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1. A mutual insurance mechanism (the 'Mechanism') is hereby established which shall replace and succeed the fund set up in accordance with Article 38 of Regulation (EU) No 1290/2013. The Mechanism shall cover the risk associated with non-recovery of sums due by the beneficiaries:

(a) to the Commission under Decision No 1982/2006/EC of the European Parliament and of the Council ();

(b) to the Commission and Union bodies under 'Horizon 2020';

(c) to the Commission and funding bodies under the Programme. The coverage of the risk regarding the funding bodies referred to in point (c) of the first subparagraph may be implemented through an indirect coverage system set out in the applicable agreement and taking into account the nature of the funding body.

2. The Mechanism shall be managed by the Union, represented by the Commission acting as executive agent. The Commission shall set up specific rules for the operation of the Mechanism.

3. Beneficiaries shall make a contribution of 5 % of the Union funding for the action. On the basis of periodic transparent evaluations, the Commission may increase that contribution up to 8 % or reduce it to under 5 %. The contribution of the beneficiaries to the Mechanism shall be offset against the initial pre-financing and paid to the Mechanism on behalf of the beneficiaries. That contribution shall not exceed the amount of the initial pre-financing.

4. The contribution of the beneficiaries shall be returned at the payment of the balance.

5. Any financial return generated by the Mechanism shall be added to the Mechanism. If the return is insufficient the Mechanism shall not intervene, and the Commission or the relevant funding body shall recover any amount owed directly from the beneficiaries or third parties.

6. The amounts recovered shall constitute revenue assigned to the Mechanism within the meaning of Article 21(5) of the Financial Regulation. Once all grants for which the risk is covered directly or indirectly by the Mechanism are completed, any sums outstanding shall be recovered by the Commission and entered into the budget of the Union, subject to decisions of the legislative authority.

7. The Mechanism may be extended to beneficiaries of any other directly managed Union programme. The Commission shall adopt conditions for participation of beneficiaries of other programmes.