The European Court of Auditors (ECA) published a report in which it states that the effectiveness and efficiency of the European Regional Development Fund (ERDF) spending on financial instruments for SMEs were hampered by the regulatory framework being inappropriate for the different types of financial instruments used.

The special report published by the European Court of Auditors (ECA) concluded that the regulatory framework is inappropriate for the different types of financial instruments used, and thus, the European Regional Development Fund (ERDF) spending on financial instruments do not benefit SMEs as much as intended partly because of inadequate regulatory provisions.

The ECA’s audit shows that there were widespread delays in the funds reaching the recipient SMEs and the supported actions were ineffective in leveraging in private investment. In addtion, SME financing gap assessments, when prepared, suffered from significant shortcomings. On the other hand, some recipient SMEs were charged unjustified management fees by the financial intermediaries used. The audit therefore points out that the Structural Funds regulatory framework used for this SME support through financial instruments was originally designed for grant spending, and thus unfit to take into account the specific characteristics of the debt and equity instruments used.

Having regard of these conclusions, ECA makes a number of recommendations to the Commission such as to ensure that Member State proposals are justified by gap assessments of sufficient quality to be used when approving the measures; provide a reliable and technically robust monitoring and evaluation system; explore the possibility of supplying Member States with simplified and tested structures and instruments to speed up implementation and reduce management costs; and define and setting minimum requirements for leverage and ‘recycling’ of funds.