4.2 Treatment of recoveries with regard to QAFM

A DGS should allocate recoveries to QAFM and to other AFM according to either one of the only two allowed approaches: approach A or approach B.

Where a DGS is not a competent authority, it should inform the competent authority of the approach it has chosen before implementing it.

Under approach A, a DGS should:

• a. allocate incoming recoveries to other AFM if, at that point in time, other AFM are lower than outstanding liabilities as reported under Guideline 4.5 until other AFM are equal to outstanding liabilities, and
• b. allocate incoming recoveries to QAFM if, at that point in time, other AFM are equal to or greater than outstanding liabilities as reported under Guideline 4.5, and
• c. at any point in time reallocate other AFM in excess of outstanding liabilities as reported under Guideline 4.5 to QAFM.

Under approach B, a DGS should: EBA GUIDELINES ON THE DELINEATION AND REPORTING OF AFM OF DGS

• a. record the borrowing ratio used in that DGS intervention, which is the ratio of the total liability incurred by that DGS for the purpose of that DGS intervention, divided by the total amount of funds used in that DGS intervention, and
• b. record the aggregate figure of recoveries received from the related insolvency from inception of that DGS intervention, and
• c. record the aggregate figure of repayments made of the related liability from inception of that DGS intervention, and
• d. determine the ‘ intervention-specific other AFM ’ related to that DGS intervention by multiplying aggregate recoveries (according to subparagraph 19b) with the most up-to-date borrowing ratio (according to subparagraph 19a) and then subtract the aggregate repayments (according to subparagraph 19c), and if the result is negative, it becomes zero, as ‘ intervention-specific other AFM ’ cannot be negative, and then
• e. determine the DGS’s other AFM equal the sum of ‘ intervention-specific other AFM ’ related to each DGS intervention (according to subparagraph 19d).

Irrespective of which one of the two approaches is chosen by a DGS, at any point in time, the level of a DGS’s QAFM is determined by subtracting ‘other AFM’ from AFM.

 A1