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1. The selection of the persons and entities to be entrusted with the implementation of Union funds or budgetary guarantees pursuant to Article 62(1), first subparagraph, point (c), shall be transparent, justified by the nature of the action and shall not give rise to a conflict of interests. For entities referred to in Article 62(1), first subparagraph, points (c)(ii), (v), (vi) and (vii), the selection shall also take due account of their financial and operational capacity. Where the person or entity is identified in a basic act, the financial statement provided for in Article 35 shall include a justification for the choice of that particular person or entity. In cases of implementation by a network, requiring the designation of at least one body or entity per Member State or per country concerned, the body or entity shall be designated by the Member State or the country concerned in accordance with the basic act. In all other cases, the Commission shall designate such bodies or entities in agreement with Member States or countries concerned. Where the selection is made further to a call for expression of interest, it shall be undertaken in compliance with the principles of equal treatment and non-discrimination, without prejudice to the requirements laid down in this paragraph.

2. Persons and entities entrusted with the implementation of Union funds or budgetary guarantees pursuant to Article 62(1), first subparagraph, point (c), shall respect the principles of sound financial management, transparency, non-discrimination and visibility of Union action. Where the Commission establishes financial framework partnership agreements in accordance with Article 131 those principles shall be further described in such agreements.

3. Prior to signing contribution agreements, financing agreements or guarantee agreements, the Commission shall ensure a level of protection of the financial interests of the Union equivalent to the one that is provided for when the Commission implements the budget in accordance with Article 62(1), first subparagraph, point (a). The Commission shall do so by carrying out an assessment of the systems, rules and procedures of the persons or entities implementing Union funds, if it intends to rely on such systems, rules and procedures for the implementation of the action, or by taking appropriate supervisory measures in accordance with paragraph 5 of this Article.

4. The Commission shall, in accordance with the principle of proportionality, assess that persons and entities implementing Union funds pursuant to Article 62(1), first subparagraph, point (c):

(a) set up and ensure the functioning of an effective and efficient internal control system based on international best practices, including adequate management of the risks and allowing in particular to prevent, detect and correct irregularities and fraud; the internal control system setup may, where appropriate, rely on digital controls;

(b) use an accounting system that provides accurate, complete and reliable information in a timely manner;

(c) are subject to an independent external audit, performed in accordance with internationally accepted auditing standards by an audit service functionally independent of the person or entity concerned;

(d) apply appropriate rules and procedures for providing financing to third parties, including transparent, non-discriminatory, efficient and effective review procedures, rules for recovering funds unduly paid and rules for excluding from access to funding;

(e) make public adequate information on their recipients equivalent to that provided for under Article 38;

(f) ensure protection of personal data equivalent to that referred to in Article 5. In addition, in agreement with the persons or entities concerned, the Commission may assess other rules and procedures such as the administrative cost accounting practices of the persons or entities. On the basis on the results of that assessment, the Commission may decide to rely on those rules and procedures. Persons or entities which have been assessed in accordance with the first and second subparagraphs shall inform the Commission without undue delay if any substantive changes are made to their systems, rules or procedures which may impact the reliability of the Commission’s assessment.

5. Where the persons or entities concerned comply only in part with paragraph 4, the Commission shall take appropriate supervisory measures ensuring the protection of the financial interests of the Union. Those measures shall be specified in the relevant agreements. Information about any such measures shall be made available to the European Parliament and to the Council at their request.

6. In multi-donor actions, where the Union contribution reimburses expenditure, the procedure set out in Article 158(4) shall consist in verifying that an amount corresponding to that paid by the Commission for the action concerned has been used by the person or entity in accordance with the conditions laid down in the relevant grant, contribution or financing agreement.

7. The Commission shall not require an ex ante assessment as referred to in paragraphs 3 and 4 of this Article:

(a) for Union bodies referred to in Articles 70 and 71 and for bodies or persons referred to in Article 62(1), first subparagraph, point (c)(viii), which have adopted financial rules with prior consent of the Commission;

(b) for those procedures specifically required by the Commission, including its own and those specified in basic acts or where rules and procedures are aligned with those required by the Commission. The Commission may decide not to require an ex ante assessment as referred to in paragraphs 3 and 4:

(a) for third countries or the bodies they designate, in so far as the Commission retains financial management responsibilities that guarantee a sufficient protection of the financial interests of the Union;

(b) for Member States organisations entrusted with the implementation of Union funds in accordance with Article 62(1), first subparagraph, point (b), for which the Commission has confirmed that the programme’s management and control system is functioning.

8. Where the systems, rules or procedures of the persons or entities referred to in Article 62(1), first subparagraph, point (c), are assessed as appropriate, Union contributions to those persons or entities may be implemented in accordance with this Title. Where such persons or entities participate in a call for proposals they shall comply with the rules of the call for proposals contained in Title VIII. In such a case, the authorising officer may decide to sign a contribution agreement or a financing agreement instead of a grant agreement.