title: Recommendation of the European Systemic Risk Board of 16 July 2018 amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (ESRB/2018/5)

text:
               21.9.2018

               EN

               Official Journal of the European Union

               C 338/1

      RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD
      of 16 July 2018
      amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures
      (ESRB/2018/5)
      (2018/C 338/01)
      THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,
      Having regard to the Treaty on the Functioning of the European Union,
      Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Article 3 and Articles 16 to 18 thereof,
      Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (2), and in particular Article 458(8) thereof,
      Having regard to Decision ESRB/2011/1 of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European Systemic Risk Board (3), and in particular Articles 18 to 20 thereof,
      Whereas:

                  (1)

                  In order to ensure effective and consistent national macroprudential policy measures, it is important to complement the mandatory reciprocity required under Union law with voluntary reciprocity.

                  (2)

                  The framework on voluntary reciprocity for macroprudential policy measures set out in Recommendation ESRB/2015/2 of the European Systemic Risk Board (4) aims to ensure that all exposure-based macroprudential policy measures activated in one Member State are reciprocated in the other Member States.

                  (3)

                  Recommendation ESRB/2017/4 of the European Systemic Risk Board (5) recommends the relevant activating authority to propose a maximum materiality threshold when submitting a request for reciprocation to the European Systemic Risk Board (ESRB), below which an individual financial service provider’s exposure to the identified macroprudential risk in the jurisdiction where the macroprudential policy measure is applied by the activating authority can be considered non-material. The ESRB’s permanent Assessment Team, established under Decision ESRB/2015/4 of the European Systemic Risk Board (6), may recommend a different threshold if deemed necessary.

                  (4)

                  From 30 April 2018, credit institutions authorised in Belgium and using the Internal Ratings Based Approach for calculating regulatory capital requirements are subject, pursuant to Article 458(2)(d)(vi) of Regulation (EU) No 575/2013, to a risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, composed of: (a) a flat risk-weight add-on of 5 percentage points; and (b) a proportionate risk-weight add-on consisting of a fraction (33 per cent) of the exposure-weighted average of the risk-weights.

                  (5)

                  Following the request by Belgium to the ESRB under Article 458(8) of Regulation (EU) No 575/2013, and in order to prevent the materialisation of negative cross-border effects in the form of leakages and regulatory arbitrage that could result from the implementation of the macroprudential policy measure applied in Belgium in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013, the General Board of the ESRB has decided to include this measure in the list of macroprudential policy measures which are recommended to be reciprocated under Recommendation ESRB/2015/2.

                  (6)

                  Therefore, Recommendation ESRB/2015/2 should be amended accordingly,

            HAS ADOPTED THIS RECOMMENDATION:

         AMENDMENTS

      Recommendation ESRB/2015/2 is amended as follows:

                  1.

                  in Section 1, sub-recommendation C(1) is replaced by the following:

                              ‘1.

                              The relevant authorities are recommended to reciprocate the macroprudential policy measures adopted by other relevant authorities and recommended for reciprocation by the ESRB. It is recommended that the following measures, as further described in the Annex, be reciprocated:
                              Estonia:

                                          —

                                          a 1-per cent systemic risk buffer rate applied in accordance with Article 133 of Directive 2013/36/EU to the domestic exposures of all credit institutions authorised in Estonia;

                                    Finland:

                                          —

                                          a 15-per cent floor for the average risk-weight on residential mortgage loans secured by a mortgage on housing units in Finland applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Finland, using the Internal Ratings Based (IRB) Approach for calculating regulatory capital requirements;

                                    Belgium:

                                          —

                                          a risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Belgium, using the IRB Approach for calculating regulatory capital requirements and composed of:

                                                      (a)

                                                      a flat risk-weight add-on of 5 percentage points; and

                                                      (b)

                                                      a proportionate risk-weight add-on consisting of 33 per cent of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium.’;

                  2.

                  the Annex is replaced by the Annex to this Recommendation.

         Done at Frankfurt am Main, 16 July 2018.

            Francesco MAZZAFERRO

               Head of the ESRB Secretariat

               on behalf of the General Board of the ESRB

         (1)  OJ L 331, 15.12.2010, p. 1.

         (2)  OJ L 176, 27.6.2013, p. 1.

         (3)  OJ C 58, 24.2.2011, p. 4.

         (4)  Recommendation ESRB/2015/2 of the European Systemic Risk Board of 15 December 2015 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (OJ C 97, 12.3.2016, p. 9).

         (5)  Recommendation ESRB/2017/4 of the European Systemic Risk Board of 20 October 2017 amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (OJ C 431, 15.12.2017, p. 1).

         (6)  Decision ESRB/2015/4 of the European Systemic Risk Board of 16 December 2015 on a coordination framework for the notification of national macroprudential policy measures by relevant authorities, the issuing of opinions and recommendations by the ESRB, and repealing Decision ESRB/2014/2 (OJ C 97, 12.3.2016, p. 28).

         ANNEX
         ‘

                  Annex

                     Estonia

                        1 per cent systemic risk buffer rate applied in accordance with Article 133 of Directive 2013/36/EU to the domestic exposures of all credit institutions authorised in Estonia

                  I.   Description of the measure

                              1.

                              The Estonian measure constitutes a 1-percent systemic risk buffer rate applied in accordance with Article 133 of Directive 2013/36/EU to the domestic exposures of all credit institutions authorised in Estonia.

                        II.   Reciprocation

                              2.

                              Where Member States have implemented Article 134 of Directive 2013/36/EU in national law, relevant authorities are recommended to reciprocate the Estonian measure for exposures located in Estonia of domestically authorised institutions in accordance with Article 134(1) of Directive 2013/36/EU. For the purposes of this paragraph, the deadline specified in sub-recommendation C(3) applies.

                              3.

                              Where Member States have not implemented Article 134 of Directive 2013/36/EU in national law, relevant authorities are recommended to reciprocate the Estonian measure for exposures located in Estonia of domestically authorised institutions in accordance with sub-recommendation C(2). Relevant authorities are recommended to adopt the equivalent measure within six months.

                     Finland

                        A credit institution-specific minimum level of 15 per cent for the average risk-weight on loans secured by a mortgage on housing units in Finland applicable to credit institutions using the Internal Ratings Based (IRB) Approach (hereinafter “IRB credit institutions”) under Article 458(2)(d)(vi) of Regulation (EU) No 575/2013.

                  I.   Description of the measure

                              1.

                              The Finnish measure, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013, consists of a credit institution-specific average risk-weight floor of 15 per cent for IRB credit institutions, at the portfolio level, for residential mortgage loans secured by housing units in Finland.

                        II.   Reciprocation

                              2.

                              In accordance with Article 458(5) of Regulation (EU) No 575/2013, relevant authorities of the Member States concerned are recommended to reciprocate the Finnish measure and apply it to IRB credit institutions' portfolios of retail mortgage loans secured by housing units in Finland issued by domestically authorised branches located in Finland. For the purposes of this paragraph, the deadline specified in sub-recommendation C(3) applies.

                              3.

                              Relevant authorities are also recommended to reciprocate the Finnish measure and apply it to IRB credit institutions' portfolios of retail mortgage loans secured by housing units in Finland issued directly across borders by credit institutions established in their respective jurisdictions. For the purposes of this paragraph, the deadline specified in sub-recommendation C(3) applies.

                              4.

                              In accordance with sub-recommendation C(2), the relevant authorities are recommended to apply, following consultation with the ESRB, a macroprudential policy measure available in their jurisdiction that has the effect most equivalent to the above measure recommended for reciprocation, including adopting supervisory measures and powers laid down in Title VII, Chapter 2, Section IV of Directive 2013/36/EU. The relevant authorities are recommended to adopt the equivalent measure within four months.

                        III.   Materiality threshold

                              5.

                              The measure is complemented by a materiality threshold of EUR 1 billion exposure to the residential mortgage lending market in Finland to steer the potential application of the de minimis principle by the reciprocating Member States.

                              6.

                              In line with Section 2.2.1 of Recommendation ESRB/2015/2, relevant authorities of the Member State concerned may exempt individual IRB credit institutions with non-material portfolios of retail mortgage loans secured by housing units in Finland below the materiality threshold of EUR 1 billion. In this case the relevant authorities should monitor the materiality of the exposures and are recommended to reciprocate when an IRB credit institution exceeds the threshold of EUR 1 billion.

                              7.

                              Where there are no IRB credit institutions authorised in other Member States concerned with branches located in Finland or providing financial services directly in Finland that have exposures of EUR 1 billion or above to the Finnish mortgage market, relevant authorities of the Member States concerned may decide not to reciprocate as provided by Section 2.2.1 of Recommendation ESRB/2015/2. In this case the relevant authorities should monitor the materiality of the exposures and are recommended to reciprocate when an IRB credit institution exceeds the threshold of EUR 1 billion.

                     Belgium

                        A risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, imposed on credit institutions authorised in Belgium using the IRB Approach and applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013. The add-on is composed of two components:

                              (a)

                                    a flat risk-weight add-on of 5 percentage points; and

                              (b)

                                    a proportionate risk-weight add-on consisting of 33 per cent of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium.

                        I.   Description of the measure

                              1.

                              The Belgian measure, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 and imposed on credit institutions authorised in Belgium using the IRB Approach, consists of a risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, which is composed of two components:

                                          (a)

                                          The first component consists of a 5 percentage point increase to the risk-weight for retail exposures secured by residential immovable property located in Belgium obtained after computing the second part of the risk-weight add-on in accordance with point (b).

                                          (b)

                                          The second component consists of a risk-weight increase of 33 per cent of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium. The exposure-weighted average is the average of the risk-weights of the individual loans calculated in accordance with Article 154 of Regulation (EU) No 575/2013, weighted by the relevant exposure value.

                        II.   Reciprocation

                              2.

                              In accordance with Article 458(5) of Regulation (EU) No 575/2013, relevant authorities of the Member States concerned are recommended to reciprocate the Belgian measure by applying it to branches located in Belgium of domestically authorised credit institutions using the IRB Approach within the deadline specified in sub-recommendation C(3).

                              3.

                              Relevant authorities are recommended to reciprocate the Belgian measure by applying it to domestically authorised credit institutions using the IRB Approach that have direct retail exposures secured by residential immovable property located in Belgium. In accordance with sub-recommendation C(2), the relevant authorities are recommended to apply the same measure as the one that has been implemented in Belgium by the activating authority within the deadline specified in sub-recommendation C(3).

                              4.

                              If the same macroprudential policy measure is not available in their jurisdiction, the relevant authorities are recommended to apply, following consultation with the ESRB, a macroprudential policy measure available in their jurisdiction that has the most equivalent effect to the above measure recommended for reciprocation, including adopting supervisory measures and powers laid down in Title VII, Chapter 2, Section IV of Directive 2013/36/EU. Relevant authorities are recommended to adopt the equivalent measure by no later than four months following the publication of this Recommendation in the Official Journal of the European Union.

                        III.   Materiality threshold

                              5.

                              The measure is complemented by an institution-specific materiality threshold of EUR 2 billion to steer the potential application of the de minimis principle by the relevant authorities reciprocating the measure.

                              6.

                              In line with Section 2.2.1 of Recommendation ESRB/2015/2, relevant authorities of the Member State concerned may exempt individual domestically authorised credit institutions using the IRB Approach having non-material retail exposures secured by residential immovable property in Belgium which are below the materiality threshold of EUR 2 billion. When applying the materiality threshold, the relevant authorities should monitor the materiality of exposures and are recommended to apply the Belgian measure to previously exempted individual domestically authorised credit institutions when the materiality threshold of EUR 2 billion is breached.

                              7.

                              Where there are no credit institutions authorised in the Member States concerned with branches located in Belgium or which have direct retail exposures secured by residential immovable property in Belgium, which use the IRB Approach and which have exposures of EUR 2 billion or above to the Belgian residential immovable property market, relevant authorities of the Member States concerned may, pursuant to Section 2.2.1 of Recommendation ESRB/2015/2, decide not to reciprocate the Belgian measure. In this case the relevant authorities should monitor the materiality of the exposures and are recommended to reciprocate the Belgian measure when a credit institution using the IRB Approach exceeds the threshold of EUR 2 billion.

                              8.

                              In line with Section 2.2.1 of Recommendation ESRB/2015/2, the materiality threshold of EUR 2 billion is a recommended maximum threshold level. Reciprocating relevant authorities may therefore instead of applying the recommended threshold set a lower threshold for their jurisdictions where appropriate, or reciprocate the measure without any materiality threshold.

            ’.


title: Recommendation of the European Central Bank of 19 October 2018 to the Council of the European Union on the external auditors of De Nederlandsche Bank (ECB/2018/25)

text:
               30.10.2018

               EN

               Official Journal of the European Union

               C 394/1

      RECOMMENDATION OF THE EUROPEAN CENTRAL BANK
      of 19 October 2018
      to the Council of the European Union on the external auditors of De Nederlandsche Bank
      (ECB/2018/25)
      (2018/C 394/01)
      THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,
      Having regard to the Treaty on the Functioning of the European Union,
      Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Article 27.1 thereof,
      Whereas:

                  (1)

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

                  (2)

                  The mandate of De Nederlandsche Bank’s current external auditors, Deloitte Accountants BV, ends after the audit for the financial year 2018. It is therefore necessary to appoint external auditors from the financial year 2019.

                  (3)

                  De Nederlandsche Bank has selected KPMG Accountants NV as its external auditors for the financial years 2019 to 2022, with the option to extend the mandate on a yearly basis until the financial year 2025,

            HAS ADOPTED THIS RCOMMENDATION:
      It is recommended that KPMG Accountants NV should be appointed as the external auditors of De Nederlandsche Bank for the financial years 2019 to 2022, with the option to extend the mandate on a yearly basis until the financial year 2025.

         Done at Frankfurt am Main, 19 October 2018.

               The President of the ECB

            Mario DRAGHI


title: Recommendation of the European Central Bank of 25 July 2019 to the Council of the European Union on the external auditors of the Central Bank of Malta (ECB/2019/24)

text:
               21.8.2019

               EN

               Official Journal of the European Union

               C 283/1

      RECOMMENDATION OF THE EUROPEAN CENTRAL BANK
      of 25 July 2019
      to the Council of the European Union on the external auditors of the Central Bank of Malta
      (ECB/2019/24)
      (2019/C 283/01)
      THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,
      Having regard to the Treaty on the Functioning of the European Union,
      Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Article 27.1 thereof,
      Whereas:

                  (1)

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

                  (2)

                  The mandate of the Central Bank of Malta’s current external auditors, PricewaterhouseCoopers, ended after the audit for the financial year 2018. It is therefore necessary to appoint external auditors from the financial year 2019.

                  (3)

                  The Central Bank of Malta has selected KPMG as its external auditors for the financial years 2019 to 2025,

            HAS ADOPTED THIS RECOMMENDATION:
      It is recommended that KPMG should be appointed as the external auditors of the Central Bank of Malta for the financial years 2019 to 2025.

         Done at Frankfurt am Main, 25 July 2019.

               The President of the ECB

            Mario DRAGHI


title: Council Recommendation of 9 July 2019 on the 2019 National Reform Programme of Estonia and delivering a Council opinion on the 2019 Stability Programme of Estonia

text:
               5.9.2019

               EN

               Official Journal of the European Union

               C 301/30

      COUNCIL RECOMMENDATION
      of 9 July 2019
      on the 2019 National Reform Programme of Estonia and delivering a Council opinion on the 2019 Stability Programme of Estonia
      (2019/C 301/06)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Estonia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 21 March 2019. On 9 April 2019, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘2019 Recommendation for the euro area’), which sets out five euro-area recommendations (‘the euro-area recommendations’).

                  (2)

                  As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Estonia should ensure the full and timely implementation of the 2019 Recommendation for the euro area, as reflected in recommendations (2) and (3) below. In particular, measures focusing economic policy related to investment on the specified areas will help address the second euro-area recommendation as regards supporting investment.

                  (3)

                  The 2019 country report for Estonia was published on 27 February 2019. It assessed Estonia’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018 (4), the follow-up given to the recommendations adopted in previous years and Estonia’s progress towards its national Europe 2020 targets.

                  (4)

                  Estonia submitted its 2019 National Reform Programme on 30 May 2019 and its 2019 Stability Programme on 30 April 2019.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Estonia is currently in the preventive arm of the Stability and Growth Pact. The 2019 Stability Programme was submitted on a no-policy-change basis. The Programme envisages to move from a general government deficit of 0,6 % of gross domestic product (GDP) in 2018 to a deficit of 0,2 % of GDP in 2019, 0,3 % of GDP in 2020 and register a deficit of 0,7 % of GDP by 2022. Based on the recalculated structural balance (6), the medium-term budgetary objective, set at a deficit of 0,5 % of GDP in structural terms, is not planned to be achieved over the period covered by the 2019 Stability Programme. The general government debt-to-GDP ratio is projected to decline to 5,3 % of GDP by 2022. The macroeconomic scenario underpinning those budgetary projections is favourable. The measures needed to support the planned deficit targets have not been specified posing a risk to the revenue yield assumptions.

                  (7)

                  In view of the Commission autumn 2018 forecast, which projected a closer position to the medium-term budgetary objective in 2019, and consistent with the rules for unfreezing the required adjustment, the nominal growth rate of net primary government expenditure should not exceed 4,9 %, corresponding to an annual structural adjustment of 0,3 % in 2019. Based on the Commission 2019 spring forecast, there is a risk of significant deviation from that requirement in 2019.

                  (8)

                  In 2020, in view of Estonia’s projected output gap of 2,7 % of GDP and with projected GDP growth below to the estimated potential growth rate, the nominal growth rate of net primary government expenditure should not exceed 4,1 %, in line with the structural adjustment of 0,6 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. Based on the Commission 2019 spring forecast under unchanged policies, there is a risk of significant deviation from that requirement in 2020. Overall, the Council is of the opinion that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact.

                  (9)

                  Preventing money laundering has become a priority for Estonia against the background of large money-laundering scandals. Estonia has strengthened its anti-money-laundering framework and the proportion of non-resident deposits in the Estonian banking sector has significantly decreased. However, challenges remain. While the Estonian government introduced additional measures and guidelines on how to further strengthen the prevention in this area, a legislative initiative aiming at increasing the capacities of the anti-money-laundering supervision has not yet been adopted by the Estonian Parliament. Attention should be paid to the effective implementation of these measures, once adopted.

                  (10)

                  Skills shortages and mismatches are among the main obstacles to business investment and limit greater productivity gains. In recent years, Estonia has implemented comprehensive reforms but labour market trends and the decrease in the working-age population present long-term challenges to the education and training system. These challenges include a still high rate of early school leaving, incomplete reorganisation of the school network; the insufficient labour market relevance of higher education and vocational education and training; and the challenges linked to the ageing of teachers and the low attractiveness of the profession. Although participation in adult learning is improving, the upskilling and reskilling of the workforce is not occurring fast enough to keep up with labour market trends. The insufficient capacity to innovate is at the centre of the identified skills needs. In spite of the high percentage of information and communication technology specialists, there is limited digital skills training provided by enterprises. Improving the labour market relevance of the education and training system, including by investing in career guidance, tackling early school leaving and better anticipating skills needs, would help ensure that people are equipped with the rights skills. In addition, enhancing the working conditions of teachers, the quality of teaching and the education policies in response to demographic and economic trends would strengthen the capacity of the education and training system.

                  (11)

                  Despite improvements, poverty, social exclusion and income inequality remain high, particularly among older people. Around 42 % of those aged 65 and above were at risk of poverty and social exclusion in 2017 compared to the Union average of 15 %. Social benefits are still not effective in reducing poverty and the social safety net is weak. The provision of good quality and affordable social services is hampered by the weak coordination between the health and social care services and by the wide variation in municipalities’ ability to identify the needs for social services and deliver them. Individuals also have to cover a large part of the costs of the services provided by the authorities. Estonia’s public spending on long-term care was less than half of the Union average (0,6 % of GDP compared with 1,6 % of GDP in 2016). There are no preventive measures or a support system to alleviate the burden on informal carers. The proportion of people with unmet medical needs remains one of the highest in the Union (11,7 %) indicating problems with the accessibility and effectiveness of the healthcare system. These challenges point to the need to deliver affordable and good quality social and healthcare services in an integrated way and to develop a comprehensive long-term care framework. Investments supporting social inclusion, including in social infrastructure, would foster inclusive growth.

                  (12)

                  The gender pay gap at 25,6 % in 2017 remains among the highest in the Union and is slightly wider than the previous year. Moreover, the impact of parenthood on women’s employment is well above the Union average (25,2 and 9,0 % respectively). Long parental leaves often lead to slower career progression for women. Women tend to work in lower-paid economic sectors and occupations even though their education level is higher than men’s. Recent measures added flexibility to the parental leave and benefit system with a view to facilitating parents’ return to the labour market. The use of childcare has been improving. However, factors such as economic activity, occupation, age, job experience or working time explain only part of the gender pay gap, leaving an unexplained gap of 20 % against the Union average of 11,5 %. Pay transparency could help to better understand the reasons behind this high gender wage gap. Continued investment in childcare and active labour market measures would help women’s employment. Furthermore, engaging with the social partners and strengthening their capacity remain important in a broader context.

                  (13)

                  As a peripheral country with a low population density, a well-functioning and interconnected transport system is key for Estonia’s economic activities and exports. Estonia’s transport infrastructure faces some shortcomings in terms of connectivity and sustainability. Rail and intermodal transport remain underdeveloped. Moreover, greenhouse gas emissions from road transport have increased the last 5 years. Further innovative and sustainable solutions could help address congestion and public transport-related problems. Synchronising Estonia’s electricity system with the continental European network is key to ensuring security of electricity supply in the entire Baltic region. Investment in infrastructure would help improve the competitiveness of the Estonian companies.

                  (14)

                  With low levels of investment in research and development, especially from the private sector, Estonia’s productivity has been lagging behind. While in 2017 public expenditure on research and development was slightly below the Union average, business investment was only 0,61 % of GDP — about half the Union average. There is a low proportion of companies, in particular among small and medium-sized enterprises (‘SMEs’), reporting research and innovation activities. Non-research and development innovation expenditure is declining and the collaboration between science and businesses is weak. Some of these factors are dragging down the country’s innovation performance and productivity. More targeted investment in research, development and innovation, including in the digitalisation and automation of firms would increase Estonia’s productivity and competitiveness. Better prioritisation of research topics in areas of relevance for the economy would do likewise. The Estonian authorities have designed and implemented several measures to address the shortcomings in the research and innovation system but their impact remains limited to date.

                  (15)

                  Challenges in the areas of resource and energy efficiency remain. Estonia’s eco-innovation performance does not fully reflect the country’s potential, and its composite eco-innovation score of 60 is 40 % below the Union average. Despite some improvements in recent years, Estonia performs about three times below the Union average in terms of resource productivity and the gap with the rest of the Union is widening. Only a small proportion of Estonian SMEs are taking actions to improve their resource efficiency and become greener. Furthermore, the economy is highly energy intensive, with energy consumption levels well above the Union average. All Estonian regions are lagging behind in improving resource and energy efficiency. At 0,4 % in 2017, Estonia was well below its national targets of 10 % share of renewable energy in transport. Fostering resource and energy efficiency, in particular in the buildings sector, and supporting the circular economy, including by increasing investment, would further contribute to a more competitive and sustainable economy.

                  (16)

                  Insolvency procedures in Estonia take around three years and the recovery rate is slightly above 40 %. This traps labour and financial resources in less productive firms. It undermines incentives to invest and provide financing to firms. Reforming the insolvency framework would be important with a view to shorten the duration of insolvency proceedings and increase the recovery rate for creditors. In particular, this could include encouraging the use of pre- and post- insolvency restructuring proceedings and preventing piece-meal liquidation of companies.

                  (17)

                  The programming of Union funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the 2019 country report. This would allow Estonia to make the best use of those funds in respect of the identified sectors, taking into account regional disparities.

                  (18)

                  In the context of the 2019 European Semester, the Commission has carried out a comprehensive analysis of Estonia’s economic policy and published it in the 2019 country report. It has also assessed the 2019 Stability Programme, the 2019 National Reform Programme and the follow-up given to the recommendations addressed to Estonia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

                  (19)

                  In the light of this assessment, the Council has examined the 2019 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

            HEREBY RECOMMENDS that Estonia take action in 2019 and 2020 to:

         1.

            Ensure that the nominal growth rate of net primary government expenditure does not exceed 4,1 % in 2020, corresponding to an annual structural adjustment of 0,6 % of GDP. Ensure effective supervision and the enforcement of the anti-money-laundering framework.

         2.

            Address skills shortages and foster innovation by improving the capacity and labour market relevance of the education and training system. Improve the adequacy of the social safety net and access to affordable and integrated social services. Take measures to reduce the gender pay gap, including by improving wage transparency.

         3.

            Focus investment-related economic policy on sustainable transport and energy infrastructure, including interconnections, on fostering research and innovation, and on resource and energy efficiency, taking into account regional disparities.

         Done at Brussels, 9 July 2019.

               For the Council

               The President

            M. LINTILÄ

         (1)  OJ L 209, 2.8.1997, p. 1.

         (2)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

         (3)  OJ C 136, 12.4.2019, p. 1.

         (4)  OJ C 320, 10.9.2018, p. 24.

         (5)  Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

         (6)  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

         (7)  Under Article 5(2) of Regulation (EC) No 1466/97.


title: Council Recommendation of 9 July 2019 on the 2019 National Reform Programme of Lithuania and delivering a Council opinion on the 2019 Stability Programme of Lithuania

text:
               5.9.2019

               EN

               Official Journal of the European Union

               C 301/91

      COUNCIL RECOMMENDATION
      of 9 July 2019
      on the 2019 National Reform Programme of Lithuania and delivering a Council opinion on the 2019 Stability Programme of Lithuania
      (2019/C 301/15)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Lithuania as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 21 March 2019. On 9 April 2019, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘2019 Recommendation for the euro area’), which sets out five euro-area recommendations (‘the euro-area recommendations’).

                  (2)

                  As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Lithuania should ensure the full and timely implementation of the 2019 Recommendation for the euro area, as reflected in recommendations (2) and (3) below. In particular, investment measures will help address the second euro-area recommendation as regards supporting investment and education measures will help address the third euro-area recommendation as regards the functioning of the labour market.

                  (3)

                  The 2019 country report for Lithuania was published on 27 February 2019. It assessed Lithuania’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018 (4), the follow-up given to the country-specific recommendations adopted in previous years and Lithuania’s progress towards its national Europe 2020 targets.

                  (4)

                  Lithuania submitted its 2019 National Reform Programme on 10 May 2019 and its 2019 Stability Programme on 30 April 2019. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Lithuania is currently in the preventive arm of the Stability and Growth Pact. In its 2019 Stability Programme, the government plans to achieve a headline surplus of 0,4 % of gross domestic product (GDP) in 2019 and 0,2 % of GDP in 2020, before it is projected to decrease further to 0,1 % of GDP in 2021. Based on the recalculated structural balance (6), the medium-term budgetary objective, set at a deficit of 1 % of GDP in structural terms, is overachieved throughout the programme period. In 2017, Lithuania was also granted a temporary deviation linked to the implementation of the structural reforms. This deviation is carried forward for a period of three years. According to the 2019 Stability Programme, the general government debt-to-GDP ratio is expected to fall from 34,2 % of GDP in 2018 to 32,9 % in 2022. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the measures needed to support the planned surplus targets from 2020 onwards have not been sufficiently specified. Based on the Commission 2019 spring forecast, the structural balance is forecast to register a deficit of 1 % of GDP in 2019 and 0,9 % of GDP in 2020, in compliance with the medium-term budgetary objective. At the same time, expenditure developments should be monitored carefully in the short and the medium term, especially in light of possible future risks to the robustness of revenues. Overall, the Council is of the opinion that Lithuania is projected to comply with the provisions of the Stability and Growth Pact in 2019 and 2020.

                  (7)

                  In June 2018, the government adopted a set of legislative acts to implement a comprehensive package of six structural reforms covering the key areas of education, health, taxation, informal economy, pensions and innovation.

                  (8)

                  Lithuania has continued to take measures to combat the shadow economy and improve tax compliance. While these measures have shown encouraging results, overall tax compliance remains low. Lithuania still has one of the largest VAT gaps in the Union. Further increasing tax compliance would raise revenues and make the tax system more fair. No measures were taken to broaden the tax base to sources less detrimental to growth. Environmental and property taxes remain below the Union average and there are no changes envisaged to car taxation or the road-use tax for private passengers.

                  (9)

                  Since 2018, public pensions are automatically indexed to the wage bill growth. This is expected to reduce public pension expenditure from 6,9 % of GDP in 2016 to 5,2 % in 2070. However, due to the projected fall in employment, pension adequacy is set to decrease because pension benefits would not keep pace with wage growth. The pension benefit ratio — which expresses the average pension in terms of the average wage — is expected to steadily decline from what is already one of the lowest levels in the Union. Current legislation states that when the benefit ratio declines, the government needs to propose corrective measures. Due to uncertainty over the precise nature and timing of such future measures, they are not accounted for in the Ageing Report projections. They do, however, represent a risk to the sustainability of public finances. If the total benefit ratio were kept unchanged until 2070, pension expenditure would increase to 7 % of GDP instead of decreasing to 5,2 % as projected. There is, therefore, uncertainty about how pension legislation will be applied in practice and what its consequences would be for fiscal sustainability and pension adequacy over time.

                  (10)

                  The high proportion of people at risk of poverty or social exclusion, together with high income inequality, remain major challenges for Lithuania that hinder its prospects for inclusive economic growth. Despite continued economic growth, many members of Lithuanian society (e.g. the elderly, people with disabilities, children, single-parent households and the unemployed) face a particularly high risk of poverty and social exclusion. While the social safety net has been improved in recent years, the overall corrective power of the Lithuanian tax and benefit system and social protection expenditure as a share of GDP remain among the lowest in the Union. Some first steps were taken to address the high level of poverty and income inequality, such as the introduction of the ‘amount of minimum consumption needs’, the increase in the universal child benefit and the indexation of old-age pensions. However, the persistently high levels of poverty and inequality show that the country still has a long way to go to converge towards the Union average levels of social security and that investment to address social exclusion is needed. Active inclusion strategies for vulnerable groups are more effective when they combine better adequacy of minimum income and pension schemes, labour market activation and enhanced provision of social services, including childcare and social housing.

                  (11)

                  The labour market has become tight as a result of employment growth, but also due to adverse demographic developments, including emigration. To mitigate the effect of the shrinking working-age population, investment in human capital and enhanced access to the labour market for all are needed. In the face of the persistent skills’ shortages and mismatches, it is important that Lithuania speed up the reforms to improve the quality and efficiency at all education levels and ensure equitable access to quality and inclusive education and training. Demographic decline has put the school network under pressure. The demographic shift calls for strategies to preserve access to high-quality education for all while ensuring the efficiency of the school network and supporting teachers affected by school consolidation. Significant steps are still required to consolidate the higher education network, comprising more than 40 State-owned and private universities and colleges. Vocational education and training providers need to modernise the curricula as well as improve their responsiveness to the needs of local and regional labour markets. Effective and easily accessible adult learning, reskilling and upskilling measures, together with the provision of social services, could bring more people into the labour market. Participation in adult learning remains low, at 6,6 % in 2018, well below the Union average of 11,1 %. The Lithuanian economy has potential to benefit from investment in skills upgrading, including digital skills, innovation and better integration of the disadvantaged into the labour market (for example persons with disabilities, and older, unemployed or inactive adults). In a broader context, strengthening the capacity of the social partners is important to foster their engagement.

                  (12)

                  Weak health outcomes and low investment in healthcare are persisting challenges. There remains significant potential to rationalise the use of resources through a further shift from inpatient to outpatient care. The consumption of hospital services continues to be high, with high rates of hospitalisations for chronic diseases coupled with relatively low bed occupancy rates. Further rationalisation of hospital resources use, together with targeted investments to strengthen primary care services, including in the healthcare workforce, are necessary to drive efficiency gains and improve health outcomes. The quality of care remains one of the main reasons for poor health outcomes. Measures to improve the quality of care are fragmented, with very low take-up of accreditation in the primary care sector and a lack of application of the accreditation system in hospitals. Investment in disease prevention measures is particularly low. Moreover, steps taken to strengthen disease prevention measures at local level lack an overarching vision and are impaired by a lack of systemic cooperation between public health offices and primary care. Lastly, low levels of health spending coupled with relatively high informal payments and high out-of-pocket payments have negative implications for equity of access to healthcare.

                  (13)

                  Some measures have been taken in the fight against corruption, but an integrated registry of interest declarations is still missing. Implementing legislation to the whistleblowers’ protection law was adopted in 2018, and a new law regulating lobbying is under discussion. Irregularities persist in addressing corruption in the healthcare system.

                  (14)

                  Investment as a share of GDP in Lithuania remains below both the averages in the Union and in other Baltic countries. The level of innovation and the technology absorption capacity of businesses in Lithuania is low. Higher investment levels in research and innovation are needed, especially in the private sector. This would boost productivity, which, despite a recent pick-up, remains well below the Union level. The shortage of information and communication technology specialists points to the need to invest in digital skills which support competitiveness, innovation and Lithuania’s capacity to absorb technology, and foster the shift toward more knowledge-based and higher value added economy.

                  (15)

                  The economy is relatively resource-intensive, with high dependency on imports of energy and materials. Resource productivity is low while energy consumption is high, especially in the residential and transport sectors. More investment in energy efficiency, in particular in the buildings sector and domestic energy generation from renewable sources would help to ‘green’ the economy and put it on a more sustainable growth path, while also reducing dependency on energy imports.

                  (16)

                  Lithuania still suffers from low international accessibility in terms of rail, road, maritime and air transport and needs to be integrated further with the rest of Europe. Better transport connectivity would increase the economy’s productivity and allow it to take full advantage of the internal market. Transport sector performance is far below the Union average in terms of the extent of the TEN-T road and rail networks, research and innovation investment in the transport sector, sustainability aspects and road safety. Rail traffic is dominated by East-West flows, while the North-South axis remains underdeveloped. Significant investments are therefore needed to develop a sustainable, climate-resilient, smart, secure and intermodal TEN-T network and its accessibility, as well as to promote sustainable urban mobility. Moreover, greenhouse gas emissions from road transport have increased strongly over the last five years. The synchronisation of Lithuania’s electricity system with the continental European network is key to ensuring the security of the electricity supply in the entire Baltic region.

                  (17)

                  Regional disparities in Lithuania are wider than the Union average and have been widening over the past two decades. The benefits of Lithuania’s speedy economic convergence are heavily concentrated in the two metropolitan areas. Predominantly rural regions, which cover most of the territory and host nearly 55 % of the population, are experiencing strong population declines compounded by decreasing access to quality public services. Significant socioeconomic disparities within the country show that certain regions have distinct investment needs. Increasing links between adjacent territories within Lithuania, including transport and digital connections, also remains a challenge.

                  (18)

                  To improve the efficiency of public investment, the Lithuanian authorities updated the rules for preparing and selecting investment projects financed from the State budget. Since 2018 all new investment projects should be screened with a cost-benefit analysis and fulfil additional selection criteria. While this is an important first step, more is needed to maximise the impact of public investment on increasing the long-term growth potential and addressing growing regional disparities. The authorities have started the revision of the State budgeting system with the objective of lengthening the time horizon for budgeting and strengthening the link between expenditure and the overall economic goals. It is crucial to ensure that the new strategic investment planning system is ready for the 2021-2023 budgeting process and the start of the new Union funding cycle in 2021.

                  (19)

                  Lithuania has no single strategy for research and innovation. The landscape is characterised by fragmented policies and a proliferation of support schemes that lack synergies. The existence of several implementing agencies that do not take a concerted approach to supporting the research and innovation policy mix adds to a complex governance system that appears to restrict users’ access to the panoply of available instruments. This state of affairs is particularly harmful for science-business cooperation and hampers innovative activity. The new division of responsibility for research and innovation policy between the Ministry of Economics and Innovation and the Ministry of Education and Science is not yet conducive to a coherent policy framework with synergetic support schemes, as would be available through a one-stop shop for potential beneficiaries.

                  (20)

                  The programming of Union funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the 2019 country report. This would allow Lithuania to make the best use of those funds in respect of the identified sectors, taking into account regional disparities.

                  (21)

                  In the context of the 2019 European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2019 country report. It has also assessed the 2019 Stability Programme, the 2019 National Reform Programme and the follow-up given to the recommendations addressed to Lithuania in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

                  (22)

                  In the light of this assessment, the Council has examined the 2019 Stability Programme and is of the opinion (7) that Lithuania is expected to comply with the Stability and Growth Pact,

            HEREBY RECOMMENDS that Lithuania take action in 2019 and 2020 to:

         1.

            Improve tax compliance and broaden the tax base to sources less detrimental to growth. Address income inequality, poverty and social exclusion, including by improving the design of the tax and benefit system.

         2.

            Improve quality and efficiency at all education and training levels, including adult learning. Increase the quality, affordability and efficiency of the healthcare system.

         3.

            Focus investment-related economic policy on innovation, energy and resource efficiency, sustainable transport and energy interconnections, taking into account regional disparities. Stimulate productivity growth by improving the efficiency of public investment. Develop a coherent policy framework to support science-business cooperation and consolidate research and innovation implementing agencies.

         Done at Brussels, 9 July 2019.

               For the Council

               The President

            M. LINTILÄ

         (1)  OJ L 209, 2.8.1997, p. 1.

         (2)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

         (3)  OJ C 136, 12.4.2019, p. 1.

         (4)  OJ C 320, 10.9.2018, p. 64.

         (5)  Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

         (6)  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

         (7)  Under Article 5(2) of Regulation (EC) No 1466/97.


title: Commission Recommendation (EU) 2019/553 of 3 April 2019 on cybersecurity in the energy sector (notified under document C(2019) 2400)

text:
               5.4.2019

               EN

               Official Journal of the European Union

               L 96/50

      COMMISSION RECOMMENDATION (EU) 2019/553
      of 3 April 2019
      on cybersecurity in the energy sector

            (notified under document C(2019) 2400)

      THE EUROPEAN COMMISSION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Article 292 thereof,
      Whereas:

                  (1)

                  The European energy sector is undergoing an important change towards a decarbonised economy, while ensuring security of supply and competitiveness. As part of that energy transition and the related decentralisation of power generation from renewable sources, technological progress, sector coupling, and digitalisation are turning Europe's power grid into a ‘smart grid’. At the same time, this also brings new risks as digitalisation increasingly exposes the energy system to cyberattacks and incidents which may jeopardize the security of energy supply.

                  (2)

                  The adoption of all eight legislative proposals (1) of the ‘Clean Energy for all Europeans’ Package including the Energy Union Governance as stepping stone, allows to create a favourable environment for the digital transformation of the energy sector. It also acknowledges the importance of cybersecurity in the energy sector. In particular, the recast of the Regulation on the Internal Market for Electricity (2) provides for the adoption of technical rules for electricity such as a Network Code on sector-specific rules for cybersecurity aspects of cross-border electricity flows, on common minimum requirements, planning, monitoring, reporting and crisis management. The Regulation on Electricity Risk Preparedness (3) broadly follows the approach chosen in the Regulation on Security of Gas Supply (4); stressing the need to properly assess all risks, including those related to cybersecurity, and proposing to adopt measures to prevent and mitigate those identified risks.

                  (3)

                  When the Commission adopted the EU Cybersecurity Strategy (5) in 2013, it identified strengthening the Union's cyber-resilience as a priority. One of the key deliverables of the Strategy is the Directive on Security of Network and Information Systems (6) (hereafter, the ‘NIS Directive’), which was adopted in July 2016. As the first piece of horizontal EU legislation on cybersecurity, the NIS Directive boosts the overall level of cybersecurity in the Union through the development of national cybersecurity capabilities, the increase of EU-level cooperation and the introduction of security and incident reporting obligations for companies referred to as ‘operators of essential services’. Incident reporting is mandatory in key sectors, including the energy sector.

                  (4)

                  When implementing preparedness measures in cybersecurity, the relevant stakeholders, including operators of essential services in energy as identified under the NIS Directive, should take into account the horizontal guidance issued by the NIS Cooperation Group established under Article 11 of the NIS Directive. That Cooperation Group, which is composed of representatives of Member States, the European Agency for Cybersecurity (ENISA) and the Commission, has adopted guidance documents concerning security measures and incident notification. In June 2018, that Group created a dedicated work stream on energy.

                  (5)

                  The 2017 Joint Communication on Cybersecurity (7) acknowledges the importance of sector specific considerations and requirements at EU level, including in the energy sector. Cybersecurity and possible policy implications have been the subject of a comprehensive discussion process in the Union over the recent years. Consequently, there is rising awareness today that individual economic sectors face specific cybersecurity issues and, therefore, need to develop their own sectoral approaches in the wider context of general cybersecurity strategies.

                  (6)

                  Information sharing and trust are key elements in cybersecurity. The Commission aims to increase the sharing of information among the relevant stakeholders by organising dedicated events, as for examples, the high-level roundtable on cybersecurity in energy organised in Rome in March 2017 and the high-level conference on cybersecurity in energy organised in Brussels in October 2018. The Commission also wants to enhance the cooperation between relevant stakeholders and specialised entities such as the European Energy Information Sharing and Analysis Centre.

                  (7)

                  The Regulation on ENISA, the ‘EU Cybersecurity Agency’, and on Information and Communication Technology cybersecurity certification (‘Cybersecurity Act Regulation (8)’) will strengthen the mandate of the EU Agency for Cybersecurity so as to better support Member States in tackling cybersecurity threats and attacks. It also creates a European cybersecurity framework for the certification of products, processes and services that will be valid throughout the Union and is of particular interest for the energy sector.

                  (8)

                  The Commission has put forward a Recommendation (9) addressing cybersecurity risks in the 5th generation (5G) of network technologies by setting out guidance on appropriate risk analysis and management measures at national level, on developing a coordinated European risk analysis and on establishing a process to develop a common toolbox of best risk management measures. Once rolled out, 5G networks will form the backbone for a wide range of services essential for the functioning of the internal market and operation of vital societal and economic functions such as energy.

                  (9)

                  This Recommendation should provide non-exhaustive guidance to Member States and relevant stakeholders, in particular network operators and technology suppliers, for achieving a higher level of cybersecurity in view of the specific real-time requirements identified for the energy sector, cascading effects and the combination of legacy and state-of-the-art technologies. This guidance aims at helping stakeholders keep in mind the specific requirements of the energy sector when implementing internationally recognised cybersecurity standards (10).

                  (10)

                  The Commission intends to regularly review this Recommendation based on the progress made across the Union in consultation with Member States and relevant stakeholders. The Commission will continue its efforts to strengthen cybersecurity in the energy sector, notably through the NIS Cooperation Group, which ensures strategic cooperation and exchange of information among Member States in cybersecurity,

            HAS ADOPTED THIS RECOMMENDATION:

         SUBJECT MATTER

                  (1)

                  This Recommendation sets out the main issues related to cybersecurity in the energy sector, namely real-time requirements, cascading effects and combination of legacy and state-of-the-art technology, and identifies the main actions for implementing relevant cybersecurity preparedness measures in the energy sector.

                  (2)

                  In applying this Recommendation, Member States should encourage the relevant stakeholders to build up knowledge and skills related to cybersecurity in the energy sector. Where appropriate, Member States should also include these considerations into their national cybersecurity framework, notably through strategies, laws, regulations and other administrative provisions.

         REAL-TIME REQUIREMENTS OF ENERGY INFRASTRUCTURE COMPONENTS

                  (3)

                  Member States should ensure that the relevant stakeholders, notably energy network operators and technology suppliers, and in particular operators of essential services identified under the NIS Directive, implement the relevant cybersecurity preparedness measures related to real-time requirements in the energy sector. Some elements of the energy system need to work under ‘real time’, that is to say reacting to commands within a few milliseconds, which makes it difficult or even impossible to introduce cybersecurity measures due to a lack of time.

                  (4)

                  In particular, energy network operators should:

                              (a)

                              apply the most recent security standards for new installations wherever adequate and consider complementary physical security measures where the installed base of old installations cannot be sufficiently protected by cybersecurity mechanisms;

                              (b)

                              implement international standards on cybersecurity and adequate specific technical standards for secure real-time communication as soon as respective products become commercially available;

                              (c)

                              consider real-time constraints in the overall security concept for assets, especially in asset classification;

                              (d)

                              consider privately owned networks for tele-protection schemes to ensure the quality of service level required for real-time constraints; when using public communication networks, operators should consider ensuring specific bandwidth allocation, latency requirements and communication security measures;

                              (e)

                              split the overall system into logical zones and within each zone, define time and process constraints in order to enable the application of suitable cybersecurity measures or to consider alternative protection methods.

                  (5)

                  Where available, energy network operators should also:

                              (a)

                              choose a secure communication protocol, taking into consideration real-time requirements, for example between an installation and its management systems (Energy Management System — EMS/Distribution Management System — DMS);

                              (b)

                              introduce an appropriate authentication mechanism for machine-to-machine communication, addressing real-time requirements.

         CASCADING EFFECTS

                  (6)

                  Member States should ensure that the relevant stakeholders, notably energy network operators and technology suppliers, and in particular operators of essential services identified under the NIS Directive, implement the relevant cybersecurity preparedness measures related to cascading effects in the energy sector. Electricity grids and gas pipelines are strongly interconnected across Europe and a cyber-attack creating an outage or disruption in a part of the energy system might trigger far-reaching cascading effects into other parts of that system.

                  (7)

                  In applying this Recommendation, Member States should evaluate the interdependencies and criticality of power generation and flexible-demand systems, transmission and distribution substations and lines, and the associated impacted stakeholders (including cross-border situations) in case of a successful cyber-attack or cyber incident. Member States should also ensure that energy network operators have a communication framework with all key stakeholders to share early warning signs and cooperate on crisis management. There should be structured communication channels and agreed formats in place in order to share sensitive information with all relevant stakeholders, Computer Security Incident Response Teams, and relevant authorities.

                  (8)

                  In particular, energy network operators should:

                              (a)

                              ensure that new devices, including internet of Things devices, have and will maintain a level of cybersecurity appropriate to a site's criticality;

                              (b)

                              adequately consider cyber-physical effects when establishing and periodically reviewing business continuity plans;

                              (c)

                              establish design criteria and an architecture for a resilient grid, which could be achieved by:

                                          —

                                          putting in place in-depth defence measures per site, tailored to a site's criticality,

                                          —

                                          identifying critical nodes, both in terms of power production capacity and customer impact; Critical functions of a grid should be designed to mitigate risk that can cause cascading effects by considering redundancy, resilience to phase oscillations and protections against cascaded load cut-off,

                                          —

                                          collaborating with other relevant operators and with technology suppliers to prevent cascading effects by applying appropriate measures and services,

                                          —

                                          designing and building communication and control networks with a view to confining the effects of any physical and logical failures to limited parts of the networks and to ensuring adequate and swift mitigation measures.

         LEGACY AND STATE-OF-THE-ART TECHNOLOGY

                  (9)

                  Member States should ensure that the relevant stakeholders, notably energy network operators and technology suppliers, and in particular operators of essential services identified under the NIS Directive, implement the relevant cybersecurity preparedness measures related to the combination of legacy and state-of-the-art technology in the energy sector. Indeed, two different types of technologies co-exist in today's energy system: an older technology with a lifespan of 30 to 60 years, designed before cybersecurity considerations, and modern equipment, reflecting state-of-the-art digitalisation and smart devices.

                  (10)

                  In applying this Recommendation, Member States should encourage energy network operators and technology suppliers to follow the relevant internationally accepted standards on cybersecurity wherever possible. Meanwhile, stakeholders and customers should adopt a cybersecurity-oriented approach when connecting devices to the grid.

                  (11)

                  In particular, technology suppliers should provide tested solutions for security issues in legacy or new technologies free of charge and as soon as a relevant security issue becomes known.

                  (12)

                  In particular, energy network operators should:

                              (a)

                              analyse the risks of connecting legacy and internet of Things concepts and be aware about internal and external interfaces and their vulnerabilities;

                              (b)

                              take suitable measures against malicious attacks originating from large numbers of maliciously controlled consumer devices or applications;

                              (c)

                              establish an automated monitoring and analysis capability for security-related events in legacy and internet of Things environments, such as unsuccessful attempts to log-in, door alarms for cabinet opening or other events;

                              (d)

                              conduct on a regular basis specific cybersecurity risk analysis on all legacy installations, especially when connecting old and new technologies; since the legacy installations often represent a very large number of assets, risk analysis might be done by asset classes;

                              (e)

                              update software and hardware of legacy and internet of Things systems to the most recent version whenever adequate; in so doing, energy network operators should consider complementary measures such as system segregation or adding external security barriers where patching or updating would be adequate but is not possible, for instance unsupported products;

                              (f)

                              formulate tenders with cybersecurity in mind, that is to say demand information about security features, demand compliance with existing cybersecurity standards, ensure continuous alerting, patching and mitigation proposals if vulnerabilities are discovered, and clarify vendor liability in the event of cyber-attacks or incidents;

                              (g)

                              collaborate with technology suppliers to replace legacy systems whenever beneficial for security reasons, but take into account critical system functionalities.

         MONITORING

                  (13)

                  Member States should communicate to the Commission, within 12 months after the adoption of this Recommendation, and every two years thereafter, detailed information regarding the state of implementation of this Recommendation through the NIS Cooperation Group.

         REVIEW

                  (14)

                  On the basis of the information submitted by the Member States, the Commission will review the implementation of this Recommendation and assess whether further measures are required as appropriate in consultation with the Member States and the relevant stakeholders.

         ADDRESSEES

                  (15)

                  This Recommendation is addressed to the Member States.

         Done at Brussels, 3 April 2019.

               For the Commission

            Miguel ARIAS CAÑETE

               Member of the Commission

         (1)  Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, p. 82); Directive (EU) 2018/2002 of the European Parliament and of the Council of 11 December 2018 amending Directive 2012/27/EU on energy efficiency (OJ L 328, 21.12.2018, p. 210); Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1); Directive (EU) 2018/844 of the European Parliament and of the Council of 30 May 2018 amending Directive 2010/31/EU on the energy performance of buildings and Directive 2012/27/EU on energy efficiency (OJ L 156, 19.6.2018, p. 75). The European Parliament confirmed the political agreements reached with the Council on Electricity Market Design proposals (Risk-Preparedness Regulation, Regulation for the Agency for the Cooperation of Energy Regulators (ACER) and the Electricity Directive and the Electricity Regulation at the plenary session of March 2019. The Council formal adoption is expected to take place in April; the publication of the legal text in the OJ will follow soon thereafter.

         (2)  COM(2016) 861 final.

         (3)  COM(2016) 862 final.

         (4)  Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (OJ L 280, 28.10.2017, p. 1).

         (5)  JOIN(2013) 1.

         (6)  Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union (OJ L 194, 19.7.2016, p. 1).

         (7)  JOIN(2017) 450.

         (8)  The Cybersecurity Act was adopted by the European Parliament in March 2019. The Council formal adoption is expected to take place in April; the publication of the legal text in the OJ will follow soon thereafter.

         (9)  C(2019) 2335.

         (10)  International Standardisation Organisations have published various cybersecurity (ISO/IEC 27000: Information Technologies) and risk management standards (ISO/IEC31000: Implementation of risk management). A specific standard for the energy sector (ISO/IEC 27019: Information security controls for the energy utility industry) was issued as part of the ISO/IEC 27000 series in October 2017.