ESA Joint Committee · priips-65 Final

How should the CRM be calculated when the credit risk needs to be assessed only for a part of the assets of the PRIIP? For example if there are both individual investment holdings representing 10% or

Regulation
PRIIPs
Answered
2017-08-18
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

How should the CRM be calculated when the credit risk needs to be assessed only for a part of the assets of the PRIIP? For example if there are both individual investment holdings representing 10% or more of the total value of the PRIIP and individual holding of below 10%; are all individual holdings below 10% given a credit quality step of 0?

Answer

A proportional approach should be used when calculating the CRM. In the case of credit risk assessed on a look-through basis in accordance with Point 40 of Annex II, Part 2 the credit quality step (CQS) shall be weighted in relation to the proportion of total assets that each exposure represents. This can be illustrated with an example: Asset A 12% CQS 1 Asset B 12% CQS 5 The rest of the assets (i.e. 76%) are not separately assessed and therefore a CQS of 0 should be used. This means the weighted average CQS is (12% * 1) + (12% * 5) + (76% *0) = 0.72 (Rounded up to 1)
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This Q&A is published by ESA Joint Committee (EBA, ESMA, EIOPA) and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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