OFFICIAL DOCUMENTS Administration Agreement between the European Commission on behalf of the European Union and the International Bank for Reconstruction and Development concerning the Part H Europe 2020 Programmatic Single-Donor Trust Fund (No. TF073242) (EC Contract No ENI/2018/400-915) This Administration Agreement is concluded under Direct Management in the context of the Framework Agreement between the World Bank Group and the European Commission dated April 15, 2016 which sets the general conditions for this Agreement (the "Framework Agreement"). The Framework Agreement shall be applicable and form an integral part of the Administration Agreement for the Trust Fund. 1. The International Bank for Reconstruction and Development (the "Bank") acknowledges that the European Commission (the "Donor", and together with the Bank, the "Parties" and each a "Party") agrees to provide the sum of four million and five hundred thousand Euros (C 4,500,000) (the "Contribution") for the Part II Europe 2020 Programmatic Single-Donor Trust Fund, (No. TFO73242) (the "Trust Fund") in accordance with the terms of this Administration Agreement. The estimated total budget of the Trust Fund is four million and five hundred thousand Euros (E 4,500,000). The indicative budget set out in Annex 5 shall be used for monitoring purpose only and shall not be binding. 2. The Contribution shall be used to finance the activities set forth in the "Part II Europe 2020 Programmatic Single-Donor Trust Fund Description" attached hereto as Annex 1, and shall be administered by the Bank on behalf of the Donor in accordance with the terms of this Administration Agreement, including the "Standard Provisions" attached hereto as Annex 2 and "Governance" attached hereto as Annex 3. Expected results of the Trust Find and corresponding indicators (including baselines, result goals and sources of data) are set out in Annex 4. The implementation period shall start on the date following that on which the last of the two parties signs. 3. The Donor shall deposit the Contribution in accordance with the following schedule and in the currency specified in Section 1 above ("Contribution Currency") into such bank account designated by the Bank (each amount deposited hereinafter referred to as an "Installment") upon submission of a payment request by the Bank: (A) Promptly following countersignature - E 2,250,000 (B) C 1,800,000 subject to the disbursement of 70% of the preceding instalment (C) E 450,000 subject to the disbursement of 70% of the preceding instalment The period for payment of further instalments shall be 60 days. The period for payment of the balance shall be 90 days. 4. When making any deposit, the Donor shall instruct its bank to include in its deposit details information (remittance advice) field of its SWIFT deposit message, information indicating: the amount deposited, that the deposit is made by the Donor for TF No. TF073242 (the Part II Europe 2020 Programmatic Single-Donor Trust Fund), the Commission internal reference number and the date of the Administration Agreement, the name of the project for which the funds are intended, the name of the 2 Commission department responsible for the Trust Fund and the date of the deposit (the "Deposit Instructions"). In addition, the Donor shall provide a copy of the Deposit Instructions to the Bank's Accounting Trust Funds Division by e-mail sent to tfremitadvice@worldbank.org or by fax sent to +1 (202) 614-1315. 5. Except with respect to the Deposit Instructions, any notice, request or other communication to be given or made under this Administration Agreement shall be in writing and delivered by mail, fax or e- mail to the respective Party's address specified below or at such other address as such Party notifies in writing to the other Party from time to time: For the Bank (the "Bank Contact"): Mercy Tembon Regional Director ECCSC The World Bank 5A, Ramishvili Street, Tbilisi 0179, Georgia Tel: + 995 (32) 291 30 96 E-mail: mtembon(d)worldbank.org For the Donor (the "Donor Contact"): Carl Hartzell Head of Delegation Delegation of the European Union to Georgia 38 Nino Chkheidze street, Tbilisi 0102 Georgia Tel: +995 32 2943763 E-mail: delegation-georgia0i)eeas.europa.eu 6. In the event any amounts are to be returned to the Donor under this Administration Agreement, the Bank shall transfer such amounts to the Donor, unless otherwise agreed with the Bank. 7. All annexes hereto and the Framework Agreement between the World Bank Group and the European Commission constitute an integral part of this Administration Agreement, whose terms taken together shall constitute the entire agreement and understanding between the Donor and the Bank. In the event of any inconsistency, the Framework Agreement prevails over the Administration Agreement and the Administration Agreement prevails over its Annexes. Unless otherwise specified in an annex hereto, this Administration Agreement may be amended only by written amendment between the Bank and the Donor. 8. The measures taken to identify the EU as a source of financing shall be in accordance with Attachment 4 of the Framework Agreement. 3 9. Each of the Parties represents, by confirming its agreement below, that it is authorized to enter into this Administration Agreement and act in accordance with these terms and conditions. The Parties are requested to sign and date this Administration Agreement, and upon possession by the Bank of this fully signed Administration Agreement, this Administration Agreement shall become effective as of the date of the last signature. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By:_______ Name: Mercy Tembon Title: Regional Director Date: k Q- 10 EUROPEAN UNION represented by the EUROPEAN COMMISSION By: Name: WN119I7M Title: 4 Date: 4 ". 12. 2018 4 ANNEX 1 PART II EUROPE 2020 PROGRAMMATIC SINGLE-DONOR TRUST FUND DESCRIPTION This Annex shall be applicable to and form an integral part of the Administration Agreement for the Trust Fund between the Bank and the Donor. 1. Objectives The objectives of the Trust Fund are: The European Commission and the Bank share a common objective of building competitive and sustainable economies and reducing poverty and social exclusion - goals of the Europe 2020 Agenda which is built on three pillars of smart, sustainable and inclusive growth. The European Commission and the Bank concur that direct interaction is beneficial to both institutions and through them to the beneficiary countries. This applies particularly to the provision of analytical, advisory and knowledge services and technical assistance. The European Commission has expressed an interest in ensuring that the Bank continues to provide technical assistance in the framework of the Trust Fund in furtherance of the common objective set forth above. 2. Activities Georgia has achieved significant progress in implementing fundamental first-generation business environment and financial sector reforms. Over the past decade Georgia has been the front runner in implementing tax, customs, anti-corruption, business environment, governance and financial sector reforms, as recognized by the Doing Business Report and other international ranking surveys. However, second generation reforms which are key for boosting productivity, scaling up and supporting SMEs internationalization for more competitive exports and sustainable jobs, remain to be undertaken. Moreover, many structural reforms require longer term affordable local currency finance, which remains to be largely inaccessible in Georgia. Georgia's financial sector is undiversified and relatively shallow, especially in the areas of products offering for SMEs and non-banking financial services. Despite growing competition for clients' outreach and increasing demand for finance from the private sector, lenders capacity to scale up SME finance is constrained by lack of corporate transparency, unreliable financial reporting and poor collateral. While the Government has started several programs to support entrepreneurship, foster innovation and encourage entry of new firms under the auspices of Enterprise Georgia/Entrepreneurship Development Agency (EDA) and Georgian Innovation and Technology Agency (GITA), the scope and scale of support remain fragmented. The Bank will provide advisory support and capacity building to Georgia. The components under this Agreement are complementary and aim at maximizing the positive impact of the project-supported reforms. They include the activities that the Bank will carry out in support of different relevant counterparts in Georgia: * Component 1. Capital Markets Development (Main counterpart: National Bank of Georgia (NBG)); 5 * Component 2. Insurance Reform (Main counterpart: Insurance State Supervision Service of Georgia (ISSSG)); * Component 3. Responsible Financial Inclusion (Main counterparts: National Bank of Georgia (NBG), Ministry of Economy and Sustainable Development (MOESD)); * Component 4. Better Financial Information and Accountability (Main counterparts: Service for Accounting, Reporting and Auditing Supervision (SARAS), MOESD). * Component 5. Communication Plan Accordingly, the Bank will support Georgia to strengthen key elements and lay the foundations for enhancing financial inclusion and accountability by (i) enhancing framework for capital and insurance market development, (ii) improving financial infrastructure and responsible financial inclusion, and (iii) promoting better corporate and State-Owned Enterprise (SOE) governance and reporting. The activities envisaged in this Agreement are designed to continue the ongoing dialogue and Bank's support to the authorities of Georgia in implementing the reforms needed to foster financial sector diversification and deepening, extend financial inclusion for underserved clients, and build up foundations to maximize the role of financial markets in development. Component 1: Capital Market Development The development of the domestic capital market in Georgia is essential for diversifying access to alternative finance and contributes to a pension reform. Specifically, under this component, the Bank will carry out the following activities: Deliverable 1.1 Capital market legal and regulatory framework modernized The Georgian Capital market's legal and regulatory framework remains under-developed. The existing legal and regulatory environment is not suitable to support financial innovation, nor does it offer a proper level of protection to investors. In this context, the Bank will provide recommendations to the NBG to enhance capital market legal and regulatory framework and strengthen its supervisory capacity. The Bank will: 1. Provide advisory and capacity building support to NBG in developing transparency and market abuse regulations, enhancing issuer reporting requirements and strengthening NBG capacity in monitoring and enforcing transparency and market abuse rules. 2. Review and provide recommendations on the Collective Investment Scheme (CIS) legislation, e.g. regulatory requirements for investment funds and asset managers licensing, funds depositories licensing and operating requirements, regulation on investment policy and Alternative Investment Funds, regulation of investment funds' liquidation. 3. Review of Markets in Financial Instruments Directive/Markets in Financial Instruments Regulation (MIFID/MIFIR) approximation road map; review of draft regulations on licensing, capital requirements, business conduct of investment firms; provide advisory and capacity building support for NBG monitoring and enforcing rules on investment firms. 4. Review and provide recommendations to NBG on IOSCO Multilateral Memorandum of Understanding (MMOU) self-assessment questionnaire and IOSCO application. 6 Deliverable 1.2 Capital market infrastructure (trading) oversight enhanced Capital market development requires trading and post trading structures that are resilient, efficient and transparent. It will help to rationalize transaction costs, facilitate financial instruments trading and increase local and foreign investors' confidence. The Georgian authorities have already started reforming the securities settlement system and NBG has requested the Bank to give recommendations to NBG on how to best enhance market infrastructure in line with international standards. The Bank will: 1. Review and provide recommendations to the draft legislation on trading platforms (organized exchange and Over the Counter (OTC)) in line with EU rules and International Organization of Securities Commissions (IOSCO) principles; 2. Review and provide recommendations to the draft NBG regulations on licensing, business conduct, trading transparency rules for trading platforms; 3. Provide knowledge transfer and capacity building support to NBG in market surveillance (direct or through self-regulatory organization (SRO). Deliverable 1.3 Market awareness and enabling environment for fixed income products improved Under this sub-component the Bank will carry out activities aimed at facilitating market collaboration and knowledge exchange through (i) advising on creating a coordination mechanism and drafting a Memorandum of understanding (MOU) for the Listing Advisory Program (LAP)1 partners; (ii) supporting NBG in developing selected market awareness products, and (iii) providing advisory support in identifying gaps and preparing recommendations to foster fixed income products diversification. Component 2: Insurance Reform The Bank will provide technical assistance to the ISSSG in sharing best practices and supporting development of new insurance product lines and relevant insurance laws and regulations, based on the outcomes of market analysis and reviews of pertinent sectoral legislation and practices. The activities carried out under this sub-component would also possibly support the implementation of the Law on 2 Domestic Motor Third Party Liability (MTPL) Insurance. Deliverable 2.1 Enabling framework for the development of new insurance products Under this sub-component the Bank will: 1. Review pertinent sectoral practices, market needs and legislation in areas of life insurance, compulsory third-party liability insurance for builders and architects, and compulsory third-party liability insurance for medical service providers; 2. Provide recommendations to the ISSSG for the development of essential insurance regulations and amendments to the current legislation in support of (i) Compulsory Third Party Liability 'Advice to the companies seeking financing opportunities from capital markets 2 The law on Domestic MTPL is currently being prepared and is expected to be submitted to the Parliament in early 2019. 7 Insurance for Medical Service Providers; (ii) compulsory third-party liability insurance for builders and architects; (iii) life insurance products with the endowment component; 3. Review the current agricultural insurance scheme supported by the government and provide policy recommendations for the development of the new legislation on agricultural insurance in support of alternative agricultural insurance products Deliverable 2.2 Insurance market is expanded through the introduction of insurance products Under this sub-component the Bank will: 1. Provide recommendations for the development of compulsory third-party liability insurance for medical services providers, builders and architects in line with international best practice, including for the development of insurance terms and conditions and scope of coverage and development of indicative pricing guidelines; 2. Provide recommendations for the development of base-line life insurance products with an endowment component (focus on annuities), including advice on insurance terms and conditions, scope of coverage, indicative pricing guidelines; 3. Provide recommendations for the development of index-based agricultural insurance products, including on insurance terms and conditions, scope of coverage, indicative pricing guidelines; 4. Organize workshops for ISSSG knowledge enhancement on new insurance products; public consultations and awareness events on the new insurance products. Development of life insurance, compulsory third-party liability insurance for builders and architects, and compulsory third-party liability insurance for medical service providers products will depend on the outcomes of the reviews of pertinent sectoral legislation, market needs and practices. Component 3: Responsible Financial Inclusion The lack of financial sector diversity and depth hinders access to finance, undermines financial inclusion, especially for MSMEs and underserved clients in the rural areas or lower income households. Existing financial infrastructure, including payments, debt restructuring, contract enforcement and secured transactions framework requires enhancement in line with international standards and practices. In this context, the Bank has been requested by NBG to support in strengthening a responsible financial inclusion3 framework and infrastructure as follows: Deliverable 3.1 Responsible Finance framework initiated The overall legal and regulatory framework for consumer protection in the financial sector remains fragmented and incomplete. Under this sub-component, the Bank will assist NBG through advisory and capacity building support. The Bank will: 1. Provide advice and share knowledge for the development of responsible financial inclusion strategy and the action plan; 3 Responsible financial inclusion is where individuals and businesses have access to useful and affordable financial products and services that meet their needs and are delivered in a responsible way. (91 8 2. Provide technical support to NBG in finalizing the action plan of the National Financial Education Strategy and implementing its selected activities. 3. Provide recommendations and capacity building for NBG on consumer protection supervisory strategy and supervisory manual; advise NBG on revising the legal and regulatory framework for consumer protection and responsible finance in line with EU directives and financial consumer protection practices; 4. Support NBG and other stakeholders in FinTech market assessment in Georgia; provide guidance and comments to the draft FinTech strategy; provide support to NBG in developing FinTech regulatory approach vision and a road map; provide capacity building for NBG on selected aspects of FinTech market regulation based on the priorities identified in the road map. Deliverable 3.2. Financial Infrastructure for responsible finance enhanced Unleashing the potential of the financial sector and development of responsible finance framework for SMEs will require further strengthening of credit market infrastructure. Reduction of cash economy and enhancing financial inclusion for underbanked clients, especially in rural areas, requires continued enhancements in payments and financial services delivery infrastructure. The Bank will provide recommendations to the relevant authorities of Georgia for legal reforms in line with the best international practices. In this context the Bank will: 1. Conduct assessment and organize consultations with the authorities; and provide technical recommendations for establishing SME Credit Guarantee Scheme in line with international practices and the WBG 2015 Principles for public guarantee schemes for SME finance; 2. Provide technical support to the relevant authorities of Georgia in developing legal strategy, providing recommendation for revisions to secured transactions legislation; organize stakeholder consultations and share knowledge on best practices in implementation of the modern security interests registry' 3. Conduct an assessment of the retail payments infrastructure and the Central Securities Depositary/Securities Settlement System (CSD/SSS), develop an action plan, assist NBG with development of a comprehensive risk management framework and payments oversight policy framework (for both Large-value and retail payments); advance knowledge transfer on design and development of faster payment system. Component 4: Better Financial Information and Accountability By signing the Association Agreemente with the EU in 2014, Georgia committed to adapt and align its legislation with the EU norms in many fields, including accounting and auditing. The Bank is providing its technical assistance to Georgia under a regional program, partially funded by the EU, for Strengthening Auditing and Reporting in the Eastern Partnership (STAREP5), implemented by the World Bank Centre for Financial Reporting Reform (CFRR). In this context, under this Agreement the Bank will 4 Council Decision of 16 June 2014 (2014/494/EU) https://cdnl-eeas.fpfis.tech.ec.europa.eu/cdn/farfutureNjycjKJ- ii28659I8FYZ8Phir2QqsOf2jZUoh4un5IE/mtime: 1473773763/sites/eeas/files/association_agreement.pdf 5 EC Contract #ENPI/2014/337-995, Trust Fund #TF072157. 9 continue to support Georgia enhance transparency and investment attractiveness through a better availability of the latter and use of financial information as follows: Deliverable 4.1. Accounting frameworks for SMEs developed and the respective capacity of SMEs increased Under this sub-component the Bank will: 1. Provide advice on the implementation of the 2016 A&A Law relating to reporting requirements for small entities in accordance with EU Accounting Directive6. 2. Develop and deliver Training of TrainerS7 program tailored to the needs of the respective stakeholder group (IFRS, IFRS for SMEs, micro framework). 3. Disseminate knowledge and technical support for the implementation of new accounting standards for MSMEs via targeted workshops for MSME accountants and owners. 4. Support in designing a mechanism for standards update and translation process. Deliverable 4.2. Capacity of Small and Medium Accounting Practices (SMPs) enhanced Under this sub-component the Bank will provide technical support to help SMEs gain access to modem financial management skills and business advisory services needed to improve planning, control, and performance of their businesses. It will help position them to access financial and human capital and overcome other common challenges to growth through advice and assistance in areas such as cash management, business and financial planning, access to finance, and compliance requirements to emerge from the "shadow economy." The Bank will work with targeted small and medium-sized accounting practices (SMPs) and professional accountants working in business, as these engage directly with SMEs, as well as with professional accountancy organizations (PAOs). PAOs will be equipped to continue offering tools and training to SMPs on a fee-for-service basis, and SMPs in turn will be equipped to help SMEs on a fee for service basis. The improved capacity of the accounting profession to better support SMEs will be bolstered through work to raise awareness among targeted market participants of the value that professional accountants can offer SMEs as a key part of the business support network. This program will be the first to develop capacity of the SMP community across Georgia, so it can effectively support development and growth of SMEs in the country. Deliverable 4.3. Better Governance and Public Accountability of SOEs Under this sub-component the Bank will help Georgian authorities (primarily with the National Agency of State Property (NASP) and the Ministry of Economy and Sustainable Development) to strengthen their financial reporting capacity and raising public accountability of SOEs and respective agencies in charge of SOE oversight, under the framework of the 2016 A&A Law implementation. 6 Directive No 2013/34/EU, and Regulation (EC) No 1606/2002. 7 Training of Trainers (TOT) is a professional learning process for qualified trainers who will be providing training and capacity-building assistance to respective stakeholders' groups. 10 Accordingly, the Bank will provide targeted analytical support to the Government of Georgia to advance SOE reforms through technical expertise and targeted assistance. The Bank will support reform implementation efforts aimed at strengthening corporate governance policies and practices of SOEs, implementing legislative reforms in the area and improving SOE performance accountability. Deliverable 4.4. Accounting and Auditing Quality Control enforced Under this sub-component the Bank will: 1. Provide required policy level support to further align Georgian legislation, including secondary legislation and regulations in audit quality reviews, audit manuals, and inspection procedures, in line with the EU acquis, if requested by SARAS and the Government. 2. Provide capacity building for SARAS to effectively and efficiently develop the right processes, procedures and methodologies for enforcement of financial reporting and auditing requirements. 3. Support SARAS prepare an update to the 2015 A&A ROSC, measuring and evaluating reforms progress. Deliverable 4.5. Accounting Education Improved The Bank will provide recommendations to the Georgian authorities in improving their accounting education through the education benchmarking for leading providers of accounting and audit education. The main relevant stakeholders will be leading universities, PAOs, and other academia. The Bank will carry out these activities in full coordination with SARAS. Component 5: Communication Plan A communication plan will be prepared outlining the key communication activities mainstreamed in each component. Indicative Timeline for Delivering Outputs Outputs Timeline 1.1 Capital market legal and regulatory framework modernized Q3 2022 1.2. Capital market infrastructure (trading) oversight enhanced Q2 2022 1.3. Market awareness and enabling environment for fixed income products improved Q2 2022 2.1 Enabling framework for the development of new insurance products Q3 2021 2.2 Insurance market is expanded through introduction of compulsory insurance Q3 2022 products 3.1 Responsible Finance framework initiated Q3 2022 3.2. Financial Infrastructure for responsible finance proposed Q3 2022 4.1. Accounting frameworks for SMEs developed and the respective capacity of SMEs Q2 2022 increased 4.2. Capacity of Small and Medium Accounting Practices (SMPs) enhanced Q2 2022 11 4.3. Better Governance and Public Accountability of SOEs Q3 2022 4.4. Accounting and Auditing Quality Control enforced Q3 2022 4.5. Accounting Education improved and continue to develop Q3 2022 5. Communication Plan Q1 2019 3. Eligible Expenditures 3.1 For Bank-executed activities, the Trust Fund funds may be used to finance: (a) Staff and individual consultant services; (b) Cost of travel; (c) Cost of training and workshops; and (d) Other services including translation. 4. Taxes 4.1 The foregoing activities and categories of expenditures may include the financing of taxes in accordance with the Bank's applicable policies and procedures. 5. Program Criteria 5.1 Activities are to be financed in accordance with the following program criteria: The Trust Fund is established to enable the European Commission and the Bank to continue to collaborate and exchange experience and expertise on a number of themes under all three pillars of the Europe 2020 Agenda of smart, sustainable and inclusive growth. The express purpose of this Trust Fund is to allow the European Commission to avail itself of the Bank's technical assistance and analytical and policy capacity for the purpose of pursuing the goals of Europe 2020. The three pillars of Europe 2020 are broadly in line with the objectives and strategies adopted in the Europe and Central Asia Region of the World Bank Group. All activities that are in pursuance of these three pillars are eligible to be financed and implemented under this Trust Fund. 6Jf 12 ANNEX 2 STANDARD PROVISIONS This Annex shall be applicable to and form an integral part of the Administration Agreement for the Trust Fund between the Bank and the Donor. 1. Administration of the Contributions 1.1 The Bank shall be responsible only for performing those functions specifically set forth in this Administration Agreement and shall not be subject to any other duties or responsibilities to the Donor, including, without limitation, any duties or obligations that might otherwise apply to a fiduciary or trustee under general principles of trust or fiduciary law. Nothing in this Administration Agreement shall be considered a waiver of any privileges or immunities of the Bank under its Articles of Agreement or any applicable law, all of which are expressly reserved. 1.2 The Donor's Contribution shall be administered in accordance with the Bank's applicable policies and procedures, as the same may be amended from time to time, including its procurement, financial management, disbursement and safeguard policies, its framework to prevent and combat fraud and corruption and its screening procedures to prevent the use of Bank resources to finance terrorist activity, in line with the Bank's obligations to give effect to the relevant decisions of the Security Council taken under Chapter VII of the of Charter of the United Nations. The Donor acknowledges that this provision does not create any obligations of the Bank under the anti-terrorist financing and asset control laws, regulations, rules and executive orders of an individual member country that may apply to the Donor. 2. Management of the Contributions 2.1 The funds deposited in the Trust Fund shall be accounted for as a single trust fund and shall be kept separate and apart from the funds of the Bank. The funds deposited in the Trust Fund may be commingled with other trust fund assets maintained by the Bank. The Bank, in its capacity as trustee, has legal title to the funds deposited in the Trust Fund. 2.2 The currency in which the funds in the Trust Fund shall be held is Euro (the "Holding Currency"). 2.3 The Donor agrees to deposit its Contributions in the Contribution Currency stated in the Administration Agreements. In the case of deposits received in a Contribution Currency other than the Holding Currency, promptly upon the receipt of such amounts and the accompanying Deposit Instructions, the Bank shall convert such amounts into the Holding Currency at the exchange rate obtained by the Bank on the date of the conversion. Where deposits prove to be insufficient to complete activities as a result of exchange rate fluctuations, neither the Bank nor the Donor shall bear any responsibility for providing any additional financing. 2.4 The funds deposited in the Trust Fund may be freely exchanged by the Bank into other currencies as may facilitate their disbursement at the exchange rate obtained by the Bank on the date of the conversion. 2.5 The Bank shall invest and reinvest the funds deposited in the Trust Fund pending their disbursement in accordance with the Bank's applicable policies and procedures for the investment of trust funds administered by the Bank. The Bank shall transfer all income from such investment to the Donor's applicable donor balance account with the Bank. 13 3. Trust Fund Fees and Costs 3.1 The Bank shall deduct and retain for its own account, as a deduction from each Instalment, an amount equal to five percent (5%) per Instalment as an administrative fee for the Trust Fund. 3.2 The Donor acknowledges and agrees that the percentage deductions for fees in this Trust Fund Fees and Costs section are estimated on the basis of anticipated Contributions. If actual Contributions significantly differ from what was originally anticipated at the time of signature of the first Administration Agreement, or if other circumstances affecting Trust Fund fees or costs change, the Bank reserves the right to request a change to the terms of this Trust Fund Fees and Costs section, which would be effectuated by amendments made to the Administration Agreements of the Donor and which would thereafter be applicable to all new Contributions that are provided either as amendments to supplement existing Administration Agreements or from new Administration Agreements. 4. Accounting and Financial Reporting 4.1 The Bank shall maintain separate records and ledger accounts in respect of the funds deposited in the Trust Fund and disbursements made therefrom. 4.2 The Bank shall furnish to the Donor current financial information relating to receipts, disbursements and fund balance in the Holding Currency with respect to the Contributions via the World Bank's Trust Funds Development Partner Center secure website. Within six (6) months after all commitments and liabilities under the Trust Fund have been satisfied and the Trust Fund has been closed, the final financial information relating to receipts, disbursements and fund balance in the Holding Currency with respect to the Contributions shall be made available to the Donor via the World Bank's Trust Funds Development Partner Center secure website. 4.3 The Bank shall provide to the Donor via the World Bank's Trust Fund Development Partner Center secure website, within six (6) months following the end of each Bank fiscal year, an annual single audit report, comprising (i) a management assertion together with an attestation from the Bank's external auditors concerning the adequacy of internal control over cash-based financial reporting for all cash-based trust funds as a whole; and (ii) a combined financial statement for all cash-based trust funds together with the Bank's external auditor's opinion thereon. The cost of the single audit shall be borne by the Bank. 4.4 If the Donor wishes to request, on an exceptional basis, a financial statement audit by the Bank's external auditors of the Trust Fund, the Donor and the Bank shall first consult as to whether such an external audit is necessary. The Bank and the Donor shall agree on the appropriate scope and terms of reference of such audit. Following agreement on the scope and terms of reference, the Bank shall arrange for such external audit. The costs of any such audit, including the internal costs of the Bank with respect to such audit, shall be borne by the requesting Donor. 5. Progress Reporting 5.1 The Bank shall provide the Donor with semi-annual reports on the progress of activities financed by the Contributions. Within six (6) months of the End Disbursement Date (as defined below), the Bank shall furnish to the Donor a final report on the activities financed by the Trust Fund. 5.2 The Donor may review or evaluate activities financed by the Trust Fund at any time up to six (6) months following the End Disbursement Date. The Donor and the Bank shall agree on the scope and 14 conduct of such review or evaluation, and the Bank shall provide all relevant information within the limits of the Bank's applicable policies and procedures. All associated costs, including any costs incurred by the Bank, shall be borne by the Donor. It is understood that any such review or evaluation will not constitute a financial, compliance or other audit of the Trust Fund. 6. Disbursement; Cancellation; Refund 6.1 It is expected that the funds deposited in the Trust Fund will be fully disbursed by the Bank by December 31, 2022 (the "End Disbursement Date"). The Bank shall only disburse funds deposited in the Trust Fund for the purposes of this Administration Agreement (other than returns to Donor) after such date to the extent such date is changed in accordance with amendments made to the Administration Agreement(s) of the Donor. Following the End Disbursement Date, the Bank shall return any remaining balance of the Trust Fund to the Donor in the Holding Currency in the manner specified in its respective Administration Agreement on a pro rata basis with regard to the total funds deposited in the Trust Fund by such Donor relative to the total funds deposited in the Trust Fund by the Donor, all calculated as Holding Currency amounts. 6.2 The Donor may cancel all or part of such Donor's pro rata share/contribution, and the Bank may cancel all or any Donor's pro rata share/contribution, upon three (3) months' prior written notice, of any Contributions (paid and not yet paid) that are not committed pursuant to any agreements entered into between the Bank and any consultants and/or other third parties for the purposes of this Administration Agreement, including any Grant Agreements, prior to the receipt of such notice. In the event of a cancellation, the Bank shall return to the Donor its pro rata share in the Holding Currency as specified in the Administration Agreement unless otherwise agreed between the Bank and the Donor. 7. Disclosure: Dispute Resolution 7.1 The Bank shall disclose the Administration Agreements and related information on this Trust Fund in accordance with the Bank's Policy on Access to Information. By entering into Administration Agreements, the Donor consents to such disclosure of their respective Administration Agreements and such related information. 7.2 The Donor and the Bank shall use their best efforts to amicably settle any dispute, controversy, or claim arising out of or relating to the Administration Agreements. 15 ANNEX 3 GOVERNANCE OF THE ACTIVITIES This Annex shall be applicable to and form an integral part of the Administration Agreement for the Trust Fund between the Bank and the Donor. Working Modalities In order to facilitate the implementation of the activities described in Annex 1 of this Agreement (the "Activities"), the Bank and the EU Delegation in Georgia (EUD) will in principle meet bi-annually to discuss the progress of the Activities, discuss next steps and any challenges or issues as they arise. The Bank may invite the EUD to participate in supervision missions related to the Trust Fund, as well as implementation-related meetings and workshops as appropriate. To facilitate the organization and efficiency of such missions, meetings, and workshops the Bank may share with the EUD in a timely manner any relevant documentation in accordance with the Bank's Policy on Access to Information. The Bank shall carry out the visibility activities agreed between the Bank and the EUD in the Visibility Note, which may be updated from time to time by the parties, in line with Article 9 and Attachment 4 of the Framework Agreement. Bank team composition: The Bank shall, in its sole discretion, determine the composition of the staff assigned to perform the activities under this Agreement. Payment Requests Requests for payments related to the activities set forth in Section 2.1 of Annex 1 to this Administration Agreement will be sent by the World Bank to the Commission with the reference ENI/2018/400-915 and shall be addressed to: Finance, Contracts and Audit Section EU Delegation to Georgia 38 Nino Chkheidze street, Tbilisi 0102 Georgia 16 ANNEX 4 INDICATIVE RESULTS FRAMEWORK INDICATORS FOR THE ACTIVITIES IN ANNEX 1 Expected Results Indicators Baselines Result goals Sources of data Assumptions (Logic of (2017/2018) intervention) Better financial Global Competitiieness Baseline: In 2022 to reach 60 140 or the score of 58 WEF Global Outcome le%el nclusion and Inde% (9th pillar on 66 1-0, score Competitm'eness results maN not be accountabilit Financial sNstem) iq.8 (20181 Report directly attribuiable to the project and may depend on %anous downside or upside factors outside of the project control such as: (i) continued strong commitment of the Georgian authonties to reforms supported under the project: (i) strong support of EU and other de% elopmeni partners to the proposed re form-ns. I %%ithmn the broader engagement framew%ork. (it) no adverse de%elopments outside of the control of the project team 17 Capital market Advanced capital market Non- Increased compliance with 8 IOSCO NBG reporting; NBG's strong development transparency and compliance principles and relevant areas of Official Gazette (if commitment to the regulation in line with EU with 36 out of MFID/MiFIR directives (on transparency, legislation is capital markets legal legislation and IOSCO 37 IOSCO market abuse, issuers reporting, adopted) and regulatory principles principles investment funds and investment firms reform (NBG self- regulation, trading platforms regulation) assessment, 2018) Insurance Reform Increased gross written GEL 441 Increase of premiums by 25 % ISSSG statistics New insurance premiums of insurance million in 2017 products are companies introduced Responsible financial Increased lending to SMEs GEL 5.2 billion Increase of SME loans by 25 % NBG statistics No adverse inclusion in 2017 developments on the market Increased access to digital 53% in 2017 60 % (2020) WB Findex payments (% age 15+)" Database (next expected in 2020 and 2023) Better Financial Improved quality of Number of 500 SARAS statistics information and financial statements SMEs preparing Accountability financial statements based on IFRS/IFRS for SMEs - 0 in 2017 1.1 Capital market Regulation and The legislative (i) Draft Regulation(s) informed by Progress reports legal and regulatory supervision of framework in relevant IOSCO principles and EU Rules; framework Transparency place is (ii) Knowledge transfer and capacity Feedback from NBG modernized requirements and Market inconsistent building of NBG team on monitoring and team Abuse enhanced with the enforcement rules effectively delivered relevant IOSCO principles and EU Rules Legislation, regulation and The legislative (i) Draft Regulation(s) informed by Progress reports; supervision of Collective framework in relevant IOSCO principles and EU Rules; 18 Investment Schemes place is (ii) Knowledge transfer and capacity Feedback from NBG enhanced inconsistent building of NBG team on monitoring and team with the enforcement rules effectively delivered relevant IOSCO principles and EU Rules Regulation of investment The legislative (i) Draft Regulation(s) informed by Progress reports firms enhanced framework in relevant IOSCO principles and EU Rules; place is (ii) Knowledge transfer and capacity Feedback from NBG inconsistent building of NBG team on monitoring and team with the enforcement rules effectively delivered relevant IOSCO principles and EU Rules Preparedness for IOSCO Self-assessment Knowledge transfer to NBG team on Progress reports membership enhanced against IOSCO MMOU effectively delivered; self- principles assessment questionnaire reviewed; Feedback from NBG completed in IOSCO application and action plan for team 2018, indicating increasing compliance informed by non-compliance relevant international expertise with 36 out of 37 principles 1.2. Capital market Legislation on trading The legislative Draft Regulation(s) informed by relevant Progress reports infrastructure platforms enhanced framework in IOSCO principles and EU Rules (trading) oversight place is enhanced inconsistent with the relevant IOSCO principles and EU Rules Regulation. on licensing, The legislative Draft Regulation(s) informed by relevant Progress reports business conduct, trading framework in IOSCO principles and EU Rules transparencN rules for place is radng platforms inconsistent enhanced with the relevant IOSCO 19 principles and EU Rules NBG's capacity for market Limited Knowledge transfer and capacity building Progress reports surveillance increased capacity of NBG supervisory team effectively delivered Feedback from NBG team 1.3. Market Foundation for Listing Does not exist (i) LAP informed by relevant international Progress reports awareness and advisory program (LAP) expertise; (ii) Draft MOU for LAP enabling in place partners informed by relevant international environment for expertise fixed income De%elopment of the fixed Some fixed Gap analysis conducted and Progress reports products impro%ed income secunties informed income recommendations for development of new securities do not fixed income securities prepared (such as exist asset backed securities, etc) 2.1 Enabling Re% iew% s of pertinent The products do Reviews of pertinent sectoral legislation Progress reports framework for the sectoral legislation and not exist for informing products development de%elopment of neA market needs in areas of conducted and market needs assessed insurance products life insurance, compulsory third-pan liability insurance for builders and architects, and compulsory third-partN liability insurance tor medical service providers conducted Legal framework for new Legal Advice for the development of Draft Progress reports Sector regulations insurance products framework does legislation for new insurance products, should be in place to developed not exist such as i) Compulsory Third Party start developing Liability Insurance for Medical Service third-party liability Providers; (ii) compulsory third-party insurance products, liability insurance for builders and tax treatment for life architects; (iii) life insurance products insurance product with the endowment component should be conducive and there should be needs for the new products on the 20 market Legal framework for Existing legal Review the current agricultural insurance Progress reports agriculture insurance framework scheme supported by the government and product enhanced requires develop policy recommendations;(ii) Draft enhancement legislation on agricultural insurance in support of alternative agricultural insurance products informed by relevant international expertise 2.2 Insurance Compulsory third party Product does Recommendations for draft insurance Progress reports Sector regulations market is expanded liability insurance for not exist terms and conditions and scope of should be in place to through introduction medical services providers coverage; Draft indicative pricing start developing of compulsory developed guidelines informed by relevant third-party liability insurance products international expertise insurance product for medical service providers and there should be needs for this new product on the market Compulsory third party Product does Recommendations for draft insurance Progress reports Sector regulations liability insurance for not exist terms and conditions and scope of should be in place to builders and architects coverage; Draft indicative pricing start developing developed guidelines informed by relevant third-party liability international expertise insurance product for builders and architects and there should be needs for this new product on the market Base-line life insurance Product does Recommendations for draft insurance Progress reports Tax treatment for products with an not exist terms and conditions and scope of life insurance endowment component coverage; Draft indicative pricing product should be developed guidelines informed by relevant conducive and there international expertise should be needs for this new product on the market 21 Index-based agricultural Product requires Recommendations for draft insurance Progress reports insurance products enhancement terms and conditions and scope of developed coverage; Draft indicative pricing guidelines informed by relevant international expertise Awareness on new Limited Workshops for ISSSG and public Progress reports insurance products awareness on consultation events conducted effectively increased new products Feedback from ISSSG team 3.1 Responsible Responsible Financial Strategy does Progress reports Finance framework Inclusion Strategy not exist Assessment conducted, and the draft initiated prepared Financial Inclusion Strategy informed by relevant international expertise Financial education reform Financial Progress reports advanced education Assistance for (i) Draft financial education strategy adopted action plan; (ii) Draft proposals for in 2016, action implementation of selected (2-3) financial plan is being literacy activities. drafted Financial Consumer FCP (i) Recommendations and capacity Progress reports Protection supervision and supervision building for draft NBG Financial regulation enhanced strategy and Consumer Protection supervision strategy manual have and manual; Feedback from NBG not been (ii) Knowledge transfer and capacity team drafted; FCP building of NBG team on FCP supervision regulations are effectively delivered; fragmented and (iii) Draft revisions to the legal and not in line with regulatory framework on consumer key EU protection and responsible finance directives (e.g. informed by EU Consumer Credit and on Consumer other EU Directives and WB FCP Credit) and best Principles practice (WB FCP Principles, 2017) 22 Foundations for Fintech Fintech Progress reports regulation established activities are Support for (i) Market analysis to assess not regulated; scale and scope of Fintech activities; (ii) Market analysis The draft FinTech strategy; (iii) Proposals have not been for FinTech regulation approach conducted yet paper/road map; (iv) Selected aspects of and regulatory FinTech market (e.g. regulation of banks, response non-banks, regulatory sandbox etc) strategy is not defined 3.2. Financial SME Credit Guarantee No assessment Assessment to inform options of credit Progress Reports The government Infrastructure for Scheme informed and study guarantee scheme conducted remains committed responsible finance to introduce the new proposed scheme in line with best international practice Foundations for Current (i) Support for draft revisions to the Progress Reports Strong commitment modernization secured legislation is legislation; (ii) workshop on establishing of the government to transactions framework not in line with the modern security interests registry Feedback from the secured established international conducted effectively. workshop transactions reform practice, participants registry is rarely used Enabling framework for Payments (i) NBG self-assessment of retail Progress Reports retail payments infrastructure payments and SCD/SSS infrastructures infrastructure improved and its informed by relevant international Feedback from NBG oversight expertise; (ii) Recommendations for fast team requires payments and effective knowledge sharing enhancement on APIs for enabling third party access to paNment accounts. digital ID and customer consent architecture, bill preseniment and paNneni services: (iii) Risks management and retail payments oversight framework informed by rele%an internauional ________ ~~~experlil;e'.__________ 23 4.1. Accounting Implementation of the Implementation Implementation of reporting requirements Progress Reports Cooperation and frameworks for 2016 A&A Law relating to of Reporting is informed by good international practice commitment from SMEs developed and reporting requirements for requirements is the counterparts the respective small entities enhanced inadequate capacity of SMEs Greater capacity of First co-hort of Training of Trainers program tailored to Training Materials; increased Trainers, Greater number trainers the needs of the respective stakeholder Feedback from of Training on IFRS, IFRS prepared for group (IFRS, IFRS for SMEs, micro Training for SMEs and micro micro framework) developed and effectively Participants; frameworks framework delivered Progress Reports Implementation of new MSMEs have MSME accountants and owners' capacity Training Materials; accounting standards for low capacity to in financial reporting increased via Feedback from MSMEs enhanced implement new dissemination events and workshops for Training accounting preparers of financial statements in IFRS Participants; standards for SMEs/ accounting framework for Progress Reports micro entities Sustainable mechanism for No sustainable The mechanism and funding arrangements Progress Reports adopting, translating and mechanism is in for standards update is developed, as maintaining translations of place informed by good international practices international standards established 4.2. Capacity of Diagnostic of SME access No diagnostic Diagnostic conducted on gaps and access Completed and Small and Medium to financial management exists of SMEs to respective financial and disseminated Accounting Practices skills and services in management skills, outlining diagnostic on SME (SMPs) enhanced Georgia conducted recommendations to minimize the access to financial "accounting and management gap", management skills enabling SMEs growth and services Institutional capacity Small and Training Materials; among the local medium Training Module for SMPs on financial Feedback from accounting profession practices have services and business advice for SMEs, Training enhanced low capacity in including training materials developed and Participants; assisting effectively delivered Progress Reports Georgian businesses in implementing international 24 standards to access international export markets or partners Awareness and networks Limited Effective knowledge transfer and capacity Progress Reports to position the local awareness by building through trainings and workshops accounting profession as a MSMEs about for SMPs and BSOs on financial services trusted business advisor to services they and business advice for SMEs SMEs beyond compliance can access from services enhanced local SMPs 4.3. Better Corporate governance CG Policies Comprehensive diagnostic of corporate Individual Commitment to the Governance and policies of pilot SOEs Absent, governance practices of SOEs in Georgia; Assessments for reforms from Public enhanced Limited AND Individual corporate governance Pilot SOEs; MOESD/ NASP/ Accountability of Implementation assessment at entity Level (up to 4 pilots) Progress Reports pilot SOEs SOEs of CG policies by Large SOEs Corporate governance Corporate Corporate Governance ROSC updated, Corporate legal framework assessed, Governance recommendations developed for Governance ROSC; and practices enhanced ROSC is enhancement of corporate governance Progress Reports outdated (2002) framework and practices Progress on Development No Ownership SOE Ownership Policy recommendations Response to the SOE of an SOE Ownership Policy developed, and inclusive policy dialogue Ownership Policy Policy developed initiated recommendations; Progress Reports SOE oversight and risk Weak risk Methodology for reviewing SOE financial Methodology and management enhanced management reports, dashboard of key financial dashboard for SOE and oversight, performance indicators, including a key financial No aggregated manual informed bN rele%ant international performance monitonng of expertise indicators de%eloped SOE fin and disseminated to performance NASP: and Progress Reports effecmieness 25 Capacity of the agencies Low capacity Capacity building activities for respective Feedback from involved in SOE oversight for SOE Government agencies involved in SOE Participants; enhanced oversight at oversight effectively delivered Progress Reports MoESD /NASP 4.4. Accounting and Georgian legislation Drafts Policy advice support for Georgian Progress Reports Auditing Quality (secondary) enhanced (if developed by Secondary legislation (if requested by Control enforced requested by SARAS and SARAS SARAS and the Government) the Government) Capacit of SAlRAS to SARAS i% a Know%ledge transfer and capacit\ building Progress Reports effecti%ely and efficienl\ new regulator of SARAS effecti\el\1 deli% ered de%elop the nght w% ith Iimnied processeN. procedures and enforcement methodologies for capaciN enforcement of financial reporting and auditing requirements enhanced Accounting and Audit 2015 Accounting and Audit ROSC report A&.A ROSC Report ROSC update conducted. Accounting and updated and disseminated to the taking stock of the reforms Audit ROSC stakeholders 12020-202 1 implementation 4.5. Accounting Uniersit) le%el Existing (i) Benchmarking stud) on existing Benchmarking study Education improved accounting and audit curricula omits curricula conducted; and and continue to curricula enhanced the International (ii) Report with recommendation on the recommendations develop Education best curriculum model for local Report; Standards, universities developed and disseminated. applicable to Progress Reports accounting profession Manuals and course Teaching Manuals and course materials in line with Teaching materials materials enhanced materials used the updated university level accounting presented to the are outdated and audit curricula informed by relevant universities; international international expertise Progress Reports text books out of date with current version on standards 26 Capacity of accounting Limited Trainings and workshops for education Feedback from education providers capacity of providers (teachers/ professors) effectively participants; (universities, other institutions; delivered Progress Reports academia, PAOs, SARAS, No ongoing Ministry of Education) training for enhanced teachers/ professors to keep up with the reforms 5. Communication A communication plan will be prepared Plan outlining the key communication activities mainstreamed in each component. 27 ANNEX 5 INDICATIVE BUDGET FOR THE ACTIVITIES SET FORTH IN SECTION 2 OF ANNEX 1 TO THIS ADMINISTRATION AGREEMENT Expenditure Category Amount in Euro Staff and individual consultant services 3,018,000 Cost of travel 774,900 Cost of training and workshop 299,600 Other services including translation 182,500 Sub-total 4,275,000 Administration fee (5%) 225,000 Total 4,500,000 The amount estimated for personnel is calculated considering different levels of expertise estimated to be required for carrying out the activities described in Annex 1. The World Bank Group entity may transfer amounts between categories of the indicative budget. This does not require an amendment of the Administration Agreement if the Action is carried out as described in Annex 1 - Trust Fund Description.