EU Parliament approved revised EU financial rules

In a plenary vote on Thursday, MEPs have adopted the agreement with the Council of the EU on modernising EU financial rules with 437 votes against 45 and 72 abstentions.

Key enhancements include:

Tracking EU funds via digital tools

The revised EU financial rules enhance budget management with a robust internal control system and a new interoperable database for tracking fund beneficiaries. The new rules now require publishing key details about EU fund recipients on a centralised Commission website. This transparency measure, applicable from June 30 following the financial year of fund allocation, significantly enhances transparency in EU spending.

Additionally, the Early Detection and Exclusion System (EDES), which protects the EU budget from risks like fraud and irregularities, will also cover shared management funds, further strengthening fraud prevention and risk management across all EU funding.

Very low value grants

Parliament was able to introduce a new category for very low value grants, capped at EUR 15,000. This simplification aims to streamline support for small and medium-sized enterprises and individual applicants, drawing on lessons from the pandemic and reducing bureaucracy for both applicants and implementing partners.

EU values and social conditionality

Social conditionality is now incorporated into the disbursement of EU funds. Compliance with essential employment and occupational safety standards is now mandatory before fund allocation. Additionally, the updated regulation highlights a commitment to Union values, particularly the respect for fundamental rights.

Also, thanks to Parliament’s efforts, the revised financial rules now more effectively incorporate the “Do No Significant Harm” principle. This ensures EU funding activities uphold the EU’s dedication to environmental and social sustainability.

Other enhancements include:

• Procurement provisions for an EU institution, body or agency to purchase on behalf of Member States
• Clear definition of ‘crisis’ and new rules for crisis management
• Legal framework for the EU to participate in global initiatives, make in-kind donations and address distortive foreign subsidies
• Possibility to finance structural renovations through loans
• Introduction of a diversified funding strategy to enhance the liquidity of EU bonds and the attractiveness and cost-effectiveness of EU issuance
• More precise conflict of interest assessment and measures to prevent ‘gold-plating’
• Enhanced transparency and accountability through the publication of borrowing and lending operations.
• Specific measures to ensure gender equality and climate change considerations in EU funding.

Quotes

Co-rapporteur Monika Hohlmeier (EPP, DE), for the Committee on Budgetary Control:

“The Financial Regulation is the single rule book for budget implementation. The recast of these rules was necessary to provide more flexibility, reduced administrative burden for SMEs and grant applicants, and build on the lessons learned from the COVID-19 pandemic. We also saw that there is a strong need to increase transparency about beneficiaries and lay down the foundation for an IT system that allows the tracking and tracing of EU funds appropriate for the 21st century.” Watch the full plenary speech of Monika Hohlmeier

Co-rapporteur Nils Ušakovs (S&D, LV), for the Committee on Budgets:

“Despite several points of contention with the Council, we could significantly advance with this legislation. One such achievement is emphasis on decent working conditions and the protection of workers’ rights. Social standards in the Financial Regulation are a novelty, and a monumental step forward. Now any entity seeking funding from EU programmes must uphold the right to decent working conditions in accordance with the Charter of Fundamental Rights. To put it simple, businesses that fail to respect workers social rights will not receive any money from Europe.” Watch the full plenary speech of Nils Ušakovs

Background

The Financial Regulation (FR) is the main point of reference for the principles and procedures governing the establishment, implementation and control of the EU budget. The current version of the FR applies from 2 August 2018. The FR is reviewed whenever it proves necessary to do so and in any case at the latest two years before the end of each multiannual financial framework.

The Commission proposed a revision of the FR in May 2022 to align it with the legal acts adopted in the context of the 2021-2027 Multiannual Financial Framework (MFF) package.

Parliament has adopted two resolutions in November 2021 ahead of the expected FR revision proposal, a general one and a separate legislative initiative on “digitalisation of the European reporting, monitoring and audit” in order to ensure better control of spending including the avoidance of misuse, corruption, fraud and of conflicts of interests.