In which situations does the credit risk of the underlyings of a PRIIP need to be assessed? In particular, a) what approach should be taken for stocks and UCITS investing in stocks? And b) If a positi

Stocks are not PRIIPs so they could only be subject to the PRIIPs methodology as underlyings of a PRIIP, such as an investment fund, an SPV, unit-linked insurance product, or structured product. For the PRIIPs methodology, stocks – for instance equity holdings in companies – do not carry credit risk (as it has been defined for the SRI purposes) since the return on these instruments does not depend on the creditworthiness of a manufacturer or party bound to make, directly or indirectly, relevant payments to the investor. The credit risk of this type of product would be generally captured by the MRM. In certain situations the credit risk of a PRIIP needs to be assessed at the level of the underlyings to determine the CRM. In this case either a look-through or a cascade assessment shall be performed. A look-through assessment is to be made when the credit risk is entailed solely at the level of the underlying investments or exposures and not at the level of the PRIIP itself (e.g. securities issued by a special purpose vehicle (see point 34 of Annex II Part 2). Point 40 of Annex II Part 2 shall apply in this case. A cascade assessment is to be made when the credit risk is entailed at the level of the PRIIP, as well as at the level of the underlying investments or exposures of the PRIIP (e.g. unit-linked insurance contracts). In this case Point 41 of Annex II Part 2 shall apply. It is correct that where a position is fully collateralised it is considered that there is no residual credit risk.