Commission strengthens further the European Union’s financial risk management framework

This article is brought to you in association with the European Commission.

The European Commission is taking important steps to enhance its financial risk management and compliance framework to keep pace with the significant growth of the Union’s financial operations.

Today, the Commission decided to expand the role of the independent Chief Risk Officer, with an oversight over all of the Union’s financial operations, including borrowing, debt and liquidity management, lending operations and budgetary guarantees, as well as assets under management. The position is held by Iliyana Tsanova since her appointment in 2021.

Over the past five years, the Union budget has increasingly been relying on different financial instruments to leverage on the power of the Union budget and thus provide a more efficient use of public resources. Borrowing and lending operations and budgetary guarantees have supported investments and economic recovery in Member States, provided vital support to Ukraine and assisted accession and neighborhood countries.

The strengthening of the risk management of the EU financial operations is part of the Commission’s commitment to robust financial governance of the EU budget and is in line with President von der Leyen‘s mission letter to the Commissioner for Budget, Anti-fraud and Public Administration, Piotr Serafin.

The Chief Risk Officer function is a central pillar of the ‘three lines of defence’ model – a best-practice framework for risk governance. In this model:

• the first line of defence consists of the Commission departments managing EU borrowing, lending and asset management operations as well as budgetary guarantees;
• the Chief Risk Officer, as an independent corporate second line of defence, formulates risk management policies and provides independent risk oversight, ensuring additional controls and accountability;
• the Internal Audit Service, as the third line of defence, provides independent assurance on risk governance.

With the adoption of this framework model and the establishment of an independent Chief Risk Officer, the Commission has fully implemented all recommendations of the European Court of Auditors’ special report 16/2023 on EU debt management.

Background

The European Union relies on various financial instruments to support its policy priorities, for instance the bond and debt securities issuance. A landmark programme currently funded by EU-Bonds is the NextGenerationEU recovery instrument. The EU also issues EU-Bonds to finance loans for countries in the EU neighbourhood, including essential financial support for Ukraine. 

In addition to borrowing, the EU uses budgetary guarantees to attract private investment in strategic sectors such as infrastructure, innovation, and sustainability. Programmes like InvestEU and the European Fund for Sustainable Development Plus provide financial backing for implementing partners (such as the European Investment Bank and national promotional banks), for loans and investments. This reduces the risk for private investors and enabling projects that might not otherwise secure funding. To cover for the financial risks associated to budget guarantees, the EU maintains a Common Provisioning Fund, a pooled reserve designed to cover potential losses linked to budgetary guarantees and financial assistance. The Common Provisioning Fund ensures that the EU budget remains resilient while continuing to support long-term investment and economic stability.