (10) of the European Parliament and of the Council potentially apply to issuers of such crypto-assets and to firms conducting activities related to such crypto-assets.

(3)

The so-called ‘tokenisation’ of financial instruments, that is to say, the digital representation of financial instruments on distributed ledgers or the issuance of traditional asset classes in tokenised form to enable them to be issued, stored and transferred on a distributed ledger, is expected to open up opportunities for efficiency improvements in the trading and post-trading process. However, as fundamental trade-offs involving credit risk and liquidity remain in a tokenised world, the success of token-based systems will depend on how well they interact with traditional account-based systems, at least in the interim.

(4)

Union financial services legislation was not designed with distributed ledger technology and crypto-assets in mind, and contains provisions that potentially preclude or limit the use of distributed ledger technology in the issuance, trading and settlement of crypto-assets that qualify as financial instruments. Currently, there is also a lack of authorised financial market infrastructures which use distributed ledger technology to provide trading or settlement services, or a combination of such services, for crypto-assets that qualify as financial instruments. The development of a secondary market for such crypto-assets could bring multiple benefits, such as enhanced efficiency, transparency and competition in relation to trading and settlement activities.

(5)

At the same time, regulatory gaps exist due to legal, technological and operational specificities related to the use of distributed ledger technology and to crypto-assets that qualify as financial instruments. For instance, there are no transparency, reliability or safety requirements imposed on the protocols and ‘smart contracts’ that underpin crypto-assets that qualify as financial instruments. The underlying technology could also raise some novel forms of risk that are not adequately addressed by the existing rules. Several projects for the trading of crypto-assets that qualify as financial instruments and related post-trading services and activities have been developed in the Union, but few are already in operation, and those that are in operation are of limited scale. Furthermore, as highlighted by the European Central Bank’s (ECB) Advisory Group on Market Infrastructures for Securities and Collateral and its Advisory Group on Market Infrastructures for Payments, the use of distributed ledger technology would entail similar challenges to those faced by conventional technology, such as fragmentation and interoperability issues, and would potentially also create new issues, for instance in relation to the legal validity of tokens. Given the limited experience as regards the trading of crypto-assets that qualify as financial instruments and related post-trading services and activities, it is currently premature to significantly modify Union financial services legislation to enable the full deployment of such crypto-assets and their underlying technology. At the same time, the creation of financial market infrastructure for crypto-assets that qualify as financial instruments is currently constrained by requirements embedded in Union financial services legislation that are not well suited to crypto-assets that qualify as financial instruments or the use of distributed ledger technology. For instance, platforms for trading crypto-assets usually give direct access to retail investors, whereas traditional trading venues usually give access to retail investors only through financial intermediaries.

(6)

In order to allow for the development of crypto-assets that qualify as financial instruments and for the development of distributed ledger technology, while preserving a high level of investor protection, market integrity, financial stability and transparency, and avoiding regulatory arbitrage and loopholes, it would be useful to create a pilot regime for market infrastructures based on distributed ledger technology to test such DLT market infrastructures (the ‘pilot regime’). The pilot regime should allow for certain DLT market infrastructures to be temporarily exempted from some of the specific requirements of Union financial services legislation that could otherwise prevent operators from developing solutions for the trading and settlement of transactions in crypto-assets that qualify as financial instruments, without weakening any existing requirements or safeguards applied to traditional market infrastructures. DLT market infrastructures and their operators should have in place adequate safeguards related to the use of distributed ledger technology to ensure the effective protection of investors, including clearly defined chains of liability to clients for any losses due to operational failures. The pilot regime should also enable the European Supervisory Authority (European Securities and Markets Authority) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (11) (ESMA) and competent authorities to draw lessons from the pilot regime and to gain experience of the opportunities and specific risks relating to crypto-assets that qualify as financial instruments and to their underlying technologies. The experience gained with the pilot regime should help identify possible practical proposals for a suitable regulatory framework in order to make targeted adjustments to Union law as regards the issuance, safekeeping and asset servicing, trading and settlement of DLT financial instruments.

(7)

To meet the objectives of the pilot regime, a new Union status as DLT market infrastructure should be created in order to ensure that the Union is able to play a leading role regarding financial instruments in tokenised form and to contribute to the development of a secondary market for such assets. The status as DLT market infrastructure should be optional and should not prevent financial market infrastructures, such as trading venues, central securities depositories (CSDs) and central counterparties (CCPs), from developing trading and post-trading services and activities for crypto-assets that qualify as financial instruments, or are based on distributed ledger technology, under existing Union financial services legislation.

(8)

DLT market infrastructures should only admit to trading or record DLT financial instruments on a distributed ledger. DLT financial instruments should be crypto-assets that qualify as financial instruments and which are issued, transferred and stored on a distributed ledger.

(9)

Union legislation on financial services is intended to be neutral as regards the use of any particular technology over another. Therefore, references to a specific type of distributed ledger technology are to be avoided. Operators of DLT market infrastructures should ensure that they are able to comply with all applicable requirements, irrespective of the technology used.

(10)

When applying this Regulation, the principles of technology neutrality, proportionality, the level playing field, and ‘same activity, same risks, same rules’ should be taken into account in order to ensure that market participants have the regulatory space to innovate, in order to uphold the values of transparency, fairness, stability, investor protection, accountability and market integrity, and in order to ensure the protection of privacy and personal data as guaranteed by Articles 7 and 8 of the Charter of Fundamental Rights of the European Union.

(11)

Access to the pilot regime should not be limited to incumbents but should also be open to new entrants. An entity that is not authorised under Regulation (EU) No 909/2014 or Directive 2014/65/EU could apply for authorisation under that Regulation or under that Directive, respectively, and, simultaneously, for a specific permission under this Regulation. In such cases, the competent authority should not assess whether such an entity fulfils the requirements of Regulation (EU) No 909/2014 or Directive 2014/65/EU in respect of which an exemption has been requested under this Regulation. Such entities should only be able to operate DLT market infrastructures in accordance with this Regulation, and their authorisation should be revoked once their specific permission has expired, unless the entities submit a complete request for authorisation under Regulation (EU) No 909/2014 or under Directive 2014/65/EU.

(12)

The concept of DLT market infrastructure comprises DLT multilateral trading facilities (DLT MTF), DLT settlement systems (DLT SS) and DLT trading and settlement systems (DLT TSS). DLT market infrastructures should be able to cooperate with other market participants in order to test innovative solutions based on distributed ledger technology in different segments of the value chain for financial services.

(13)

A DLT MTF should be a multilateral trading facility that is operated by an investment firm or a market operator authorised under Directive 2014/65/EU and that has received a specific permission under this Regulation. A credit institution authorised under Directive 2013/36/EU that provides investment services or performs investment activities should only be allowed to operate a DLT MTF when authorised as an investment firm or market operator under Directive 2014/65/EU. DLT MTFs and their operators should be subject to all requirements that apply to multilateral trading facilities and their operators under Regulation (EU) No 600/2014 of the European Parliament and of the Council (12), under Directive 2014/65/EU or under any other applicable Union financial services legislation, except for requirements in respect of which an exemption has been granted by the competent authority in accordance with this Regulation.

(14)

The use of distributed ledger technology, by which all transactions are recorded on a distributed ledger, can expedite and combine trading and settlement in near real-time and could enable the combination of trading and post-trading services and activities. However, the combination of trading and post-trading activities within a single entity is not envisaged by the existing rules, irrespective of the technology used, due to policy choices related to risk specialisation and unbundling for the purposes of encouraging competition. The pilot regime should not be a precedent to justify a fundamental overhaul of the separation of trading and post-trading activities or of the landscape of financial market infrastructures. However, in view of the potential benefits of distributed ledger technology in terms of combining trading and settlement, it is justified to provide for a dedicated DLT market infrastructure in the pilot regime, namely, the DLT TSS, which combines the activities normally performed by multilateral trading facilities and securities settlement systems.

(15)

A DLT TSS should be either a DLT MTF that combines the services performed by a DLT MTF and by a DLT SS, and should be operated by an investment firm or market operator that has received a specific permission to operate a DLT TSS under this Regulation, or should be a DLT SS that combines the services performed by a DLT MTF and by a DLT SS, and should be operated by a CSD that has received a specific permission to operate a DLT TSS under this Regulation. A credit institution authorised under Directive 2013/36/EU that provides investment services or performs investment activities should only be allowed to operate a DLT TSS when authorised as an investment firm or market operator under Directive 2014/65/EU. An investment firm or market operator operating a DLT TSS should be subject to the requirements that apply to a DLT MTF, and a CSD operating a DLT TSS should be subject to the requirements that apply to a DLT SS. Since a DLT TSS would enable an investment firm or market operator also to provide settlement services, and would enable a CSD also to provide trading services, it is necessary that investment firms or market operators also comply with the requirements that apply to a DLT SS, and that CSDs comply with the requirements that apply to a DLT MTF. Since CSDs are not subject to certain authorisation and organisational requirements under Directive 2014/65/EU when providing investment services or activities in accordance with Regulation (EU) No 909/2014, it is appropriate to take a similar approach in the pilot regime both for investment firms and market operators and for CSDs operating a DLT TSS. Therefore, an investment firm or market operator operating a DLT TSS should be exempted from a limited set of authorisation and organisational requirements under Regulation (EU) No 909/2014, since the investment firm or market operator will be required to comply with the authorisation and organisational requirements under Directive 2014/65/EU. Conversely, a CSD operating a DLT TSS should be exempted from a limited set of authorisation and organisational requirements under Directive 2014/65/EU, since the CSD will be required to comply with the authorisation and organisational requirements under Regulation (EU) No 909/2014. Such exemptions should be temporary and should not apply to a DLT market infrastructure operating outside the pilot regime. ESMA should be able to assess technical standards on record-keeping and operational risks adopted pursuant to Regulation (EU) No 909/2014 with a view to ensuring that they are applied proportionately to investment firms or market operators operating a DLT TSS.

(16)

Operators of DLT TSSs should be able to request the same exemptions as those available to operators of DLT MTFs and of DLT SSs, provided that they comply with the conditions attached to the exemptions and with any compensatory measures required by the competent authorities. Considerations similar to those that apply to DLT MTFs and DLT SSs should apply to the exemptions that are available to DLT TSSs, to any conditions attached to those exemptions, and to compensatory measures.

(17)

In order to provide for additional flexibility in the application of certain requirements of Regulation (EU) No 909/2014 to investment firms or market operators operating a DLT TSS while ensuring a level playing field with CSDs providing settlement services under the pilot regime, certain exemptions from the requirements of that Regulation concerning measures to prevent and address settlement fails, from requirements for participation and transparency, and from requirements to use certain communication procedures with participants and other market infrastructures, should be available to CSDs operating a DLT SS or a DLT TSS, and to investment firms or market operators operating a DLT TSS. Those exemptions should be subject to conditions attached to them, including certain minimum requirements, and any compensatory measures required by the competent authority, in order to meet the objectives of the provisions of Regulation (EU) No 909/2014 in respect of which an exemption is requested or in order to safeguard investor protection, market integrity or financial stability. The operator of a DLT TSS should demonstrate that the exemption requested is proportionate and justified by the use of distributed ledger technology.

(18)

A DLT SS should be a settlement system operated by a CSD authorised under Regulation (EU) No 909/2014 that has received a specific permission to operate a DLT SS under this Regulation. A DLT SS, and the CSD which operates it, should be subject to all relevant requirements under Regulation (EU) No 909/2014, and any other applicable Union financial services legislation, except for requirements in respect of which an exemption has been granted in accordance with this Regulation.

(19)

Where the ECB and national central banks, or other institutions run by Member States that perform similar functions, or other public bodies charged with or intervening in the management of public debt in the Union, operate a DLT SS, they should not be required to seek a specific permission from a competent authority in order to benefit from an exemption under this Regulation, since such entities are not required to report to competent authorities or to comply with their instructions and are subject to a limited set of requirements under Regulation (EU) No 909/2014.

(20)

The creation of the pilot regime should be without prejudice to the tasks and responsibilities of the ECB and the national central banks in the European System of Central Banks, set out in the Treaty on the Functioning of the European Union and in Protocol No 4 on the Statute of the European System of Central Banks and of the European Central Bank, to promote the smooth operation of payment systems and to ensure efficient and sound clearing and payment systems within the Union and with third countries.

(21)

The assignment of supervisory responsibilities provided for in this Regulation is justified by the specific characteristics and risks of the pilot regime. Therefore, the supervisory architecture of the pilot regime should not be understood as setting a precedent for any future act of Union financial services legislation.

(22)

Operators of DLT market infrastructures should be liable in the case of a loss of funds, of collateral or of a DLT financial instrument. The liability of the operator of a DLT market infrastructure should be limited to the market value of the asset lost as of the time when the loss was incurred. The operator of a DLT market infrastructure should not be liable for events that are not attributable to the operator, in particular any event that the operator demonstrates occurred independently of its operations, including problems arising as a result of an external event beyond its reasonable control.

(23)

In order to allow for innovation and experimentation in a sound regulatory environment while preserving investor protection, market integrity and financial stability, the types of financial instrument admitted to trading or recorded on a DLT market infrastructure should be limited to shares, bonds, and units in collective investment undertakings that benefit from the execution-only exemption under Directive 2014/65/EU. This Regulation should set value thresholds that could be lowered in certain situations. In particular, to avoid any risk to financial stability, the aggregate market value of DLT financial instruments admitted to trading or recorded on a DLT market infrastructure should be limited.

(24)

In order to move closer to a level playing field for financial instruments admitted to trading on traditional trading venues within the meaning of Directive 2014/65/EU and in order to ensure high levels of investor protection, market integrity and financial stability, DLT financial instruments admitted to trading on a DLT MTF or on a DLT TSS should be subject to the provisions prohibiting market abuse under Regulation (EU) No 596/2014.

(25)

At the request of an operator of a DLT MTF, the competent authorities should be allowed to grant one or several exemptions on a temporary basis, if the operator complies with the conditions attached to such exemptions and with any additional requirements set by this Regulation to address novel forms of risks raised by the use of distributed ledger technology. An operator of a DLT MTF should also comply with any compensatory measure required by the competent authority in order to meet the objectives of the provision in respect of which an exemption has been requested, or in order to safeguard investor protection, market integrity or financial stability.

(26)

At the request of an operator of a DLT MTF, the competent authorities should be allowed to grant an exemption from the obligation of intermediation under Directive 2014/65/EU. At present, traditional multilateral trading facilities are allowed to admit as members or participants only investment firms, credit institutions and other persons who have a sufficient level of trading ability and competence and who maintain adequate organisational arrangements and resources. By contrast, many platforms for trading crypto-assets offer disintermediated access and provide direct access for retail investors. Accordingly, one potential regulatory obstacle to the development of multilateral trading facilities for DLT financial instruments could be the obligation of intermediation under Directive 2014/65/EU. At the request of an operator of a DLT MTF, the competent authority should therefore be allowed to grant a temporary exemption from that obligation of intermediation in order to provide direct access for retail investors and to enable them to deal on their own account, provided that adequate safeguards regarding investor protection are in place, that such retail investors fulfil certain conditions and that the operator complies with any possible additional investor protection measures that the competent authority requires. Retail investors that have direct access to a DLT MTF as members or participants under an exemption from the obligation of intermediation should not be considered to be investment firms within the meaning of Directive 2014/65/EU solely by virtue of being members of, or participants in, a DLT MTF.

(27)

At the request of an operator of a DLT MTF, the competent authorities should also be allowed to grant an exemption from the transaction reporting requirements under Regulation (EU) No 600/2014, provided that the DLT MTF fulfils certain conditions.

(28)

In order to be eligible for an exemption under this Regulation, an operator of a DLT MTF should demonstrate that the requested exemption is proportionate and limited to the use of distributed ledger technology as described in its business plan, and that the requested exemption is limited to the DLT MTF and does not extend to any other multilateral trading facility operated by the same investment firm or market operator.

(29)

At the request of a CSD operating a DLT SS, competent authorities should be allowed to grant one or more exemptions on a temporary basis if it complies with the conditions attached to such exemptions and with any additional requirements set by this Regulation to address novel forms of risks raised by the use of distributed ledger technology. The CSD operating the DLT SS should also comply with any compensatory measure required by the competent authority in order to meet the objectives of the provision in respect of which the exemption was requested or in order to safeguard investor protection, market integrity or financial stability.

(30)

It should be allowed to exempt CSDs operating a DLT SS from certain provisions of Regulation (EU) No 909/2014 that are likely to create regulatory obstacles for the development of DLT SSs. For instance, exemptions should be possible to the extent that the rules of that Regulation applicable to CSDs and which refer to the terms ‘dematerialised form’, ‘securities account’ or ‘transfer orders’ do not apply to CSDs operating a DLT SS, with the exception of the requirements for CSD links which should apply mutatis mutandis. With respect to the term ‘securities account’, the exemption would cover the rules on the recording of securities, integrity of issue and segregation of accounts. Whereas CSDs operate securities settlement systems by crediting and debiting the securities accounts of their participants, double-entry or multiple-entry book keeping securities accounts might not always be feasible in a DLT SS. Therefore, an exemption should also be possible for a CSD operating a DLT SS from the rules in Regulation (EU) No 909/2014 that refer to the term ‘book-entry form’ where such an exemption is necessary to allow for the recording of DLT financial instruments on a distributed ledger. However, a CSD operating a DLT SS should still ensure the integrity of the DLT financial instruments issue on the distributed ledger and the segregation of the DLT financial instruments belonging to the various participants.

(31)

A CSD operating a DLT SS should always remain subject to the provisions of Regulation (EU) No 909/2014, pursuant to which a CSD that outsources services or activities to a third party remains fully responsible for discharging all of its obligations under that Regulation and is required to ensure that any outsourcing does not result in the delegation of its responsibility. Regulation (EU) No 909/2014 only permits CSDs operating a DLT SS to outsource a core service or activity after receiving authorisation from the competent authority. A CSD operating a DLT SS should therefore be able to request an exemption from that authorisation requirement where the CSD demonstrates that the requirement is incompatible with the use of distributed ledger technology as envisaged in its business plan. The delegation of tasks pertaining to the functioning of a DLT SS, or to the use of distributed ledger technology, to perform settlement, should not be considered to be outsourcing within the meaning of Regulation (EU) No 909/2014.

(32)

The obligation of intermediation through a credit institution or an investment firm in order to prevent retail investors from obtaining direct access to the settlement and delivery systems operated by a CSD could create a regulatory obstacle to the development of alternative models of settlement based on distributed ledger technology that allows direct access by retail investors. Therefore, an exemption should be allowed for CSDs operating a DLT SS in the sense that the term ‘participant’ in Directive 98/26/EC is deemed to include, under certain conditions, persons other than those referred to in that Directive. When seeking an exemption from the obligation of intermediation of Regulation (EU) No 909/2014, the CSD operating a DLT SS should ensure that the persons to be admitted as participants fulfil certain conditions. A CSD operating a DLT SS should ensure that its participants have a sufficient level of ability, competence, experience and knowledge of post-trading activities and the functioning of distributed ledger technology.

(33)

Entities that are eligible to participate in a CSD under Regulation (EU) No 909/2014 correspond to the entities that are eligible to participate in a securities settlement system that is designated and notified in accordance with Directive 98/26/EC, because Regulation (EU) No 909/2014 requires securities settlement systems operated by CSDs to be designated and notified under Directive 98/26/EC. Accordingly, an operator of a securities settlement system based on distributed ledger technology that requests to be exempted from the participation requirements of Regulation (EU) No 909/2014 would as a result not comply with the participation requirements of Directive 98/26/EC. Consequently, that securities settlement system cannot be designated and notified under that Directive and for that reason is not referred to as a ‘DLT securities settlement system’ in this Regulation but rather as a DLT SS. This Regulation should allow a CSD to operate a DLT SS that does not qualify as a securities settlement system designated under Directive 98/26/EC, and an exemption from the rules on settlement finality in Regulation (EU) No 909/2014 should be available, subject to certain compensatory measures, including specific compensatory measures to mitigate risks arising from insolvency, as insolvency protection measures under Directive 98/26/EC do not apply. However, such an exemption would not preclude a DLT SS that complies with all the requirements of Directive 98/26/EC from being designated and notified as a securities settlement system in accordance with that Directive.

(34)

Regulation (EU) No 909/2014 encourages the settlement of transactions in central bank money. Where the settlement of cash payments in central bank money is not practical and available, it should be possible for settlement to take place through the CSD’s own accounts in accordance with that Regulation or through accounts opened with a credit institution (‘commercial bank money’). That rule can be difficult to apply for a CSD operating a DLT SS, however, because the CSD would have to effect movements in cash accounts at the same time as the delivery of securities recorded on the distributed ledger. A temporary exemption should therefore be allowed for CSDs operating a DLT SS from the provision of that Regulation on cash settlement in order to develop innovative solutions under the pilot regime by facilitating access to commercial bank money, or the use of ‘e-money tokens’. Settlement in central bank money could be considered as not practical and available if settlement in central bank money on a distributed ledger is not available.

(35)

Other than the requirements that have proven to be impractical in a distributed ledger technology environment, the requirements linked to cash settlement under Regulation (EU) No 909/2014 continue to apply outside the pilot regime. Operators of DLT market infrastructures should therefore describe in their business plans how they intend to comply with Title IV of Regulation (EU) No 909/2014 in the event that they eventually exit the pilot regime.

(36)

Regulation (EU) No 909/2014 requires that a CSD give access to another CSD, or to other market infrastructures, on a non-discriminatory and transparent basis. Giving access to a CSD operating a DLT SS can be technically more challenging, burdensome or difficult to achieve, as the interoperability of legacy systems with distributed ledger technology has not yet been tested. It should therefore also be possible to grant a DLT SS an exemption from that requirement if it demonstrates that the application of the requirement is disproportionate to the scale of the activities of the DLT SS.

(37)

Irrespective of the requirement in respect of which an exemption has been requested, a CSD operating a DLT SS should demonstrate that the exemption requested is proportionate and justified by the use of distributed ledger technology. The exemption should be limited to the DLT SS and should not cover other settlement systems operated by the same CSD.

(38)

DLT market infrastructures and their operators should be subject to additional requirements compared to traditional market infrastructures. The additional requirements are necessary to avoid risks related to the use of distributed ledger technology or the way in which the DLT market infrastructure would operate. Therefore, an operator of DLT market infrastructure should establish a clear business plan that details how the distributed ledger technology would be used and the applicable legal terms.

(39)

Operators of DLT market infrastructures should establish or document, as appropriate, rules on the functioning of the distributed ledger technology they use, including rules on access to, and admission to trading on, the distributed ledger, rules on the participation of the validating nodes and rules to address potential conflicts of interests, as well as risk management measures.

(40)

An operator of a DLT market infrastructure should be required to provide information to members, participants, issuers and clients on how it intends to perform its activities and how the use of distributed ledger technology deviates from the way services are normally provided by a traditional multilateral trading facility or by a CSD operating a securities settlement system.

(41)

DLT market infrastructures should have specific and robust IT and cyber arrangements related to the use of distributed ledger technology. Such arrangements should be proportionate to the nature, scale and complexity of the business plan of the operator of the DLT market infrastructure. Those arrangements should also ensure the continuity and continued transparency, availability, reliability and security of the services provided, including the reliability of any smart contracts that are used, irrespective of whether those smart contracts are created by the DLT market infrastructure itself or by a third party following outsourcing procedures. DLT market infrastructures should also ensure the integrity, security, confidentiality, availability and accessibility of data stored on the distributed ledger. The competent authority for a DLT market infrastructure should be allowed to require an audit to ensure that the overall IT and cyber arrangements of the DLT market infrastructure are fit for purpose. The costs of the audit should be borne by the operator of the DLT market infrastructure.

(42)

Where the business plan of an operator of a DLT market infrastructure involves the safekeeping of clients’ funds, such as cash or cash equivalents, or of DLT financial instruments, or of the means of access to such DLT financial instruments, including in the form of cryptographic keys, the DLT market infrastructure should have adequate arrangements in place to safeguard those assets. Operators of DLT market infrastructures should not use clients’ assets on those operators’ own account, other than with the prior express written consent of their clients. DLT market infrastructures should segregate clients’ funds and DLT financial instruments, and the means of access to such assets, from their own assets or from other clients’ assets. The overall IT and cyber arrangements of DLT market infrastructures should ensure that clients’ assets are protected against fraud, cyber-attacks and other serious operational malfunctions.

(43)

At the time when a specific permission is granted, operators of DLT market infrastructures should also have in place a credible exit strategy in case the pilot regime is discontinued, the specific permission or some of the exemptions granted are withdrawn, or the thresholds set out in this Regulation are exceeded. That strategy should include the transition or reversion of their distributed ledger technology operations to traditional market infrastructures. For that purpose, new entrants or operators of DLT TSS that do not operate a traditional market infrastructure to which they could transfer DLT financial instruments should seek to conclude arrangements with operators of traditional market infrastructures. That is of particular importance for the recording of DLT financial instruments. Therefore, CSDs should be subject to certain requirements to put in place such arrangements. In addition, CSDs should conclude such arrangements in a non-discriminatory manner and should be able to charge a reasonable commercial fee based on actual costs.

(44)

A specific permission granted to an operator of DLT market infrastructure should broadly follow the same procedures as those for authorisation under Regulation (EU) No 909/2014 or Directive 2014/65/EU. However, when applying for a specific permission under this Regulation, the applicant should indicate the exemptions it is requesting. Before granting a specific permission to a DLT market infrastructure, the competent authority should provide ESMA with all relevant information. Where necessary, ESMA should issue a non-binding opinion on the exemptions requested or on the adequacy of the distributed ledger technology for the purposes of this Regulation. Such a non-binding opinion should not be deemed to be an opinion within the meaning of Regulation (EU) No 1095/2010. ESMA should consult the competent authorities of other Member States when preparing its opinion. With its non-binding opinion, ESMA should aim to ensure investor protection, market integrity and financial stability. In order to ensure a level-playing field and fair competition throughout the internal market, ESMA’s non-binding opinion and guidelines should aim to ensure the consistency and proportionality of the exemptions granted by different competent authorities in the Union, including when evaluating the adequacy of different types of distributed ledger technology used by operators for the purposes of this Regulation.

(45)

The recording of securities, the maintenance of securities accounts and the management of settlement systems are activities that are also covered by non-harmonised provisions of national law, such as corporate and securities law. It is therefore important that operators of DLT market infrastructures comply with all applicable rules and enable their users to do so.

(46)

The competent authority that examines an application submitted by an operator of a DLT market infrastructure should have the possibility of refusing to grant a specific permission if there are reasons to believe that the DLT market infrastructure would not be able to comply with applicable provisions laid down by Union law or with provisions of national law falling outside the scope of Union law, if there are reasons to believe that the DLT market infrastructure would pose a risk to investor protection, market integrity or financial stability, or if the application is an attempt to circumvent existing requirements.

(47)

A specific permission granted by a competent authority to an operator of DLT market infrastructure should indicate the exemptions granted to that DLT market infrastructure. It should be valid throughout the Union, but only for the duration of the pilot regime. ESMA should publish on its website a list of DLT market infrastructures and a list of the exemptions granted to each of them.

(48)

Specific permissions and exemptions should be granted on a temporary basis, for a period of up to six years from the date on which the specific permission was granted, and should be valid only for the duration of the pilot regime. That six-year period should give operators of DLT market infrastructures sufficient time to adapt their business models to any modifications of the pilot regime and operate under the pilot regime in a commercially viable manner. It would also allow ESMA and the Commission to gather a useful data set on the operation of the pilot regime following the granting of a critical mass of specific permissions and related exemptions and to report thereon. And finally, it would also give time for the operators of DLT market infrastructures to take the necessary steps either to cease their operations or to transition to a new regulatory framework following the reports to be issued by ESMA and the Commission.

(49)

Without prejudice to Regulation (EU) No 909/2014 and Directive 2014/65/EU, competent authorities should have the power to withdraw a specific permission or any exemptions granted to a DLT market infrastructure where a flaw has been discovered in the underlying technology or in the services and activities provided by the operator of the DLT market infrastructure, if that flaw outweighs the benefits of the service and activities at stake, or where the operator of the DLT market infrastructure has breached any obligations attached to the permissions or exemptions granted by the competent authority, or where the operator of the DLT market infrastructure has recorded financial instruments that exceed the thresholds set out in this Regulation or that do not fulfil other conditions that apply to DLT financial instruments under this Regulation. In the course of its activity, the operator of a DLT market infrastructure should have the possibility of requesting additional exemptions in addition to those requested at the time of the initial application. In such a case, the additional exemptions should be requested from the competent authority in the same way as those requested at the time of the initial request for permission for the DLT market infrastructure.

(50)

Since, under the pilot regime, operators of DLT market infrastructures would be able to receive temporary exemptions from certain provisions of existing Union legislation, they should cooperate closely with the competent authorities and with ESMA during the period in which their specific permission is valid. Operators of DLT market infrastructures should inform competent authorities of any material changes to their business plans or to their critical staff, of any evidence of cyber-attacks or other cyber-threats, fraud or serious malpractice, of any change in the information provided at the time of the initial application for specific permission, of any technical or operational difficulties, in particular those linked to the use of distributed ledger technology, and of any risks to investor protection, market integrity or financial stability that were not envisaged at the time when the specific permission was granted. To ensure investor protection, market integrity and financial stability, when notified of such a material change, the competent authority should be able to require the DLT market infrastructure to apply for a new specific permission or exemption, or to take any corrective measures that the competent authority deems appropriate. The operators of DLT market infrastructures should also provide any relevant information to the competent authority when requested. Competent authorities should forward the information received from operators of DLT market infrastructures and the information on corrective measures to ESMA.

(51)

Operators of DLT market infrastructures should submit regular reports to their competent authorities. ESMA should organise discussions on those reports to enable all competent authorities across the Union to gain experience from the impact of distributed ledger technology and to understand whether there are any amendments to Union financial services legislation that could be necessary to allow for the use of distributed ledger technology on a greater scale.

(52)

During the course of the pilot regime, it is important that the framework and its functioning be subject to frequent monitoring and evaluation in order to maximise information for operators of DLT market infrastructures. ESMA should publish annual reports in order to provide market participants with a better understanding of the functioning and development of the markets and to provide clarification on the application of the pilot regime. Those annual reports should include updates on the most important trends and risks. Those annual reports should be submitted to the European Parliament, to the Council and to the Commission.

(53)

Three years from the date of application of this Regulation, ESMA should present a report to the Commission containing its assessment of the pilot regime. On the basis of ESMA’s report, the Commission should report to the European Parliament and to the Council. That report should assess the costs and benefits of extending the pilot regime for a further period, extending the pilot regime to other types of financial instruments, otherwise amending the pilot regime, making the pilot regime permanent by proposing appropriate amendments of Union financial services legislation, or terminating the pilot regime. It would not be desirable to have two parallel regimes for DLT-based and non-DLT-based market infrastructures. If the pilot regime is successful, it could be made permanent by amending relevant Union financial services legislation to establish a single coherent framework.

(54)

Some potential gaps have been identified in existing Union financial services legislation as regards its application to crypto-assets that qualify as financial instruments. In particular, the regulatory technical standards under Regulation (EU) No 600/2014 relating to certain data reporting requirements and pre- and post-trade transparency requirements are not well adapted to financial instruments issued by means of distributed ledger technology. Secondary markets in financial instruments issued by means of distributed ledger technology or similar technology are still nascent and therefore their features potentially differ from markets in financial instruments using traditional technology. The rules set out in those regulatory technical standards should apply to all financial instruments, regardless of the technology used. Therefore, in line with existing mandates in Regulation (EU) No 600/2014 to develop draft regulatory technical standards, ESMA should carry out a comprehensive assessment of those regulatory technical standards and propose any necessary amendment to ensure that the rules set out therein could be effectively applied to DLT financial instruments. In carrying out that assessment, ESMA should take into account the specificities of DLT financial instruments and whether they require standards to be adapted to allow for the development of those financial instruments without undermining the objectives of the rules laid down in the regulatory technical standards adopted pursuant to Regulation (EU) No 600/2014.

(55)

Since the objectives of this Regulation cannot be sufficiently achieved by the Member States, but can rather, by reason of the regulatory obstacles to the development of DLT market infrastructures for crypto-assets that qualify as financial instruments being embedded in Union financial services legislation, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(56)

This Regulation is without prejudice to Directive (EU) 2019/1937 of the European Parliament and of the Council (13). At the same time, in respect of entities authorised under Directive 2014/65/EU, the mechanisms for the reporting of infringements of Regulation (EU) No 600/2014 or Directive 2014/65/EU as established under that Directive should be used. In respect of entities authorised under Regulation (EU) No 909/2014, the mechanisms for the reporting of infringements of that Regulation as established under that Regulation should be used.

(57)

The operation of DLT market infrastructures could involve the processing of personal data. Where it is necessary for the purposes of this Regulation to process personal data, that processing should be carried out in accordance with applicable Union law on the protection of personal data. This Regulation is without prejudice to Regulations (EU) 2016/679 (14) and (EU) 2018/1725 (15) of the European Parliament and of the Council. The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725, and delivered its opinion on 23 April 2021.

(58)

Regulation (EU) No 600/2014 provides for a transitional period during which non-discriminatory access to a CCP or trading venue under that Regulation does not apply to CCPs or trading venues that applied to their competent authorities to benefit from transitional arrangements in respect of exchange-traded derivatives. The period during which a CCP or a trading venue could be exempted by its competent authority in respect of exchange-traded derivatives from the rules on non-discriminatory access expired on 3 July 2020. The increased uncertainty and volatility of the markets negatively impacted the operational risks of CCPs and trading venues and, therefore, the date of application of the new open-access regime for CCPs and trading venues offering trading and clearing services in respect of exchange-traded derivatives was postponed by Article 95 of Regulation (EU) 2021/23 of the European Parliament and of the Council (16) by one year, until 3 July 2021. The reasons for postponing the date of application of the new open-access regime persist. Furthermore, the open-access regime could run counter to parallel policy objectives to foster trading and innovation within the Union, since it could disincentivise innovation in exchange-traded derivatives by allowing competitors, who are beneficiaries of open access, to rely on incumbents’ infrastructure and investments in order to offer competing products with low upfront costs. Maintaining a system whereby derivatives are cleared and traded in a vertically integrated entity is also consistent with long-standing international trends. The date of application of the new open-access regime should therefore be postponed by two more years, until 3 July 2023.

(59)

At present, the definition of financial instrument in Directive 2014/65/EU does not explicitly include financial instruments issued by means of a class of technologies that supports the distributed recording of encrypted data, namely, distributed ledger technology. In order to ensure that such financial instruments can be traded on the market under the existing legal framework, the definition of financial instruments in Directive 2014/65/EU should be amended to include them.

(60)

While this Regulation sets out the regulatory framework for DLT market infrastructures, including those providing settlement services, the general regulatory framework for securities settlement systems operated by CSDs is laid down in Regulation (EU) No 909/2014, which includes provisions on settlement discipline. The settlement discipline regime comprises rules for the reporting of settlement fails, the collection and distribution of cash penalties and mandatory buy-ins. Pursuant to regulatory technical standards adopted under Regulation (EU) No 909/2014, the provisions on settlement discipline apply from 1 February 2022. However, stakeholders have provided evidence that mandatory buy-ins could increase liquidity pressure and the costs of securities at risk of being bought in. Such impact could be further exacerbated in cases of market volatility. Against that background, applying the rules on mandatory buy-ins as laid down in Regulation (EU) No 909/2014 could have a negative impact on the efficiency and competitiveness of capital markets in the Union. That impact could in turn lead to wider bid-offer spreads, reduced market efficiency and reduced incentives to lend securities in the securities lending and repo markets and to settle transactions with CSDs established in the Union. The costs of applying the rules on mandatory buy-ins are, therefore, expected to outweigh the potential benefits. Taking into account that potential negative impact, Regulation (EU) No 909/2014 should be amended to allow for a different date of application for each settlement discipline measure, so that the date of application of the rules on mandatory buy-ins can be further postponed. That postponement would allow the Commission to assess, within the context of the forthcoming legislative proposal reviewing Regulation (EU) No 909/2014, how the settlement discipline framework, and in particular the rules on mandatory buy-ins, should be amended to take into account and address the aforementioned issues. Furthermore, such postponement would ensure that market participants, including those DLT market infrastructures that would be subject to the settlement discipline regime, do not incur implementation costs twice in the event that those rules are amended as a result of the review of Regulation (EU) No 909/2014.

(61)

The operation of a DLT market infrastructure should not undermine climate policies of Member States. Thus, it is important to encourage further the development of, and investment in, low-emission or zero-emission distributed ledger technologies,

(1)

Regulation (EEC) No 2658/87 established a combined goods nomenclature (the ‘CN’) to meet, at one and the same time, the requirements of the Common Customs Tariff, the external trade statistics of the Union, and other Union policies concerning the importation or exportation of goods.

(2)

The CN is based on the World Customs Organization’s Harmonized System (‘HS’) nomenclature, which was amended pursuant to the Recommendation of 28 June 2019 of the Customs Cooperation Council (‘the 2022 HS’). Commission Implementing Regulation (EU) 2021/1832 (2), which replaced Annex I to Regulation (EEC) No 2658/87 from 1 January 2022, implemented those amendments in the 2022 version of the CN (‘the 2022 CN’).

(3)

In the 2022 HS, a separate subheading 4421 20 00 for ‘coffins’ was created. In the 2021 CN, ‘coffins of fibreboard’ were classified under CN code 4421 99 10 with a customs duty rate of 4 %, whilst ‘coffins of other materials’ were classified under CN code 4421 99 91 with a customs duty rate of ‘Free’. With the amendments to the 2022 HS, in the 2022 CN, ‘coffins of fibreboard’ were transferred to the new CN code 4421 20 00 with a custom duty rate of ‘Free’.

(4)

In order to impose, in 2022, the same tariff treatment as in the 2021 CN, it is necessary to amend the 2022 CN in order to take into account the amendments to the 2022 HS and to provide for a separate subdivision for ‘coffins of fibreboard’.

(5)

In the 2022 HS, a separate heading 8485 was created for ‘Machines for additive manufacturing’, also known as ‘3D printers’, which was further subdivided into different categories according to the various material deposit (for example ‘by metal deposit’, ‘by plaster, cement, ceramics or glass deposit’, etc.). The creation of heading 8485 entailed the transfer of those machines from different subheadings of the 2021 CN (3) and the creation of specific CN codes in order to grant the same tariff treatment as in the 2021 CN.

(6)

In the 2021 CN, ‘machines for additive manufacturing by sand, concrete or other mineral deposit’ were classified under subheading 8474 80 90‘Other’, with a customs duty rate of ‘Free’. After amendments to the 2022 HS, those products are classified, in the 2022 CN, under the new subheading 8485 80 00, with a customs duty rate of 1,7 %.

(7)

In order to continue to grant the same tariff treatment as in 2021 for those ‘machines for additive manufacturing with additive of sand, concrete or other mineral products’, it is necessary to amend the 2022 CN by providing for a separate duty free subdivision.

(8)

In addition, in the 2022 CN, parts of those machines should also get the same tariff treatment as in 2021 CN. It is, therefore, appropriate to amend the description of CN code 8485 90 10 in order to include therein parts of the ‘machines for additive manufacturing by sand, concrete or other mineral products deposit’.

(9)

Regulation (EEC) No 2658/87 should therefore be amended accordingly.

(10)

In order to ensure that the tariff treatment in 2022 for 3D printers and their parts is the same as it was in 2021 the corresponding amendments should apply from 1 January 2022.

(11)

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

(1)

Pursuant to Article 8(2) of Regulation (EC) No 1925/2006, on its own initiative or on the basis of information provided by Member States, the Commission may initiate a procedure to include a substance or an ingredient containing a substance other than a vitamin or a mineral in Annex III to that Regulation listing the substances whose use in foods is prohibited, restricted or under Union scrutiny, if that substance is associated with a potential risk to consumers as provided for in Article 8(1) of Regulation (EC) No 1925/2006.

(2)

In 2010, the European Food Safety Authority (‘the Authority’) was asked to provide an opinion on scientific substantiation of a health claim related to monacolin K submitted pursuant to Article 13 of Regulation (EC) No 1924/2006 of the European Parliament and of the Council (2). On 30 June 2011 (3), the Authority issued a scientific opinion on the substantiation of a health claim related to monacolin K from red yeast rice and maintenance of normal blood LDL-cholesterol concentrations. The Authority concluded that a cause and effect relationship has been established between the consumption of monacolin K from red yeast rice and maintenance of normal blood LDL-cholesterol concentrations at the level of 10 mg daily dose.

(3)

In 2012, the Authority was asked to provide an opinion on the scientific substantiation of a health claim submitted pursuant to Article 14 of Regulation (EC) No 1924/2006 related to the combination of ingredients, among which monacolin K from red yeast rice. On 12 July 2013 (4), the Authority issued a scientific opinion establishing a cause and effect relationship between the consumption of a product containing 2 mg of monacolin K from red yeast rice in combination with other ingredients, and the reduction of blood LDL-cholesterol concentrations.

(4)

In the abovementioned scientific opinions, in relation to restrictions of use, the Authority referred to the Summary of Product Characteristics (SmPC) for lovastatin-containing medicinal products available on the Union market, as the Authority considered that monacolin K in lactone form is identical to lovastatin. The SmPC provides information to healthcare professionals on the safe and effective use of these medicinal products. The SmPC for lovastatin-containing medicinal products describes the properties and officially approved conditions for their use and includes special warnings and precautions for use that refer to the risk of myopathy/rhabdomyolysis, which is increased by concomitant use of lovastatin with certain other medicinal products, and discourages use of lovastatin by pregnant and lactating women.

(5)

During discussions of the working group on nutrition and health claims on the abovementioned scientific opinions, the Member States raised potential safety concerns associated with the consumption of foods containing monacolins from red yeast rice.

(6)

Red yeast rice is made by fermentation of rice with yeasts, mainly Monascus purpureus, resulting in the production of monacolins, the most abundant of which is monacolin K. It is traditionally used in China as a food colouring and as a traditional remedy to promote digestion and blood circulation. In the EU, it is not authorised for use as a food colour as it is not included in the Union list of Regulation (EC) No 1333/2008 of the European Parliament and of the Council (5) on food additives. Food supplements containing red yeast rice preparations have been marketed and consumed to a significant degree before 15 May 1997 and therefore, are not subject to Regulation (EU) 2015/2283 of the European Parliament and of the Council (6) on novel foods. The use of red yeast rice preparations in other food categories is subject to an authorisation under Regulation (EU) 2015/2283 on novel foods. The application of the provisions of this Regulation is without prejudice to Regulations (EU) 2015/2283 and (EC) No 1333/2008.

(7)

The Commission, on its own initiative, started the procedure under Article 8 of Regulation (EC) No 1925/2006 for monacolins in red yeast rice as it considered that on the basis of the available information that was provided by the Member States during a consultation on the safety of monacolins from red yeast rice, the necessary conditions and requirements laid down in Article 8 of that Regulation and Articles 3 and 4 of Commission Implementing Regulation (EU) No 307/2012 (7) were fulfilled. This available information included an opinion from the French Agency for Food, Environmental and Occupational Health & Safety (ANSES) on the risk associated with the presence of ‘red yeast rice’ in food supplements (8). That opinion concluded that ‘due to the composition of red yeast rice and in particular: the presence of monacolin K (also called lovastatin when marketed as a drug) that shares the adverse effects of statins; the presence at varying levels of the other monacolins, compounds whose safety has not been established, consumption of “red yeast rice” exposes some consumers to a health risk’. The available information also included a scientific advisory report adopted by the Belgian Superior Health Council on 13 February 2016 (9) that provided an evaluation of the supposed beneficial effects and possible toxicity of dietary supplements based on red yeast rice for the Belgian population. That report referred to the risk associated with the presence of monacolins, in particular monacolin K, in red yeast rice that includes adverse effects identical to those observed in patients taking statin drugs and referred to a higher risk of developing toxic effects for certain vulnerable groups such as pregnant women, people suffering from liver, kidney and muscle disorders, persons aged over 70 years and children and adolescents. Another relevant scientific assessment was carried out by the German research funding organisation DFG in 2013 (10) that concluded that ‘red mould rice is not a safe food/food supplement’.

(8)

Therefore, the Commission in 2017, in accordance with Article 8 of Regulation (EC) No 1925/2006, requested the Authority to deliver a scientific opinion on the evaluation of the safety of monacolins in red yeast rice.

(9)

On 25 June 2018 (11), the Authority adopted a scientific opinion on the safety of monacolins in red yeast rice. The Authority considered that monacolin K in lactone form was identical to lovastatin, the active ingredient of several medicinal products authorised for the treatment of hypercholesterolemia in the EU. Monacolin K from red yeast rice is available in food supplements at varying recommended daily intakes for its effect on the maintenance of normal blood LDL-cholesterol levels. On the basis of the information available, the Authority concluded that intake of monacolins from red yeast rice via food supplements could lead to estimated exposure to monacolin K within the range of the therapeutic doses of lovastatin. The Authority noted that the profile of adverse effects to red yeast rice was similar to that of lovastatin. It reported, through consultation of four sources (12) of case reports, that the most important targets for adverse events were musculoskeletal and connective tissue (including rhabdomyolysis), liver, nervous system, gastro-intestinal tract, skin and subcutaneous tissue, in descending order of occurrence. The Authority considered that the available information on the adverse effects reported in humans were judged to be sufficient to conclude that monacolins from red yeast rice when used as food supplements were of significant safety concern at the use level of 10 mg/day. The Authority further considered that individual cases of severe adverse reactions had been reported for monacolins from red yeast rice at intake levels as low as 3 mg/day taken for a period of between 2 weeks and 1 year, and that cases of rhabdomyolysis, hepatitis and skin disorders occurred and required hospitalisation.

(10)

On the basis of the information available and several uncertainties highlighted in its opinion, the Authority was unable to provide advice on a daily intake of monacolins from red yeast rice that does not give rise to concerns about harmful effects to health, for the general population, and as appropriate, for vulnerable subgroups of the population as requested by the Commission. The Authority explained that there are uncertainties as to the composition and content of monacolins in food supplements containing red yeast rice and that monacolins in red yeast rice are used in multi-ingredient products, the components of which have not been fully evaluated individually or in combination. Furthermore, due to the lack of data, the safe use of monacolins in certain vulnerable groups of consumers cannot be evaluated and there is uncertainty as to the effects of concomitant consumption of red yeast rice-based food supplements with foods or drugs that inhibit the enzyme (CYP3A4) that is involved in the metabolism of monacolins.

(11)

In accordance with Article 4(5) of Implementing Regulation (EU) No 307/2012 and following publication by the Authority of its opinion on monacolins from red yeast rice, the Commission received comments from interested parties on the scientific risk assessment carried out by the Authority. Interested parties also provided statements to support the safe use of monacolins from red yeast rice in combination with adequate consumer information on the safe use of the substance.

(12)

Those comments that were of a scientific nature were clarified by the Authority during post-adoption teleconferences held with the interested parties. The Authority provided clarifications on the sources of evidence for its scientific opinion and explained why certain studies submitted by interested parties during a public call for data were not considered to be sufficiently reliable and scientifically robust to be included in its safety assessment. The Authority explained the scientific rationale for considering safety data for lovastatin as relevant for the safety assessment of monacolins and clarified how post-marketing data on adverse events provided by interested parties was used as supporting evidence in its assessment.

(13)

The Commission asked the Authority for technical assistance on two scientific studies, a systematic review and meta-analysis of the safety of red yeast rice supplementation (13), and a review and expert opinion on the role of red yeast rice supplementation in plasma cholesterol control (14), that were submitted to the Commission by an interested party following adoption of the scientific opinion by the Authority. The Authority noted that irrespective of the results of any intervention study or meta-analysis on the safety of red yeast rice supplementation, reports of side effects associated with the consumption of red yeast rice in humans exist and monacolin K in lactone form is identical to lovastatin for which adverse effects are well documented, and therefore those submitted studies would have to be considered together with the whole body of evidence to draw an overall conclusion. The Authority explained that the existence of reports of adverse effects cannot be neglected or invalidated by results of trials that were relatively small in size and not designed to detect these effects, and that studies, such as the review and expert opinion study submitted, providing comparative risk-benefit ratio of products containing red yeast rice were not relevant to the evaluation of the safety of substances intentionally added to food.

(14)

Considering that no daily intake of monacolins from red yeast rice that does not give rise to concerns for human health could be set, and considering the significant harmful effect on health associated with the use of monacolins from red yeast rice at levels of 10 mg/day, and individual cases of severe adverse health reactions at levels as low as 3 mg/day, the use of monacolins from red yeast rice at levels of 3 mg and more per portion of the product recommended for daily consumption should be prohibited. That substance should therefore be placed in Part B of Annex III to Regulation (EC) No 1925/2006 and its addition to foods or its use in the manufacture of foods should only be allowed under the conditions specified in that Annex.

(15)

Food supplements are required by Article 6 of Directive 2002/46/EC of the European Parliament and of the Council (15) to be labelled with the portion of the product that is recommended for daily consumption together with a warning not to exceed the stated recommended daily dose. As different foods or food supplements containing monacolins from red yeast rice may be consumed simultaneously, there is the possibility of exceeding the limit laid down in Annex III to Regulation (EC) No 1925/2006, therefore, it is necessary to provide for appropriate labelling requirements for all foods containing monacolins from red yeast rice.

(16)

In order to provide complete information about the content of monacolins on the labels of foods containing monacolins from red yeast rice, it is necessary to provide for appropriate labelling requirements for all foods containing monacolins from red yeast rice.

(17)

As the Authority identified a risk of adverse effects due to interactions with medicinal products, it is necessary to warn persons using cholesterol-lowering medicines, to avoid concomitant use of foods containing monacolins from red yeast rice. The Authority noted that the profile of adverse effects to red yeast rice was similar to that of lovastatin, therefore, it is appropriate to warn persons to seek medical advice if they experience any health problems. Furthermore, as the Authority could not evaluate the safe use of monacolins in certain vulnerable groups of consumers because of the lack of data, and as therefore, there is still the possibility of harmful effects on health associated with the use of monacolins from red yeast rice, it is appropriate to advise against the use of foods containing monacolins from red yeast rice for pregnant or lactating women, persons aged over 70 years, children and adolescents. Considering the above, it is necessary to provide for appropriate labelling requirements for all foods containing monacolins from red yeast rice.

(18)

The Authority could not identify a dietary intake of monacolins from red yeast rice that does not give rise to concerns about harmful effects to health, for the general population, and as appropriate, for vulnerable subgroups of the population. As there is still a possibility of harmful effects on health associated with the use of monacolins from red yeast rice, but scientific uncertainty in this regard persists, and considering that monacolins from red yeast rice may only be used in food supplements and that the extent of use of those food supplements could not be determined by the Authority, the use of monacolins from red yeast rice in food supplements should be placed under Union scrutiny and therefore, should be included in Part C of Annex III to Regulation (EC) No 1925/2006. Considering the uncertainties outlined by the Authority in its scientific opinion and considering the statements given by interested parties on the safety profile of monacolins from red yeast rice, those interested parties have under Article 8(4) of Regulation (EC) No 1925/2006 the possibility to submit data demonstrating the safety of monacolins from red yeast rice to the Authority in accordance with Article 5 of Implementing Regulation (EU) No 307/2012. In accordance with Article 8(5) of Regulation (EC) No 1925/2006 the Commission should take a decision within four years from the entry into force of this Regulation, whether to list monacolins from red yeast rice in Annex III, Part A or Part B, as appropriate, taking into account the opinion of the Authority on any submitted data.

(19)

Regulation (EC) No 1925/2006 should therefore be amended accordingly.

(20)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Plants, Animals, Food and Feed,

(1)

The military aggression by Russia against Ukraine on 24 February 2022 has led to a mass inflow of displaced persons from Ukraine to the Union, most of whom are women and children. Several Member States are meeting unprecedented challenges in order to integrate quickly displaced children from Ukraine into their education system.

(2)

The aid scheme for the supply of fruit and vegetables and of milk and milk products in educational establishments (‘the school scheme’), set out by Regulation (EU) No 1308/2013 is aimed at children who regularly attend nurseries, pre-schools or primary or secondary-level educational establishments in the Member States. Displaced children from Ukraine integrated in the Member States’ education systems are therefore eligible for participation in the school scheme. Due to the increase in number of eligible children, in absolute terms or in percentage of the population, several Member States in the frontline for action in response to the Russia’s invasion of Ukraine may encounter difficulties in implementing the school scheme as planned if their allocation of Union aid is not increased.

(3)

In accordance with Article 3, first paragraph, point (a), of Commission Implementing Regulation (EU) 2017/39 (3), Member States submitted their requests for Union aid for school fruit and vegetables and for school milk relating to the school year 2022/2023, which runs from 1 August 2022 to 31 July 2023, to the Commission by 31 January 2022. Based on those requests, submitted before Russia’s invasion of Ukraine, the Commission fixed the definitive allocations of Union aid by Member State in Commission Implementing Decision (EU) 2022/493 (4). Available information on the level of use of the definitive allocations of Union aid in past school years by some Member States indicates the risk that some Member States may not be able to use their definitive allocation in full.

(4)

In the light of the newly arisen needs and as a token of solidarity by the Union and the Member States with Ukraine, it is appropriate to set out exceptional rules allowing Member States to submit a second request for Union aid for school fruit and vegetables and for school milk regarding the period from 1 August 2022 to 31 July 2023 by 15 June 2022. This possibility should be linked to the need to cater for the displaced children from Ukraine enrolled in the Member States’ educational establishments in that period. Member States should be able to indicate either their willingness to use more than their definitive allocation of Union aid set out in Annex I to Implementing Decision (EU) 2022/493 or the amount of the definitive allocation that is not requested, in case there is no willingness to use the entire amount of that allocation. The former possibility should be limited to the Member States having demonstrated a suitable absorption of their definitive allocation of Union aid, based on the financial execution in school year 2018/2019, which was the last school year before the COVID-19 pandemic. Their requests should be based solely on the number of displaced children from Ukraine falling within the target group defined in the Member States’ strategy according to Article 2(1), point (f), of Implementing Regulation (EU) 2017/39, duly justified on the grounds of available data. Member States not submitting a second request should be regarded as having confirmed the definitive allocations set out in Annex I to Implementing Decision (EU) 2022/493.

(5)

Article 7(1) of Implementing Regulation (EU) 2017/39 lays down the rules for the reallocation of Union aid. The Commission is to fix the definitive amount of aid by reallocating unrequested indicative allocations or unrequested parts thereof. It is appropriate to derogate from those rules to allow the Commission to also take into account new requests linked to Russia’s invasion of Ukraine in order to fix a revised definitive allocation of Union aid for the period from 1 August 2022 to 31 July 2023. The reallocation of any unrequested amount of definitive allocations of Union aid is to be based on the number of six- to ten-year old children in the Member States, in accordance with Article 5(5), second subparagraph, of Regulation (EU) No 1370/2013.

(6)

As the fixing of the definitive allocations of Union aid for school fruit and vegetables and for school milk for the period from 1 August 2022 to 31 July 2023 taking into account the second request for Union aid would need to take place as soon as possible to allow Member States to plan and carry out the necessary preparatory activities in due time for the implementation of the school scheme, this Regulation should enter into force on the day following that of its publication in the Official Journal of the European Union.

(7)

The measures provided for in this Regulation are in accordance with the opinion of the Committee for the Common Organisation of the Agricultural Markets,

(1)

Commission Regulation (EC) No 474/2006 (2) establishes the list of air carriers, which are subject to an operating ban within the Union.

(2)

Certain Member States and the European Union Aviation Safety Agency (‘the Agency’) communicated to the Commission, pursuant to Article 4(3) of Regulation (EC) No 2111/2005, information that is relevant for updating that list. Third countries and international organisations also provided relevant information. On the basis of the information provided, the list should be updated.

(3)

The Commission informed all air carriers concerned, either directly or through the authorities responsible for their regulatory oversight, about the essential facts and considerations, which would form the basis of a decision to impose an operating ban on them within the Union or to modify the conditions of an operating ban imposed on an air carrier, which is included in the list set out in Annex A or B to Regulation (EC) No 474/2006.

(4)

The Commission gave the air carriers concerned the opportunity to consult all relevant documentation, to submit written comments and to make an oral presentation to the Commission and to the Committee established by Article 15 of Regulation (EC) No 2111/2005 (the ‘EU Air Safety Committee’).

(5)

The Commission has informed the EU Air Safety Committee about the ongoing joint consultations, within the framework of Regulation (EC) No 2111/2005 and Commission Regulation (EC) No 473/2006 (3), with the competent authorities and air carriers of Armenia, Iraq, Kazakhstan, Moldova, Pakistan, Russia, and South Sudan. The Commission also informed the EU Air Safety Committee about the aviation safety situation in Congo Brazzaville, Equatorial Guinea, Madagascar, and Suriname.

(6)

The Agency informed the Commission and the EU Air Safety Committee about the technical assessments conducted for the initial evaluation and the continuous monitoring of third country operator (‘TCO’) authorisations, issued pursuant to Commission Regulation (EU) No 452/2014 (4).

(7)

The Agency also informed the Commission and the EU Air Safety Committee about the results of the analysis of ramp inspections carried out under the Safety Assessment of Foreign Aircraft programme (‘SAFA’), in accordance with Commission Regulation (EU) No 965/2012 (5).

(8)

In addition, the Agency informed the Commission and the EU Air Safety Committee about the technical assistance projects carried out in third countries affected by an operating ban under Regulation (EC) No 474/2006. Furthermore, the Agency provided information on the plans and requests for further technical assistance and cooperation to improve the administrative and technical capability of civil aviation authorities in third countries with a view to helping them resolve non-compliance with applicable international civil aviation safety standards. Member States were invited to respond to such requests on a bilateral basis in coordination with the Commission and the Agency. In that regard, the Commission reiterated the usefulness of providing information to the international aviation community, particularly through the International Civil Aviation Organisation's (‘ICAO’) Aviation Safety Implementation Assistance Partnership tool, on technical assistance to third countries provided by the Union and Member States to improve aviation safety around the world.

(9)

Eurocontrol provided the Commission and the EU Air Safety Committee with an update on the status of the SAFA and TCO alarming functions, including statistics about alert messages for banned air carriers.

(10)

Following the Agency’s analysis of information resulting from ramp inspections carried out on the aircraft of Union air carriers, as well as standardisation inspections carried out by the Agency, complemented also with information stemming from specific inspections and audits carried out by national aviation authorities, several Member States and the Agency, acting as competent authorities, have taken certain corrective and enforcement measures, and informed the Commission and the EU Air Safety Committee about those measures.

(11)

Member States and the Agency, acting as competent authorities, reiterated their readiness to act, as necessary, in the event that pertinent safety information indicates imminent safety risks resulting from non-compliance by Union air carriers with relevant safety standards.

(12)

In June 2020, air carriers certified in Armenia were included in Annex A to Regulation (EC) No 474/2006, by Commission Implementing Regulation (EU) 2020/736 (6).

(13)

On 29 April 2022, the Commission, the Agency, Member States, and the Civil Aviation Committee of Armenia (‘CAC’) held a technical meeting, during which CAC provided an update regarding the measures taken since the technical meeting held on 3 November 2021 to address the identified safety deficiencies. The main measures are the amendment of its civil aviation legislation and supporting regulations, improvements relating to the structure and staff of the CAC, and the update of the CAC system for managing the qualification and training of its inspectors, including additional initial, recurrent and on-the-job training. Furthermore, the CAC explained that it developed additional oversight procedures and checklists in various domains, and drafted the national aviation safety plan and the safety occurrence reporting regulation, both of which are to be adopted in 2022. All of this material will be carefully scrutinised by the Commission and the Agency.

(14)

The CAC provided an update of measures taken in connection with its corrective action plan (‘CAP’) with regard to the observations raised during the 2020 Union on-site assessment visit. These measures included the update of human resources planning and training processes, of several procedures and checklists to improve its safety oversight activities, the implementation of an electronic database to support its oversight activities, and the development of its safety occurrence reporting system.

(15)

Furthermore, as part of the Union’s efforts to assist CAC in addressing its aviation safety improvement needs, the Agency launched, in March 2022, a dedicated technical project aimed at strengthening the CAC safety oversight in the Air Operations and Airworthiness domains.

(16)

On the basis of all available information, it is considered that the CAC has made some noteworthy improvements to its safety oversight capacity. It is also recognised that the CAC appears committed to continuing its efforts to further develop its oversight capabilities and the resolution of identified safety concerns. Notwithstanding these positive developments, there is currently not enough substantiated evidence given that CAC has effectively addressed all the deficiencies that were identified during the on-site assessment visit in February 2020 that led to the decision to impose an operating ban pursuant to Implementing Regulation (EU) 2020/736. Information provided about the potential improvements requires further verification through additional technical meetings, and possibly through confirmation on-site.

(17)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that at this time there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union with respect to air carriers from Armenia.

(18)

Member States should continue verifying the effective compliance of air carriers certified in Armenia with the relevant international safety standards through prioritisation of ramp inspections of those air carriers, pursuant to Regulation (EU) No 965/2012.

(19)

In December 2015, the air carrier Iraqi Airways was included in Annex A to Regulation (EC) No 474/2006, by Commission Implementing Regulation (EU) 2015/2322 (7).

(20)

In February 2022 the Iraqi Civil Aviation Authority (‘ICAA’) and Iraqi Airways submitted to the Commission information on the actions and measures taken to improve their safety oversight and management systems and capacities. Based on information received, the Commission notes that some progress has been made to address identified safety concerns. However certain deficiencies were identified, including the quality of the check-lists used by ICAA inspectors for both certification and oversight processes, as well as the ICAA training plan and its implementation. Assessment of the ICAA oversight results showed several shortcomings, notably in the way oversight findings are drafted, and their follow up assured. In this regard, it was also noted that appropriate enforcement measures were not taken by ICAA inspectors when needed.

(21)

The assessment of the information provided by Iraqi Airways demonstrated that the air carrier has made significant progress in different domains. It was noted that the air carrier had hired the services of an external consultant for the purpose of auditing the air carrier and developing a CAP, which is currently being implemented.

(22)

A Flight Data Monitoring Programme was initiated to further improve the amount of data to be analysed and used for developing safety improvement measures. Moreover, an internal reporting system was established, safety meetings on different strategic levels were launched, and some of the organisation’s manuals were reviewed.

(23)

Notwithstanding the aforementioned progress, a number of challenges remain, including that several software applications in maintenance, flight operations and document management still need to be installed. The air carrier also needs to improve its functions and procedures related to addressing oversight findings raised by ICAA. Moreover, whereas Iraqi Airways has developed a Quality Management System (‘QMS’), it seems that it is not capable to perform an appropriate follow-up of all findings raised under this system.

(24)

On 14 December 2021 and on 4 May 2022, at Iraq’s request and as part of the Commission’s continuous monitoring activities, the Commission, the Agency, Member States, ICAA, and Iraqi Airways held two technical meetings. At both occasions, ICAA presented the progress it made in addressing the safety concerns regarding its capacity to ensure effective safety oversight in the country, and notably as regards oversight of Iraqi Airways. Iraqi Airways presented the progress made in order to address previously identified safety deficiencies that ultimately led to a negative TCO decision adopted by the Agency, as well as other associated safety improvements.

(25)

ICAA and Iraqi Airways have shown a clear vision and ambition to improve their regulatory compliance and safety performance. However, additional improvements are still needed. The Commission will continue to engage with ICAA and Iraqi Airways to monitor and contribute to their efforts to enhance their safety oversight and management capabilities. In this context, it was noted that the Agency will launch a technical assistance project in the course of 2022 to support ICAA in its efforts to improve aviation safety oversight in Iraq.

(26)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that at this time there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union with respect to air carriers from Iraq.

(27)

Member States should continue verifying the effective compliance of air carriers certified in Iraq with the relevant international safety standards through prioritisation of ramp inspections of those air carriers, pursuant to Regulation (EU) No 965/2012.

(28)

Where any relevant safety information reveals imminent safety risks resulting from non-compliance with the relevant international safety standards, further action by the Commission may become necessary, in accordance with Regulation (EC) No 2111/2005.

(29)

In December 2016, air carriers certified in Kazakhstan were removed from Annex A to Regulation (EC) No 474/2006, by Commission Implementing Regulation (EU) 2016/2214 (8), with the exception of Air Astana, which had been removed from Annex B in 2015 by Implementing Regulation (EU) 2015/2322.

(30)

In October 2021, as part of the Commission’s continuous monitoring of the safety oversight system in Kazakhstan, experts from the Commission, the Agency, and Member States (the ‘assessment team’) conducted a Union on-site assessment visit in Kazakhstan at the offices of the Civil Aviation Committee of Kazakhstan (‘CAC KZ’), and the Aviation Administration of Kazakhstan Joint Stock Company (‘AAK’), as well as at the offices of three air carriers certified in Kazakhstan, namely Air Astana, Jupiter Jet, and Qazaq Air.

(31)

On 2 February 2022, AAK submitted to the Commission a CAP to address the shortcomings observed and reported by the assessment team. The Commission, together with the Agency, assessed the CAP, and provided CAC KZ and AAK with comments and adjustment suggestions.

(32)

On 27 and 28 April 2022, the Commission, the Agency, Member States and representatives of the CAC KZ and AAK held a technical meeting. The purpose of that meeting was to review the CAP development and implementation by CAC KZ and AAK, as well as the associated actions undertaken by them to ensure effective compliance of their safety oversight system with the relevant international safety standards.

(33)

Based on the submitted CAP and on the discussions and evidence provided during the technical meeting, it was noted that progress has been made in terms of addressing the observations made during the on-site assessment visit. It is apparent that all of the observations have been addressed to some degree, and that some can be considered closed.

(34)

The meeting showed that the CAC KZ and AAK still need to provide the Commission with further clarifications and evidence regarding certain actions and measures taken. The Commission also asked CAC KZ and AAK to review the CAP by further developing the root cause analysis of the safety deficiencies identified during the Union on-site assessment visit, with the aim to discuss it at the next technical meeting.

(35)

As a follow up to the EU Air Safety Committee’s deliberations of November 2021, and confirmed during the April 2022 technical meeting, the Commission invited CAC KZ, AAK, and the air carrier Air Astana to a hearing before the EU Air Safety Committee on 17 May 2022.

(36)

At the hearing, CAC KZ and AAK provided the Commission and the EU Air Safety Committee with an overview of the system put in place to ensure safety oversight of the air carriers certified in Kazakhstan. They explained the Kazakh national safety development plan, which includes measures to improve the effectiveness of Kazakh air transport, including the effective implementation of the relevant international safety standards. Furthermore, AAK reported on the latest developments regarding its organisational structure, the size of the aviation industry in Kazakhstan, as well as the results of the ICAO Coordinated Validation Mission carried out in August 2021.

(37)

Underlining their commitment for continued improvement, CAC KZ and AAK provided the Commission and the EU Air Safety Committee with a comprehensive and detailed overview of the implementation of the CAP developed on the basis of the results of the Union on-site assessment visit of October 2021. This included the strategic objectives defined for the future, such as amendments to the Kazakh legal framework, AAK’s manuals and procedures, the continuation of the improvements of its QMS, and the further effective implementation of the relevant international safety standards.

(38)

During the hearing, CAC KZ and AAK committed to keeping the Commission informed about the future actions to be taken with respect to the remaining observations made during the 2021 Union on-site assessment visit. Furthermore, they committed to a continued safety dialogue, including through the provision of relevant safety information and through additional meetings, at least twice a year, or when deemed necessary by the Commission.

(39)

Evidence indicates that the measures undertaken by CAC KZ and AAK already contribute to strengthening their capabilities to oversee the aviation activities in Kazakhstan. However, further improvements are needed as regards their ability to oversee that operations by air carriers certified in Kazakhstan are conducted in accordance with the relevant international safety standards, including by ensuring that appropriate resources for such safety oversight activities are assured.

(40)

On the basis of the information presented, it appears that since October 2021 CAC KZ and AAK have made noteworthy progress in the implementation of the relevant international safety standards. The Commission and the Agency noted their intent to further support CAC KZ and AAK with their efforts to further strengthen the aviation safety system in Kazakhstan.

(41)

During the hearing, the air carrier Air Astana gave an overview of its current fleet, and of the available resources and facilities. It described its robust and well-developed Safety Management System (‘SMS’) and QMS. The air carrier noted that it uses a set of software tools in order to integrate the safety, quality, and risk management data, including the fatigue risk management system.

(42)

When queried by the EU Air Safety Committee, the air carrier also debriefed on the oversight activities that AAK has performed on Air Astana in 2021-2022, and confirmed improvements in its interaction with the CAC KZ and AAK.

(43)

Based on its deliberations, the EU Air Safety Committee came to the conclusion that particular attention should be given to the continuous monitoring of the safety situation and developments in Kazakhstan, including through regular progress reporting from CAC KZ and AAK, and the possibility of inviting them for another hearing at a future meeting of the EU Air Safety Committee.

(44)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that at this time there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union with respect to air carriers from Kazakhstan.

(45)

Member States should continue verifying the effective compliance of air carriers certified in Kazakhstan with the relevant international safety standards through prioritisation of ramp inspections of all those carriers, pursuant to Regulation (EU) No 965/2012.

(46)

Where any relevant safety information reveals imminent safety risks resulting from non-compliance with the relevant international safety standards, further action by the Commission may become necessary, in accordance with Regulation (EC) No 2111/2005.

(47)

In November 2021, air carriers from Moldova, were removed from Annex A to Regulation (EC) No 474/2006, by Commission Implementing Regulation (EU) 2021/2070 (9), with the exception of Air Moldova, Aerotranscargo, and Fly One, which have never been included in either Annex A or B.

(48)

By letter of 31 March 2022, the Civil Aviation Authority of Moldova (‘CAAM’) provided information and an update on the safety oversight activities for the period from November 2021 to March 2022. In addition to the update on the CAP developed on the basis of the Union on-site assessment visit in September 2021, the information provided by CAAM also included updates with respect to the latest amendments to the Moldovan national aviation legislative framework.

(49)

The Commission, having examined the information and documentation received, considers that the remaining open observations, stemming from the September 2021 on-site assessment visit, have been successfully addressed and can be closed. In view of the progress made, the Commission considers it sufficient that CAAM sends an annual update until such that it may be decided otherwise.

(50)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that at this time there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union with respect to air carriers from Moldova.

(51)

Member States should continue verifying the effective compliance of air carriers certified in Moldova with the relevant international safety standards through prioritisation of ramp inspections of those air carriers, pursuant to Regulation (EU) No 965/2012.

(52)

Where any relevant safety information reveals imminent safety risks resulting from non-compliance with the relevant international safety standards, further action by the Commission may become necessary, in accordance with Regulation (EC) No 2111/2005.

(53)

In March 2007, Pakistan International Airlines was included in Annex B to Regulation (EC) No 474/2006 by Commission Regulation (EC) No 235/2007 (10), and subsequently removed in November 2007 by Commission Regulation (EC) No 1400/2007 (11).

(54)

On 24 June 2020, a statement from the Pakistan Federal Minister for Aviation revealed that a high number of pilot licenses, issued by the Pakistan Civil Aviation Authority (‘PCAA’), were obtained by fraudulent means.

(55)

That event, and the apparent lack of effective safety oversight by the PCAA, led the Agency to suspend the TCO authorisations of Pakistan International Airlines and Vision Air with effect from 1 July 2020.

(56)

On 1 July 2020, the Commission opened consultations with PCAA pursuant to Article 3(2) of Regulation (EC) No 473/2006. In that context, the Commission, in cooperation with the Agency and Member States, has organised a number of technical meetings with PCAA on respectively 9 July and 25 September 2020, 15 and 16 March 2021, 15 October 2021, and on 16 March 2022.

(57)

During those meetings, various issues were discussed, in particular the oversight of Pakistan-certified air carriers, including their SMS. The Commission requested information and evidence to verify whether a similar situation is not prevalent in other domains, such as cabin crew licensing, the licensing of maintenance engineers, or the certification of air carriers.

(58)

The information exchanged with PCAA on 16 March 2022 focussed on the outcome of the recent ICAO Universal Safety Oversight Audit Programme (‘USOAP’) visit. The Commission highlighted that due consideration will be given to the content of the audit report in order to determine the next steps of its own Air Safety List consultation process. During the meeting PCAA provided an overview of key aspects of the report, and committed to sharing the report with the Commission when finalised.

(59)

Upon receipt of the report, the Commission has been able to note that it does not contain any indication of areas requiring immediate remedial action. Nevertheless, whereas the report does indicate that most of the elements to discharge PCAA’s responsibilities are there, it notes the need for PCAA to amend, supplement, or improve guidance and procedures, notably in the areas of pilot licensing. Furthermore, it notes the need for Pakistan’s national legislation to be improved by incorporating provisions on enforcement policy and unrestricted access of inspection personnel to ensure an effective oversight.

(60)

On the basis of available information and exchanges with PCAA, the Commission acknowledges PCAA’s efforts in adopting a CAP to address the identified safety deficiencies. The Commission, with the assistance of the Agency and Member States, notes that, after the ICAO USOAP visit, Pakistan is undergoing a major development process, including changes to its primary aviation legislation.

(61)

On this basis, the Commission, for the purpose of determining whether further action is required pursuant to Regulation (EC) No 2111/2005, will continue to engage with PCAA, and monitor the progress made to address the safety oversight situation in Pakistan. Through these continuous monitoring activities a determination will be made as to when to carry out a Union on-site assessment visit.

(62)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that at this time there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union with respect to air carriers from Pakistan.

(63)

Member States should continue verifying the effective compliance of air carriers certified in Pakistan with the relevant international safety standards through prioritisation of ramp inspections of those air carriers, pursuant to Regulation (EU) No 965/2012.

(64)

Where any relevant safety information reveals imminent safety risks resulting from non-compliance with the relevant international safety standards, further action by the Commission may become necessary, in accordance with Regulation (EC) No 2111/2005.

(65)

On 8 April 2022, air carriers from Russia, which had operated one or more of the aircraft mentioned in recital 4 or 5 of Commission Implementing Regulation (EU) 2022/594 (12), were included in Annex A to Regulation (EC) No 474/2006, by Implementing Regulation (EU) 2022/594.

(66)

On 28 April 2022, the Russian Federal Air Transport Agency (‘FATA’) informed the Commission that it considers any allegations of violations of the international civil aviation standards, as well as any safety concerns referred to in Implementing Regulation (EU) 2022/594, unfounded. FATA did not, however, provide any information to support its statement.

(67)

As part of its continuous monitoring activities, the Commission has determined that there is evidence that the air carrier I Fly has entered aircraft mentioned in recital 5 of Implementing Regulation (EU) 2022/594 in the aircraft registry of Russia, and that they have knowingly operated these aircraft in breach of the relevant international safety standards. The entry of the aircraft on the registry of Russia has been done without the consent of the owners, and without subsequent safety related collaboration of the Irish Aviation Authority, as the recognised State of Registry for these aircraft.

(68)

In accordance with Implementing Regulation (EU) 2022/594 and the common criteria in the Annex to Regulation (EC) No 2111/2005, the Commission considers that with respect to air carriers from Russia, the list of air carriers, which are subject to an operating ban within the Union should be amended to include I Fly in Annex A to Regulation (EC) No 474/2006.

(69)

Member States should continue verifying the effective compliance of air carriers certified by FATA with the relevant international safety standards, through prioritisation of ramp inspections of those air carriers pursuant to Regulation (EU) No 965/2012.

(70)

Air carriers certified in South Sudan have never been included in Annex A or B to Regulation (EC) No 474/2006.

(71)

Four fatal accidents, and several other accidents and serious incidents, have occurred in South Sudan in the last four years, often involving aircraft with suspicious registration marks.

(72)

On 26 March 2021, the Commission opened formal consultations with the South Sudan Civil Aviation Authority (‘SSCAA’) pursuant to Article 3(2) of Regulation (EC) No 473/2006.

(73)

In the ensuing exchange of correspondence, SSCAA communicated that the Air Operator Certificate (‘AOC’) of South Sudan Supreme Airlines, whose aircraft was involved in a fatal accident, was suspended, and that due to suspicions related to the registration of the aircraft involved in that accident, SSCAA was reviewing all aircraft operators and AOCs in the country. Also, SSCAA communicated that improvement actions were ongoing in the development and review of Regulations, Manuals and Training. Documents that include information regarding SSCAA’s Inspection, Surveillance and Audit Programme, as well as reports on reviews of certain air carriers and on foreign registered aircraft operating in South Sudan, were provided on 5 November 2021.

(74)

On 28 March 2022, SSCAA communicated its answers to the questionnaire sent by the Commission on 26 March 2021. According to this, the SSCAA has yet to develop and rollout an effective oversight system. Also, SSCAA notes that, whereas it has not issued any licence or AOC, and that there are no aircraft registered in the country, SSCAA has issued air-operating permits to foreign registered aircraft to operate in South Sudan. There is no evidence of any oversight activity leading to the issuance of such permits or of the relevant continuous monitoring.

(75)

On 22 February 2022, the Commission informed SSCAA of its intention to put the review of the oversight situation of civil aviation in South Sudan on the agenda of the next meeting of the EU Air Safety Committee, and invited SSCAA to a hearing before the EU Air Safety Committee on 18 May 2022.

(76)

At the hearing, SSCAA provided the Commission and the EU Air Safety Committee with an overview of its organisational structure, and information regarding the size of the aviation industry in South Sudan. It described the functions of the different SSCAA Directorates and their responsibilities, and provided general information on the staffing of the authority. It explained that SSCAA is still heavily dependent on the support of the East African Community Civil Aviation Safety and Security Oversight Agency (EAC-CASSOA) for the establishment of civil aviation regulations, and for the development of an effective oversight process. In this regard, SSCAA noted that any assistance and support to its efforts would be welcome.

(77)

SSCAA confirmed that it has not issued any AOC, and it has not yet established an aircraft registry. However, SSCAA informed that, following a training that EAC-CASSOA will provide from 23 May 2022, it expects to reach the objective of establishing an aircraft registry, and of achieving a capability of certifying air carriers by means of the 5-phase certification process as per ICAO guidance.

(78)

SSCAA informed the Commission and the EU Air Safety Committee that it has issued 24 air operating permits to foreign air carriers, and that some of these authorised air carriers conduct domestic flights in the country. It would appear that this is the only certification activity conducted by SSCAA. SSCAA described the process for the issuance of such permits, by means of a validation of the AOCs, which comprises the inspection of documentation and the physical check of aircraft. However, this information was provided during the hearing only, and it was not possible to verify how the validation process is conducted.

(79)

During the hearing, SSCAA also provided an example of enforcement action taken against a foreign air carrier by revoking the operating permit when it found out that the air carrier’s AOC had been revoked by its competent authority.

(80)

The Commission and the EU Air Safety Committee took note that there is no air carrier for which SSCAA has regulatory oversight responsibilities, since it has not issued any AOC, and that all air operations in the country are conducted by air carriers whose AOC have been issued by foreign authorities. As a consequence, taking into account the common criteria set out in the Annex to Regulation (EC) No 2111/2005, there is no air carrier certified by SSCAA that might qualify for action at Union level.

(81)

Furthermore, the Commission and the EU Air Safety Committee took note of SSCAA indications that it does not intend to issue any AOC until it has reached certification and oversight capabilities, which would make it able to implement and enforce the relevant international safety standard.

(82)

In accordance with the common criteria set out in the Annex to Regulation (EC) No 2111/2005, the Commission considers that with respect to air carriers from South Sudan, there are no grounds for amending the list of air carriers, which are subject to an operating ban within the Union.

(83)

As part of its continuous monitoring activities, the Commission will continue to closely follow the safety situation in South Sudan. The EU Air Safety Committee came to the conclusion that particular attention should be given to the safety situation and developments in South Sudan, and SSCAA should be requested to provide regular reports regarding the progress made with respect to the establishment of civil aviation regulations, the development of an effective safety oversight process, and the capacity to issue AOCs. Should the Commission become aware of an imminent safety risk resulting from a non-compliance with the relevant international safety standards, such as the issuance of an AOC in the absence of an adequate certification and oversight capability of the SSCAA, further action by the Commission may become necessary, in accordance with Regulation (EC) No 2111/2005, such as the imposition of an operating ban on the air carriers concerned and their inclusion in Annex A to Regulation (EC) No 474/2006.

(84)

Regulation (EC) No 474/2006 should therefore be amended accordingly.

(85)

Articles 5 and 6 of Regulation (EC) No 2111/2005 recognise the need for decisions to be taken swiftly and, where appropriate, urgently, given the safety implications. It is therefore essential, for the protection of sensitive information and the traveling public, that any decisions in the context of updating the list of air carriers which are subject to an operating ban or restriction within the Union, are published and enter into force immediately after their adoption.

(86)

The measures provided for in this Regulation are in accordance with the opinion of the EU Air Safety Committee established by Article 15 of Regulation (EC) No 2111/2005,

(1)

The Convention on a common transit procedure (‘the Convention’) (1) was concluded by the Union by means of Council Decision 87/415/EEC (2) and entered into force on 1 January 1988.

(2)

Pursuant to Article 15(3), point (a), of the Convention, the Joint Committee established pursuant to Article 14(1) of the Convention (the ‘EU-CTC Joint Committee’) may adopt, by means of decisions, amendments to the Appendices to the Convention.

(3)

The EU-CTC Joint Committee is to adopt a Decision on the amendment of Appendices I, IIIa and IV to the Convention in early 2022.

(4)

It is appropriate to establish the position to be taken on the Union’s behalf in the EU-CTC Joint Committee, as the Decision will have legal effects in the Union. As the EU-CTC Joint Committee usually meets only once a year, it is appropriate to allow the Union’s position to be expressed either at an upcoming meeting or by means of a written procedure.

(5)

Annex B to Commission Delegated Regulation (EU) 2015/2446 (3) and Annex B to Commission Implementing Regulation (EU) 2015/2447 (4) have been amended by Commission Delegated Regulation (EU) 2021/234 (5) and Commission Implementing Regulation (EU) 2021/235 (6), respectively. Those Annexes lay down the common data requirements, formats and codes for the transit declaration, in order to better harmonise the common data elements for the storage of information and for its exchange between customs authorities, as well as between customs authorities and economic operators. Those amendments were necessary to ensure inter-operability between the customs electronic systems used for the different types of declarations and notifications. Therefore, Appendix IIIa to the Convention, which mirrors Annex B to Delegated Regulation (EU) 2015/2446 and Annex B to Implementing Regulation (EU) 2015/2447, should be amended accordingly.

(6)

The amendments to Appendix IIIa to the Convention require the renumbering of paragraphs and sections. Therefore, references to Appendix IIIa in Appendix I to the Convention should be aligned with the new numbering.

(7)

Appendix IV to the Convention sets out the rules on mutual assistance for the recovery of claims. Those rules are important as they safeguard the financial interests of the common transit countries, of the Union and of the Member States. Those rules should be revised in order to align them with the respective Union rules,

(1)

The accounts of the European Central Bank (ECB) and of the national central banks of the Member States whose currency is the euro are to be audited by independent external auditors recommended by the Governing Council of the ECB and approved by the Council of the European Union.

(2)

The mandate of the current external auditors of Lietuvos bankas, Ernst & Young Baltic UAB, ended following the audit for the financial year 2021. It is therefore necessary to appoint external auditors from the financial year 2022.

(3)

Lietuvos bankas has selected UAB ROSK Consulting as its external auditors for the financial years 2022 to 2024.

(4)

The Governing Council of the ECB recommended that UAB ROSK Consulting be appointed as the external auditors of Lietuvos bankas for the financial years 2022 to 2024.

(5)

Following the recommendation of the Governing Council of the ECB, Council Decision 1999/70/EC (2) should be amended accordingly,

(1)

Article 287, point (7), of Directive 2006/112/EC allows the Czech Republic (Czechia) to exempt from value added tax (VAT) taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the day of its accession.

(2)

By letter registered with the Commission on 23 November 2021, Czechia requested an authorisation to introduce a special measure derogating from Article 287, point (7), of Directive 2006/112/EC and thus to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 85 000 at the conversion rate on the day of its accession (‘the special measure’). The special measure would be applicable until 31 December 2024, the date by which Member States are to transpose Council Directive (EU) 2020/285 (2). It follows from that Directive that, from 1 January 2025, Member States will be allowed to exempt from VAT the supply of goods and services made by taxable persons whose annual turnover in a given Member State does not exceed a threshold of EUR 85 000 or the equivalent in national currency.

(3)

Pursuant to Article 395(2), second subparagraph, of Directive 2006/112/EC, the Commission transmitted the request made by Czechia to the other Member States by letter dated 16 December 2021. By letter dated 20 December 2021, the Commission notified Czechia that it had all the information necessary for the appraisal of the request.

(4)

The special measure is in line with Directive (EU) 2020/285, which seeks to reduce the compliance burden of small enterprises and avoid distortions of competition in the internal market.

(5)

The special measure will remain optional for taxable persons as they may still opt for the normal VAT arrangements pursuant to Article 290 of Directive 2006/112/EC.

(6)

According to the information provided by Czechia, the special measure will only have a negligible effect on the overall amount of tax revenue Czechia collects at the stage of final consumption.

(7)

Following the entry into force of Council Regulation (EU, Euratom) 2021/769 (3), there is to be no compensation calculation carried out by Czechia with regard to the VAT own resource statement for the financial year 2022 onwards.

(8)

Given that Czechia expects that the special measure will result in reduced VAT obligations and thus a reduction in the administrative burden and compliance costs for both small enterprises and the tax authorities, and given the lack of any major impact on the total VAT revenue generated, Czechia should be authorised to introduce the special measure.

(9)

The application of the special measure should be limited in time. The time limit should be sufficient to allow the Commission to evaluate the effectiveness and appropriateness of the threshold. Moreover, pursuant to Article 3(1) of Directive (EU) 2020/285, Member States are to adopt and publish, by 31 December 2024, the laws, regulations and administrative provisions necessary to comply with Article 1 of that Directive, which amends Directive 2006/112/EC and lays down simpler VAT rules for small enterprises, and apply those provisions from 1 January 2025. It is therefore appropriate to authorise Czechia to apply the special measure until 31 December 2024,

(1)

On 11 March 2016, the company Lanxess Deutschland GmbH (‘the applicant’) submitted an application to France for the mutual recognition in parallel in accordance with Article 34 of Regulation (EU) No 528/2012 of the biocidal product Primer PIP (‘the biocidal product’). The biocidal product is a wood preservative of product-type 8 to be used for the preventive treatment against wood discolouring fungi, wood destroying basidiomycetes and wood boring beetles (larvae). The biocidal product is applied by manual dipping, automated dipping or automated spraying and contains as active substances propiconazole, IPBC and permethrin. Germany is the reference Member State responsible for the evaluation of the application as referred to in Article 34(1) of Regulation (EU) No 528/2012.

(2)

On 9 March 2020, pursuant to Article 35(2) of Regulation (EU) No 528/2012, France referred objections to the coordination group, indicating that the conditions of the authorisation set by Germany do not ensure that the biocidal product meets the requirement laid down in Article 19(1), point (b)(iii), of that Regulation. France considers that in order to ensure the safe handling of the biocidal product, wearing of personal protective equipment, consisting of protective chemical resistant gloves meeting the requirements of the European Standard EN 374 (glove material to be specified by the authorisation holder within the product information) and coverall of at least type-6 as specified in European Standard EN 13034, is required for application by manual dipping and automated spraying, wearing of personal protective equipment consisting of protective chemical resistant gloves meeting the requirements of the European Standard EN 374 (glove material to be specified by the authorisation holder within the product information) is required for application by automated dipping, and wearing of chemical resistant gloves meeting the requirements of the European Standard EN 374 is required for subsequent manual processing of the freshly treated timber. According to France, the application of technical and organisational measures in accordance with Council Directive 98/24/EC (2) as a possible replacement for wearing personal protective equipment does not ensure an adequate protection if those measures are not specified and evaluated in the assessment of the biocidal product.

(3)

Germany considers that Directive 98/24/EC establishes the order of preference of different risk mitigation measures for protection of workers and prioritises the application of technical and organisational measures over wearing personal protection equipment for the use of the biocidal product. According to Germany, pursuant to that Directive the employer is to decide which technical and organisational measures are to be applied, and as there is a broad range of such measures, it is not feasible to describe and evaluate the measures in the authorisation of the biocidal product.

(4)

As no agreement was reached by the coordination group, on 28 October 2020 Germany referred the unresolved objection to the Commission pursuant to Article 36(1) of Regulation (EU) No 528/2012. It thereby provided the Commission with a detailed statement of the matter on which Member States were unable to reach agreement and the reasons for their disagreement. That statement was forwarded to the Member States concerned and the applicant.

(5)

Article 2(3), points (b) and (c), of Regulation (EU) No 528/2012 provides that that Regulation is to be without prejudice to Council Directive 89/391/EEC (3) and Directive 98/24/EC.

(6)

Article 19(1), point (b)(iii), of Regulation (EU) No 528/2012 indicates as one of the criteria for granting an authorisation that the biocidal product has no unacceptable effects itself, or as a result of its residues, on the health of humans.

(7)

Point 9 of Annex VI to Regulation (EU) No 528/2012 states that the application of the common principles laid down in that Annex for the evaluation of dossiers for biocidal products referred to in Article 19(1), point (b), of that Regulation, when taken together with the other conditions set out in its Article 19, is to lead to the competent authorities or the Commission deciding whether or not a biocidal product is to be authorised. Such authorisation may include restrictions on the use of the biocidal product or other conditions.

(8)

Point 18(d) of Annex VI to Regulation (EU) No 528/2012 states that the risk assessment conducted for the product is to determine the measures necessary to protect humans, animals and the environment, both during the proposed normal use of the biocidal product and in a realistic worst-case situation.

(9)

Point 56(2) of Annex VI to Regulation (EU) No 528/2012 indicates that in establishing compliance with the criteria set out in Article 19(1), point (b), of that Regulation, one of the conclusions to which the evaluating body is to make, is that subject to specific conditions/restrictions the biocidal product can comply with the criteria.

(10)

Point 62 of Annex VI to Regulation (EU) No 528/2012 states that the evaluating body is, where appropriate, to conclude that the criterion under Article 19(1), point (b)(iii), of that Regulation can only be complied with by application of prevention and protection measures including the design of work processes, engineering controls, use of adequate equipment and materials, application of collective protection measures and, where exposure cannot be prevented by other means, application of individual protection measures including the wearing of personal protective equipment such as respirators, breathing-masks, overalls, gloves and goggles, in order to reduce exposure for professional operators.

(11)

However, point 62 of Annex VI to Regulation (EU) No 528/2012 does not provide that the assessment leading to the conclusion that the criterion under Article 19(1), point (b)(iii), of that Regulation can only be complied with by application of prevention and protection measures is to be done in accordance with Directive 98/24/EC. It also does not explicitly provide that that Directive would not apply. Therefore, it should not be inferred from those provisions that Directive 98/24/EC does not apply. In addition, the relevant obligations under Directive 98/24/EC are imposed on employers, not on the authorities of Member States.

(12)

Article 4 of Directive 98/24/EC provides that for the assessment of any risk to the safety and health of workers arising from the presence of chemical agents, employers are to obtain additional information needed from the supplier or from other readily available sources and that where appropriate, that information is to comprise the specific assessment concerning the risk to users established on the basis of Union legislation on chemical agents.

(13)

Article 6 of Directive 98/24/EC lays down prioritisation of the measures to be taken by the employer for the protection of workers from the risks related to chemical agents at work. Priority is to be given to replacement of the hazardous substance and when this is not possible, the risk from a hazardous chemical agent to the safety and health of workers at work needs to be reduced to a minimum by application of protection and prevention measures. If it is not possible to prevent exposure to the hazardous substance by other means, protection of the workers is to be ensured by applying individual protection measures including personal protective equipment.

(14)

Taking into account the methods of application of the biocidal product and the available information from the evaluating body, no such technical or organisational measures have been identified in the application for authorisation of the biocidal product, nor during the evaluation of that application.

(15)

The Commission therefore considers that the biocidal product meets the criterion laid down in Article 19(1), point (b)(iii), of Regulation (EU) No 528/2012, provided that the following condition regarding its use is included in the authorisation and on the label of the biocidal product: ‘The wearing of protective chemical resistant gloves meeting the requirements of the European Standard EN 374 (glove material to be specified by the authorisation holder within the product information) and coverall of at least type 6 as specified in the European Standard EN 13034 is required for application by manual dipping and automated spraying, wearing of protective chemical resistant gloves meeting the requirements of the European Standard EN 374 (glove material to be specified by the authorisation holder within the product information) is required for application by automated dipping, and wearing of chemical resistant gloves meeting the requirements of European Standard EN 374 (glove material to be specified by the authorisation holder within the product information) is required for subsequent manual processing of the freshly treated timber. This is without prejudice to the application by employers of Council Directive 98/24/EC and other Union legislation in the area of health and safety at work’.

(16)

However, if the applicant for authorisation identifies effective technical or organisational measures and the authorising authority agrees that such measures lead to an equivalent or higher level of exposure reduction, or the authorising authority itself identifies measures leading to an equivalent or higher level of exposure reduction, those measures should replace the wearing of personal protective equipment and should be specified in the authorisation and on the label of the biocidal product.

(17)

On 15 February 2021, the Commission provided the applicant with the opportunity to provide written comments in accordance with Article 36(2) of Regulation (EU) No 528/2012. The applicant did not provide comments.

(18)

The measures provided for in this Decision are in accordance with the opinion of the Standing Committee on Biocidal Products,

(1)

Council Directive 2009/119/EC (1) aims at ensuring a high level of security of oil supply in the Union through reliable and transparent mechanisms based on solidarity among Member States. In particular, it lays down rules and procedures to be applied in case of emergency. On 1st March and 1 April 2022, the IEA Governing Board decided coordinated oil emergency stockdraw plans to release 60 and 120 million barrels of oil, respectively (2).

(2)

The Commission and Member States discussed the opportunity, expected benefits and impact of IEA collective action at four meetings of the Oil Coordination Group (on 22 and 25 February and on 2 and 31st March). By letters of 4 March and 5 April 2022 addressed to the Oil Coordination Group, the Commission’s services reminded Member States of the relevant provisions and obligations applicable under Union law.

(3)

Eighteen Member States (including two Member States not members of IEA) participated in IEA collective action and pledged voluntary contributions for approximately 40 million barrels of crude oil equivalent.

(4)

Emergency oil stocks held currently in the Union are at the lowest volume since 2013. Pursuant to Article 3 of Directive 2009/119/EC, they reflect the net imports of crude oil and petroleum products during 2020, which were unusually low, due to reduced consumption resulting from sanitary measures to fight the COVID-19 pandemic (confinement and reduced mobility). The volumes of crude oil and petroleum products needed to meet the new yearly stockholding obligation applicable as from 1 July 2022 for a 12-month-period, are expected to increase for some Member States by up to 30 %.

(5)

In the current situation of uncertainty concerning the evolution of the war in Ukraine, it is of utmost importance to restrain the demand for crude oil and petroleum products as much as possible and to avoid putting additional stress on the oil market. It is therefore not desirable for Member States to replenish in the short term those emergency oil stocks that are being released or will be released pursuant to Article 20 of Directive 2009/119/EC, unless there is a risk for their security of supply preparedness. It is however premature to set a definite time frame for the replenishment of the stocks released.

(6)

Member States should avoid purchasing additional crude oil and petroleum products in preparation for the upcoming new yearly stockholding obligation as from July 2022, which would necessarily increase the current demand for these commodities. With reference to Article 20(6) of Directive 2009/119/EC, the Commission will review the time frame within which Member States must bring their stocks back up to the minimum required levels, in light of the evolution of the current crisis.

(7)

The Commission consulted the Oil Coordination group on this Recommendation at the meeting held on 14 March 2021, where representatives of IEA’s Secretariat participated,

1.

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