UBS AG Annual Report 2021

Plain-text annual report

UBS Group AG Annual Report 2021 Our external reporting approach Our external reporting approach Our external reporting approach ) The scope and content of our external reports are determined by Swiss legal and regulatory requirements, accounting standards, relevant stock and debt listing rules, including The scope and content of our external reports are determined regulations promulgated by the Swiss Financial Market by Swiss legal and regulatory requirements, accounting n a Supervisory Authority (FINMA), the SIX Swiss Exchange, the m standards, relevant stock and debt listing rules, including r e US Securities and Exchange Commission (the SEC) and other regulations promulgated by the Swiss Financial Market G regulatory requirements, as well as by our financial reporting G Supervisory Authority (FINMA), the SIX Swiss Exchange, the A policies. US Securities and Exchange Commission (the SEC) and other p u o regulatory requirements, as well as by our financial reporting r G policies. S B U The scope and content of our external reports are determined by Swiss legal and regulatory requirements, accounting standards, relevant stock and debt listing rules, including regulations promulgated by the Swiss Financial Market Supervisory Authority (FINMA), the SIX Swiss Exchange, the US Securities and Exchange Commission (the SEC) and other regulatory requirements, as well as by our financial reporting policies. G A S B U d n a G A p u o r G S B U G A p u o r G S B U ( G A S B U At the center of our external reporting approach is the annual report of UBS Group AG, which consists of disclosures for UBS Group AG and its consolidated subsidiaries. We also At the center of our external reporting approach is the provide a combined annual report for UBS Group AG and annual report of UBS Group AG, which consists of disclosures UBS AG consolidated, which additionally the for UBS Group AG and its consolidated subsidiaries. We also consolidated financial statements of UBS AG, as well as provide a combined annual report for UBS Group AG and supplemental disclosures required under SEC regulations, and the UBS AG consolidated, which additionally is the basis for our SEC Form 20-F filing. consolidated financial statements of UBS AG, as well as supplemental disclosures required under SEC regulations, and is the basis for our SEC Form 20-F filing. At the center of our external reporting approach is the annual report of UBS Group AG, which consists of disclosures for UBS Group AG and its consolidated subsidiaries. We also provide a combined annual report for UBS Group AG and the UBS AG consolidated, which additionally consolidated financial statements of UBS AG, as well as supplemental disclosures required under SEC regulations, and is the basis for our SEC Form 20-F filing. G A d n a l r e z t i includes includes includes S B U w S Sustainability Report 2021 Sustainability Report 2021 In accordance with GRI Standards In accordance with GRI Standards UBS AG Standalone financial statements and regulatory information for the year ended 31 December 2021 31 December 2021 Pillar 3 Report UBS Group and significant regulated subsidiaries and sub-groups G A S B U G G G A A A d d d n n n a a a l l l r r r e e e z z z t t t i i i w w w S S S Sustainability Report Standalone reports of significant group entities Pillar 3 Report Sustainability Report 2021 Sustainability Report 2021 In accordance with GRI Standards In accordance with GRI Standards UBS AG Standalone financial statements and regulatory information for the year ended 31 December 2021 31 December 2021 Pillar 3 Report UBS Group and significant regulated subsidiaries and sub-groups S S S B B B U U U G A p u o r G S B U ) ) n n a a m m r r e e G G ( ( G G A A p p u u o o r r G G S S B B U U G G A A S S B B U U d d n n a a G G A A p p u u o o r r G G S S B B U U UBS Group AG Annual Report 2021 Annual Reports UBS Group AG Annual Report 2021 Annual Reports Sustainability Report Annual Reports Standalone reports of significant group entities Sustainability Report Pillar 3 Report Annual Reports Sustainability Report Standalone reports of significant group entities The Sustainability Report, which will be available from Sustainability Report 11 March 2022, provides disclosures on environmental, social and governance topics for UBS Group. The Sustainability Report, which will be available from 11 March 2022, provides disclosures on environmental, social Standalone reports of significant group entities and governance topics for UBS Group. The Sustainability Report, which will be available from 11 March 2022, provides disclosures on environmental, social and governance topics for UBS Group. We publish separate standalone reports of significant group Standalone reports of significant group entities entities for UBS AG and UBS Switzerland AG. Selected financial and regulatory key figures for these entities, as well We publish separate standalone reports of significant group as for UBS Europe SE and UBS Americas Holding LLC, are also entities for UBS AG and UBS Switzerland AG. Selected included in our annual reports. The UBS Europe SE 2021 financial and regulatory key figures for these entities, as well financial statements and complementary disclosures will be as for UBS Europe SE and UBS Americas Holding LLC, are also published on our website in the first half of 2022. included in our annual reports. The UBS Europe SE 2021 financial statements and complementary disclosures will be Pillar 3 Report published on our website in the first half of 2022. We publish separate standalone reports of significant group entities for UBS AG and UBS Switzerland AG. Selected financial and regulatory key figures for these entities, as well as for UBS Europe SE and UBS Americas Holding LLC, are also included in our annual reports. The UBS Europe SE 2021 financial statements and complementary disclosures will be published on our website in the first half of 2022. The 2021 Annual Reports (the UBS Group AG Annual Annual Reports Report 2021 and the combined UBS Group AG and UBS AG Annual Report 2021) include the consolidated financial The 2021 Annual Reports (the UBS Group AG Annual statements of UBS Group AG and UBS AG, respectively, and Report 2021 and the combined UBS Group AG and UBS AG The 2021 Annual Reports (the UBS Group AG Annual provide comprehensive information about our firm, including Annual Report 2021) include the consolidated financial Report 2021 and the combined UBS Group AG and UBS AG our strategy, businesses, financial and operating performance, statements of UBS Group AG and UBS AG, respectively, and Annual Report 2021) include the consolidated financial and other key information. The reports are presented in US provide comprehensive information about our firm, including statements of UBS Group AG and UBS AG, respectively, and dollars. The UBS Group AG Annual Report 2021 is partly our strategy, businesses, financial and operating performance, provide comprehensive information about our firm, including translated into German, with the German translation available and other key information. The reports are presented in US our strategy, businesses, financial and operating performance, as of 11 March 2022 under “Annual reporting” at dollars. The UBS Group AG Annual Report 2021 is partly and other key information. The reports are presented in US ubs.com/investors. translated into German, with the German translation available dollars. The UBS Group AG Annual Report 2021 is partly The consolidated financial statements of UBS Group AG as of 11 March 2022 under “Annual reporting” at translated into German, with the German translation available and UBS AG have been prepared in accordance with ubs.com/investors. as of 11 March 2022 under “Annual reporting” at International Financial Reporting Standards (IFRS). The The consolidated financial statements of UBS Group AG ubs.com/investors. sections within “Risk, capital, liquidity and funding, and and UBS AG have been prepared in accordance with The consolidated financial statements of UBS Group AG balance sheet“ include certain audited financial information, (IFRS). The International Financial Reporting Standards and UBS AG have been prepared in accordance with which forms part of the consolidated financial statements. The sections within “Risk, capital, liquidity and funding, and International Financial Reporting Standards (IFRS). The Annual Reports also include the statutory financial statements balance sheet“ include certain audited financial information, sections within “Risk, capital, liquidity and funding, and of UBS Group AG, which are the basis for our appropriation which forms part of the consolidated financial statements. The balance sheet“ include certain audited financial information, of retained earnings and a potential distribution of dividends, Annual Reports also include the statutory financial statements which forms part of the consolidated financial statements. The subject to shareholder approval at the Annual General of UBS Group AG, which are the basis for our appropriation Annual Reports also include the statutory financial statements Meeting. of retained earnings and a potential distribution of dividends, of UBS Group AG, which are the basis for our appropriation subject to shareholder approval at the Annual General of retained earnings and a potential distribution of dividends, Meeting. We provide our combined Annual Report, the Pillar 3 Report, standalone reports of significant group subject to shareholder approval at the Annual General entities and the Sustainability Report as web disclosures at ubs.com/investors. Alternatively, we provide Meeting. the QR code on the right for rapid access to the above-mentioned reports and further information on We provide our combined Annual Report, the Pillar 3 Report, standalone reports of significant group investor relations-related topics. entities and the Sustainability Report as web disclosures at ubs.com/investors. Alternatively, we provide the QR code on the right for rapid access to the above-mentioned reports and further information on investor relations-related topics. We provide our combined Annual Report, the Pillar 3 Report, standalone reports of significant group entities and the Sustainability Report as web disclosures at ubs.com/investors. Alternatively, we provide the QR code on the right for rapid access to the above-mentioned reports and further information on investor relations-related topics. The Pillar 3 Report provides detailed quantitative and Pillar 3 Report qualitative information about risk, capital, leverage and liquidity for UBS Group and prudential key figures and The Pillar 3 Report provides detailed quantitative and regulatory standalone, qualitative information about risk, capital, leverage and UBS Switzerland AG standalone, UBS Europe SE consolidated liquidity for UBS Group and prudential key figures and and UBS Americas Holding LLC consolidated. standalone, regulatory UBS Switzerland AG standalone, UBS Europe SE consolidated information and UBS Americas Holding LLC consolidated. The Pillar 3 Report provides detailed quantitative and qualitative information about risk, capital, leverage and liquidity for UBS Group and prudential key figures and standalone, regulatory UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated. for UBS AG for UBS AG for UBS AG Pillar 3 Report information information Our external reporting approach The scope and content of our external reports are determined At the center of our external reporting approach is the by Swiss legal and regulatory requirements, accounting annual report of UBS Group AG, which consists of disclosures standards, relevant stock and debt listing rules, including for UBS Group AG and its consolidated subsidiaries. We also regulations promulgated by the Swiss Financial Market provide a combined annual report for UBS Group AG and Supervisory Authority (FINMA), the SIX Swiss Exchange, the UBS AG consolidated, which additionally includes the US Securities and Exchange Commission (the SEC) and other consolidated financial statements of UBS AG, as well as regulatory requirements, as well as by our financial reporting supplemental disclosures required under SEC regulations, and policies. is the basis for our SEC Form 20-F filing. A firm driven by purpose Our world is constantly changing. People are redefining the way they live, work and interact. Expec- tations from our clients, investors, employees and society are also evolving, and so should we. In April 2021, after a wide-ranging review, including cross-firm brainstorming and debate, we launched our unified purpose, which will guide our decisions going forward. Reimagining It is about proactively finding ways to fundamentally change how the world looks at finance and investing. The power of investing We know finance has a powerful influence on the world. We believe it is something we can leverage as a positive force – for individuals, for society and for our planet. Annual Reports Sustainability Report The 2021 Annual Reports (the UBS Group AG Annual The Sustainability Report, which will be available from Report 2021 and the combined UBS Group AG and UBS AG 11 March 2022, provides disclosures on environmental, social Annual Report 2021) include the consolidated financial and governance topics for UBS Group. statements of UBS Group AG and UBS AG, respectively, and provide comprehensive information about our firm, including Standalone reports of significant group entities our strategy, businesses, financial and operating performance, and other key information. The reports are presented in US We publish separate standalone reports of significant group dollars. The UBS Group AG Annual Report 2021 is partly entities for UBS AG and UBS Switzerland AG. Selected translated into German, with the German translation available financial and regulatory key figures for these entities, as well as of 11 March 2022 under “Annual reporting” at as for UBS Europe SE and UBS Americas Holding LLC, are also ubs.com/investors. included in our annual reports. The UBS Europe SE 2021 The consolidated financial statements of UBS Group AG financial statements and complementary disclosures will be and UBS AG have been prepared in accordance with published on our website in the first half of 2022. International Financial Reporting Standards (IFRS). The sections within “Risk, capital, liquidity and funding, and Pillar 3 Report balance sheet“ include certain audited financial information, which forms part of the consolidated financial statements. The The Pillar 3 Report provides detailed quantitative and Annual Reports also include the statutory financial statements qualitative information about risk, capital, leverage and of UBS Group AG, which are the basis for our appropriation liquidity for UBS Group and prudential key figures and of retained earnings and a potential distribution of dividends, regulatory information for UBS AG standalone, subject to shareholder approval at the Annual General UBS Switzerland AG standalone, UBS Europe SE consolidated Meeting. and UBS Americas Holding LLC consolidated. We provide our combined Annual Report, the Pillar 3 Report, standalone reports of significant group entities and the Sustainability Report as web disclosures at ubs.com/investors. Alternatively, we provide the QR code on the right for rapid access to the above-mentioned reports and further information on investor relations-related topics. Reimagining the power of investing. Connecting people for a better world. Connecting people It is about more than just us. It is about convening a global ecosystem that connects people and businesses to ideas, partners and opportunities – so they can achieve more together. For a better world It is about contributing, in both the short and long term, to a fairer society, a more prosperous economy and a healthier environment. What our purpose means for our stakeholders For clients, both existing and potential, it means that our focus is clear. They know who we are. They know what we stand for. They know what is important to us beyond traditional financing. And they know our promise: to deliver products and services that are personalized, relevant, on-time and seamless. For investors, it means there is clarity behind our decisions. All initiatives are aligned with our purpose and executed with discipline. For employees, it means that everyone – from those who advise clients, to those who research investments, to those who manage technology platforms – knows why we do what we do, and how they can contribute to our purpose and use it to drive decision making. For society, it means that our role is broader than finance. We act responsibly and are committed to our communities, to sustainability and to supporting the world in tackling its biggest challenges. ubs.com/purpose Our approach to long-term value creation As of or for the year ended 31 December 2021 What is put into the equation Input Financial capital • 15.0% common equity tier 1 (CET1) capital ratio • 4.24% CET1 leverage ratio • 5.7% going concern leverage ratio • USD 104.8 billion total loss-absorbing capacity • USD 45.3 billion CET1 capital Relationships and intellectual capital • 160 years of experience in banking • Presence in major financial centers worldwide • ~10% of our revenue (USD 3.9 billion) spent on technology in 2021 • Automation, simplification and digitalization of processes • Dedicated research, differentiated insight and content offerings, and bespoke solutions Human capital • 71,385 employees (FTE) in 50 countries • 9,363 new hires in 2021 (>1,700 in junior talent programs), and a workforce with an average of 8 years of service • 60% men, 40% women, with an aspiration for women to hold 30% of Director level and above roles by 2025 • A high-performing workforce driven to create positive impact for clients, colleagues, and their communities • A collaborative culture and inclusive work environment • Training and career development to help ensure employees are ready for a more agile future Social and natural capital • Committed to net zero across all operations (scope 1, 2 and 3 emissions) by 2050 • 221 employees (FTE) globally work in the field of sustainability and impact • UBS Optimus Foundation: a foundation that makes it possible to engage in impactful philanthropy, which is linked to a global wealth manager, the UBS Global Philanthropy Services team and several donor-advised fund entities • Sustainability and climate risks standards governing client and vendor relationships worldwide • An ISO 14001-certified environmental management system What we do Business Activities The results we deliver How our stakeholders beneﬁt The impact we create Purpose Reimagining the power of investing. Connecting people for a better world. Investors • USD 2.06 diluted earnings per share • 17.5% return on CET1 capital • USD 4,596 billion invested assets • 73.6% cost / income ratio Clients Client promise Personalized Relevant On-time Seamless Strategic imperatives Clients, Connections, Contributors Focus What we offer Wealth and asset management services, along with personal, corporate and investment banking capabilities Society and environment • USD 7.5 billion net profit attributable to shareholders • USD 0.50 proposed dividend per share for the 2021 financial year • Increased value for our investors through attractive risk-adjusted returns and sustainable performance, targeting cost- and capital-efﬁcient growth • USD 2.6 billion of our shares were bought back in 2021 • We intend to buy back up to USD 5 billion of shares by the end of 2022 • Streamlined and simplified interactions through digital tools and platforms, • Long-term relationships built on mutual trust and integrity such as UBS Neo, key4 and wealth management platforms • Access to tailored financial advice, solutions and services from around • A USD 4.6 trillion investment ecosystem, bringing thought leadership, products the globe; striving for attractive and risk-adjusted investment and investable solutions to individuals and businesses around the world performance • Partnership for a seamless client service accompanying clients all through their lives • Improved satisfaction through the offering of personalized, • Established procedures and policies to handle, process and incorporate feedback and any potential complaints • Providing high-quality execution, market access and liquidity, bespoke financing, global capital markets, and portfolio solutions, delivered as one firm and with selected external partners customized and relevant products and services, as well as highly appreciated and well-perceived support during the pandemic • Services accessible across various channels – traditionally through our branches, and also increasingly through our constantly evolving remote and digital offering • An outstanding value proposition for our clients – understanding their needs and expectations, focusing on convenience and personalization, and serving their best interests are at the heart of what we do • Securing a better future – we do this by providing funds to help ﬁnance the economic transition toward a more sustainable tomorrow • Bridging between generations – as an organization in constant evolution, we stay relevant by adapting to the emerging needs of future generations – striving and working toward being their trusted advisor of choice Employees countries survey scores in the UK • Numerous business and employer awards that highlight our innovative • Strong talent management processes mean employees can grow and • An inclusive culture where diversity in gender, race, ethnicity and other solutions and expertise develop, building satisfying careers factors is valued and appreciated • A commitment to equal pay, confirmed by equal salary certifications in multiple • Employee ﬂexibility, including hybrid work options, promotes engage- • Employees are sought-after talent as a result of our multi-faceted approach ment, increased productivity and commitment to talent development and learning • An engaged and committed workforce, as evidenced by regular feedback and • First wave of the Agile@UBS program that will transform how we work • Employees worldwide beneﬁt from working for a high-quality, responsible and increase our speed in ﬁnding solutions for clients employer • Women hold 26.7% of Director and above roles • Health and well-being initiatives foster resilience and ensure we • A workplace that offers ﬂexibility, career growth and holistic support for • Ethnic minorities hold 20.1% Director and above roles in the US and 21.3% employees’ health and well-being • >1 million learning activities build skills, digital and agile capabilities • Commitments to fair pay and people management ensure employees maintain a cohesive culture • Wide recognition as an employer of choice have equal opportunities to achieve success • USD 251 billion in sustainability-focus and impact investments (5.5% of total • 9.9% exposure to carbon-related assets of our total customer lending • Impact of our net-zero commitment • USD 11.6 billion private clients money in SDG-related impact investments • 92% total reduction of our greenhouse gas footprint from the 2004 bar and inspiring others to join invested assets) foundations are skills-based) • USD 59 million donated to local programs by UBS, including affiliated • 140,478 hours invested by UBS staff in community projects (54% of hours • USD 161 million donations raised by UBS Optimus Foundation in 2021 (including USD 14.7 million of matching funds donated by UBS) • 100% of electricity sourced from renewable energy exposure baseline year selected programs Foundation • Almost 680,000 young people and adults across the regions in which we operate benefited from strategic community investments • USD 108 million in grants by UBS Optimus Foundation to carefully • 4.6 million vulnerable people received support thanks to UBS Optimus • Setting standards across the industry, challenging ourselves to raise the • Contributing as a taxpayer and an employer • Within Switzerland, our size, scale and reputation contribute to economic stability and reliability • Supporting the transition to a low-carbon world • Helping clients and employees to maximize their philanthropic impact Our approach to long-term value creation As of or for the year ended 31 December 2021 What is put into the equation What we do The results we deliver How our stakeholders beneﬁt The impact we create Financial capital • 15.0% common equity tier 1 (CET1) capital ratio • 4.24% CET1 leverage ratio • 5.7% going concern leverage ratio • USD 104.8 billion total loss-absorbing capacity • USD 45.3 billion CET1 capital Relationships and intellectual capital • 160 years of experience in banking • Presence in major financial centers worldwide • ~10% of our revenue (USD 3.9 billion) spent on technology in 2021 • Automation, simplification and digitalization of processes • Dedicated research, differentiated insight and content offerings, and bespoke solutions Human capital • 71,385 employees (FTE) in 50 countries • 9,363 new hires in 2021 (>1,700 in junior talent programs), and a workforce with an average of 8 years of service • 60% men, 40% women, with an aspiration for women to hold 30% of Director level and above roles by 2025 • A high-performing workforce driven to create positive impact for clients, colleagues, and their communities • A collaborative culture and inclusive work environment • Training and career development to help ensure employees are ready for a more agile future Social and natural capital • Committed to net zero across all operations (scope 1, 2 and 3 emissions) by 2050 • 221 employees (FTE) globally work in the field of sustainability and impact • UBS Optimus Foundation: a foundation that makes it possible to engage in impactful philanthropy, which is linked to a global wealth manager, the UBS Global Philanthropy Services team and several donor-advised fund entities relationships worldwide • Sustainability and climate risks standards governing client and vendor • An ISO 14001-certified environmental management system Output Investors Purpose Reimagining the power of investing. Connecting people for a better world. Vision Convene THE global ecosystem for investing where thought leadership is impactful, people and ideas are connected, and opportunities are brought to life. Technology Simplification & Efficiency Culture • USD 7.5 billion net profit attributable to shareholders • USD 0.50 proposed dividend per share for the 2021 financial year • Increased value for our investors through attractive risk-adjusted returns • USD 2.06 diluted earnings per share • 17.5% return on CET1 capital • USD 4,596 billion invested assets • 73.6% cost / income ratio Clients • USD 2.6 billion of our shares were bought back in 2021 • We intend to buy back up to USD 5 billion of shares by the end of 2022 and sustainable performance, targeting cost- and capital-efﬁcient growth • Streamlined and simplified interactions through digital tools and platforms, • Long-term relationships built on mutual trust and integrity such as UBS Neo, key4 and wealth management platforms • Access to tailored financial advice, solutions and services from around • A USD 4.6 trillion investment ecosystem, bringing thought leadership, products the globe; striving for attractive and risk-adjusted investment and investable solutions to individuals and businesses around the world performance • Partnership for a seamless client service accompanying clients all through their lives • Improved satisfaction through the offering of personalized, • Established procedures and policies to handle, process and incorporate feedback and any potential complaints • Providing high-quality execution, market access and liquidity, bespoke financing, global capital markets, and portfolio solutions, delivered as one firm and with selected external partners customized and relevant products and services, as well as highly appreciated and well-perceived support during the pandemic • Services accessible across various channels – traditionally through our branches, and also increasingly through our constantly evolving remote and digital offering • An outstanding value proposition for our clients – understanding their needs and expectations, focusing on convenience and personalization, and serving their best interests are at the heart of what we do • Securing a better future – we do this by providing funds to help ﬁnance the economic transition toward a more sustainable tomorrow • Bridging between generations – as an organization in constant evolution, we stay relevant by adapting to the emerging needs of future generations – striving and working toward being their trusted advisor of choice Employees • Numerous business and employer awards that highlight our innovative • Strong talent management processes mean employees can grow and • An inclusive culture where diversity in gender, race, ethnicity and other solutions and expertise develop, building satisfying careers factors is valued and appreciated • A commitment to equal pay, confirmed by equal salary certifications in multiple • Employee ﬂexibility, including hybrid work options, promotes engage- • Employees are sought-after talent as a result of our multi-faceted approach countries ment, increased productivity and commitment to talent development and learning • An engaged and committed workforce, as evidenced by regular feedback and • First wave of the Agile@UBS program that will transform how we work • Employees worldwide beneﬁt from working for a high-quality, responsible survey scores and increase our speed in ﬁnding solutions for clients employer • Women hold 26.7% of Director and above roles • Health and well-being initiatives foster resilience and ensure we • A workplace that offers ﬂexibility, career growth and holistic support for • Ethnic minorities hold 20.1% Director and above roles in the US and 21.3% in the UK maintain a cohesive culture • Wide recognition as an employer of choice employees’ health and well-being • >1 million learning activities build skills, digital and agile capabilities • Commitments to fair pay and people management ensure employees have equal opportunities to achieve success Wealth and asset management services, along with personal, corporate and investment banking capabilities Society and environment • USD 251 billion in sustainability-focus and impact investments (5.5% of total • 9.9% exposure to carbon-related assets of our total customer lending • Impact of our net-zero commitment invested assets) • USD 11.6 billion private clients money in SDG-related impact investments • 92% total reduction of our greenhouse gas footprint from the 2004 bar and inspiring others to join • USD 59 million donated to local programs by UBS, including affiliated foundations • 140,478 hours invested by UBS staff in community projects (54% of hours are skills-based) • USD 161 million donations raised by UBS Optimus Foundation in 2021 (including USD 14.7 million of matching funds donated by UBS) • 100% of electricity sourced from renewable energy exposure baseline year selected programs Foundation • Almost 680,000 young people and adults across the regions in which we operate benefited from strategic community investments • USD 108 million in grants by UBS Optimus Foundation to carefully • 4.6 million vulnerable people received support thanks to UBS Optimus • Setting standards across the industry, challenging ourselves to raise the • Contributing as a taxpayer and an employer • Within Switzerland, our size, scale and reputation contribute to economic stability and reliability • Supporting the transition to a low-carbon world • Helping clients and employees to maximize their philanthropic impact Our approach to long-term value creation As of or for the year ended 31 December 2021 What is put into the equation What we do The results we deliver How our stakeholders beneﬁt The impact we create Outcome Impact Financial capital • 15.0% common equity tier 1 (CET1) capital ratio • 4.24% CET1 leverage ratio • 5.7% going concern leverage ratio • USD 104.8 billion total loss-absorbing capacity • USD 45.3 billion CET1 capital Relationships and intellectual capital • 160 years of experience in banking • Presence in major financial centers worldwide • ~10% of our revenue (USD 3.9 billion) spent on technology in 2021 • Automation, simplification and digitalization of processes • Dedicated research, differentiated insight and content offerings, and bespoke solutions Human capital • 71,385 employees (FTE) in 50 countries • 9,363 new hires in 2021 (>1,700 in junior talent programs), and a workforce with an average of 8 years of service • 60% men, 40% women, with an aspiration for women to hold 30% of Director level and above roles by 2025 • A high-performing workforce driven to create positive impact for clients, colleagues, and their communities • A collaborative culture and inclusive work environment • Training and career development to help ensure employees are ready for a more agile future Social and natural capital • Committed to net zero across all operations (scope 1, 2 and 3 emissions) by 2050 • 221 employees (FTE) globally work in the field of sustainability and impact • UBS Optimus Foundation: a foundation that makes it possible to engage in impactful philanthropy, which is linked to a global wealth manager, the UBS Global Philanthropy Services team and several donor-advised fund entities relationships worldwide • Sustainability and climate risks standards governing client and vendor • An ISO 14001-certified environmental management system Investors • USD 2.06 diluted earnings per share • 17.5% return on CET1 capital • USD 4,596 billion invested assets • 73.6% cost / income ratio Clients Employees countries survey scores in the UK invested assets) foundations are skills-based) Society and environment • USD 7.5 billion net profit attributable to shareholders • USD 0.50 proposed dividend per share for the 2021 financial year • USD 2.6 billion of our shares were bought back in 2021 • We intend to buy back up to USD 5 billion of shares by the end of 2022 • Increased value for our investors through attractive risk-adjusted returns and sustainable performance, targeting cost- and capital-efﬁcient growth • Streamlined and simplified interactions through digital tools and platforms, • Long-term relationships built on mutual trust and integrity such as UBS Neo, key4 and wealth management platforms • Access to tailored financial advice, solutions and services from around • A USD 4.6 trillion investment ecosystem, bringing thought leadership, products and investable solutions to individuals and businesses around the world the globe; striving for attractive and risk-adjusted investment performance • Partnership for a seamless client service accompanying clients all through their lives • Improved satisfaction through the offering of personalized, • Established procedures and policies to handle, process and incorporate feedback and any potential complaints • Providing high-quality execution, market access and liquidity, bespoke financing, global capital markets, and portfolio solutions, delivered as one firm and with selected external partners customized and relevant products and services, as well as highly appreciated and well-perceived support during the pandemic • Services accessible across various channels – traditionally through our branches, and also increasingly through our constantly evolving remote and digital offering • An outstanding value proposition for our clients – understanding their needs and expectations, focusing on convenience and personalization, and serving their best interests are at the heart of what we do • Securing a better future – we do this by providing funds to help ﬁnance the economic transition toward a more sustainable tomorrow • Bridging between generations – as an organization in constant evolution, we stay relevant by adapting to the emerging needs of future generations – striving and working toward being their trusted advisor of choice • Numerous business and employer awards that highlight our innovative • Strong talent management processes mean employees can grow and • An inclusive culture where diversity in gender, race, ethnicity and other solutions and expertise develop, building satisfying careers factors is valued and appreciated • A commitment to equal pay, confirmed by equal salary certifications in multiple • Employee ﬂexibility, including hybrid work options, promotes engage- • Employees are sought-after talent as a result of our multi-faceted approach ment, increased productivity and commitment to talent development and learning • An engaged and committed workforce, as evidenced by regular feedback and • First wave of the Agile@UBS program that will transform how we work • Employees worldwide beneﬁt from working for a high-quality, responsible and increase our speed in ﬁnding solutions for clients employer • Women hold 26.7% of Director and above roles • Health and well-being initiatives foster resilience and ensure we • A workplace that offers ﬂexibility, career growth and holistic support for • Ethnic minorities hold 20.1% Director and above roles in the US and 21.3% maintain a cohesive culture • Wide recognition as an employer of choice employees’ health and well-being • >1 million learning activities build skills, digital and agile capabilities • Commitments to fair pay and people management ensure employees have equal opportunities to achieve success • USD 251 billion in sustainability-focus and impact investments (5.5% of total • 9.9% exposure to carbon-related assets of our total customer lending • Impact of our net-zero commitment exposure • Setting standards across the industry, challenging ourselves to raise the • USD 11.6 billion private clients money in SDG-related impact investments • 92% total reduction of our greenhouse gas footprint from the 2004 bar and inspiring others to join • USD 59 million donated to local programs by UBS, including affiliated baseline year • 140,478 hours invested by UBS staff in community projects (54% of hours • USD 161 million donations raised by UBS Optimus Foundation in 2021 (including USD 14.7 million of matching funds donated by UBS) • 100% of electricity sourced from renewable energy • Almost 680,000 young people and adults across the regions in which we operate benefited from strategic community investments • USD 108 million in grants by UBS Optimus Foundation to carefully selected programs • 4.6 million vulnerable people received support thanks to UBS Optimus Foundation • Contributing as a taxpayer and an employer • Within Switzerland, our size, scale and reputation contribute to economic stability and reliability • Supporting the transition to a low-carbon world • Helping clients and employees to maximize their philanthropic impact Contents Letter to shareholders 2 7 Highlights of the 2021 financial year 8 Our key figures 10 Our Board of Directors 12 Our Group Executive Board 14 Our evolution 4 Corporate governance and compensation 184 Corporate governance 222 Compensation 1 Our strategy, business model and environment 5 Financial statements 268 Consolidated financial statements 403 Standalone financial statements 6 Significant regulated subsidiary and sub- group information 426 Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups A Appendix 430 Alternative performance measures 433 Abbreviations frequently used in our financial reports 436 437 Cautionary statement Information sources Targets, aspirations and capital guidance 16 Our strategy 20 21 Our businesses 33 Our environment 38 How we create value for our stakeholders 56 Regulation and supervision Regulatory and legal developments Risk factors 59 63 2 Financial and operating performance Personal & Corporate Banking 76 Accounting and financial reporting 77 Group performance 84 Global Wealth Management 87 90 Asset Management Investment Bank 92 94 Group Functions 95 Selected financial information of our business divisions and Group Functions 3 Risk, capital, liquidity and funding, and balance sheet Risk management and control 98 150 Capital, liquidity and funding, and balance sheet Annual Report 2021 | Letter to shareholders Dear shareholders, 2021 was the second year shaped by the pandemic, which challenged and affected every aspect of society – from healthcare to economics, to politics, to human interactions. UBS’s performance in 2021 speaks to our resilience, our progress and our future path. In 2022 we intend to continue making progress on our strategic goals, and we remain dedicated to our clients, shareholders, employees and society. We are working to The current geopolitical situation has led to heightened volatility across global markets. We are shocked by the violence and tragedy caused by Russia’s invasion of Ukraine. Our hearts go out to those affected and those who are suffering. implement sanctions imposed by Switzerland, the US, the EU, the UK and others – all of which have announced unprecedented levels of sanctions against Russia and certain Russian entities and nationals. These events, together with counter-sanctions and other measures taken by Russia, will have ongoing effects on the markets and the global economy. 2021 backdrop and our financial performance Despite the continuing pandemic, market conditions were constructive in 2021, with positive investor sentiment throughout the year. Growth rebounded, with the global economy expanding 6.1% after contracting 3.1% in 2020. Global equities delivered total returns of 18.5%. Economic, social and geopolitical tensions increased during the year, raising questions around the sustainability and shape of the recovery. The pandemic adversely impacted certain economic sectors, while supply chains and labor markets remained challenging. A potential resurgence in global inflation and tight labor markets in many countries could lead to more restrictive monetary policy, and this has become an additional concern for the market. Within this environment, we delivered a strong financial performance in 2021. We had the highest pre-tax and net profit in 15 years, a 17.5% return on CET1 capital and a 14.1% return on tangible equity. We maintained our cost / income ratio under 74%, which is in line with 2020 and more than six percentage points better than the two years before that. For the second year in a row, we exceeded all our targets, with all regions and businesses contributing to our performance. We deepened our relationships with clients, resulting in high levels of activity and strong flows across all our segments. This business momentum led to our highest revenues in over a decade. Our results included two exceptional items. The first item is a loss of USD 861 million that we incurred in the first half of 2021 on the default of a US-based client of our prime brokerage business. We have conducted a thorough review, we have put in place appropriate measures to strengthen our relevant risk management processes, and we have reflected the matter in our annual performance assessment and compensation processes. The second item occurred in the fourth quarter of 2021, when we took additional provisions of EUR 650 million, bringing the total to EUR 1.1 billion for the French cross-border matter. As announced in December 2021, we have filed an appeal with the 2 2 French Supreme Court regarding the decision of the Court of Appeal. This enables us to thoroughly assess the verdict of the Court of Appeal and to determine the next steps in the best interests of our stakeholders. Our purpose and strategic direction In 2021, we reconfirmed and continued to implement our strategy. Last April, we introduced our purpose “Reimagining the power of investing. Connecting people for a better world,” which unites all of UBS behind a common goal. It´s the starting point for every strategic decision; it will shape our future, help us capture opportunities and allow us to grow from our already strong position. Our vision is to convene THE global ecosystem for investing: where thought leadership is impactful, people and ideas are connected, and opportunities are brought to life. In order to achieve this vision, we identified five strategic imperatives: (i) supporting, growing and aligning our network of clients, connections and contributors; (ii) increasing our focus by playing where we are positioned to win; (iii) enabling technology and making it our differentiator; (iv) becoming simpler and more efficient so it is easier for our clients to bank with us; and (v) mobilizing employees behind our vision and acting as one firm. Supporting clients, society and employees We retained our clients’ trust as they continued to turn to us for our content, advice and solutions. This resulted in USD 107 billion in net new fee-generating assets in wealth management and USD 48 billion of net new money in Asset Management. We also helped clients finance businesses, homes and other liquidity needs by extending USD 28 billion of net new loans to clients across wealth management and personal banking. We now manage over USD 4.6 trillion in assets on behalf of our clients. And we increased our philanthropic activities, both with and for clients and as a firm. At UBS, we are committed to supporting the communities in which we work, to understand the issues they face, and develop long-term partnerships to catalyze positive change in people’s lives. We focus our efforts on social inequalities by supporting education and skills development as areas where we can drive sustainable change. We also enable our employees to support their communities through volunteering by partnering with organizations such as Powercoders in Switzerland, which trains refugees in computer science and information technology skills. The pandemic meant we continued to provide COVID-19 relief to the most vulnerable in 2021, including recovery and rebuilding efforts through our community partners. Currently, to help victims of the war in Ukraine, UBS Optimus Foundation and our Community Impact teams are providing emergency relief to refugees through the International Rescue Committee and are matching the first USD 5 million of donations from employees and clients, creating a combined impact of USD 10 million. Annual Report 2021 | Letter to shareholders Dear shareholders, 2021 was the second year shaped by the pandemic, which French Supreme Court regarding the decision of the Court of challenged and affected every aspect of society – from healthcare Appeal. This enables us to thoroughly assess the verdict of the to economics, to politics, to human interactions. UBS’s Court of Appeal and to determine the next steps in the best performance in 2021 speaks to our resilience, our progress and interests of our stakeholders. our future path. In 2022 we intend to continue making progress on our strategic goals, and we remain dedicated to our clients, Our purpose and strategic direction shareholders, employees and society. The current geopolitical situation has led to heightened In 2021, we reconfirmed and continued to implement our volatility across global markets. We are shocked by the violence strategy. Last April, we introduced our purpose “Reimagining the and tragedy caused by Russia’s invasion of Ukraine. Our hearts go power of investing. Connecting people for a better world,” which out to those affected and those who are suffering. unites all of UBS behind a common goal. It´s the starting point for We are working to implement sanctions imposed by every strategic decision; it will shape our future, help us capture Switzerland, the US, the EU, the UK and others – all of which have opportunities and allow us to grow from our already strong announced unprecedented levels of sanctions against Russia and position. certain Russian entities and nationals. These events, together with Our vision is to convene THE global ecosystem for investing: counter-sanctions and other measures taken by Russia, will have where thought leadership is impactful, people and ideas are ongoing effects on the markets and the global economy. connected, and opportunities are brought to life. In order to 2021 backdrop and our financial performance achieve this vision, we identified five strategic imperatives: (i) supporting, growing and aligning our network of clients, connections and contributors; (ii) increasing our focus by playing Despite the continuing pandemic, market conditions were where we are positioned to win; (iii) enabling technology and constructive in 2021, with positive investor sentiment throughout making it our differentiator; (iv) becoming simpler and more the year. Growth rebounded, with the global economy expanding efficient so it is easier for our clients to bank with us; and 6.1% after contracting 3.1% in 2020. Global equities delivered (v) mobilizing employees behind our vision and acting as one firm. total returns of 18.5%. Economic, social and geopolitical tensions increased during the year, raising questions around the Supporting clients, society and employees sustainability and shape of the recovery. The pandemic adversely impacted certain economic sectors, while supply chains and labor We retained our clients’ trust as they continued to turn to us for markets remained challenging. A potential resurgence in global our content, advice and solutions. This resulted in USD 107 billion inflation and tight labor markets in many countries could lead to in net new fee-generating assets in wealth management and more restrictive monetary policy, and this has become an USD 48 billion of net new money in Asset Management. We also additional concern for the market. helped clients finance businesses, homes and other liquidity needs Within this environment, we delivered a strong financial by extending USD 28 billion of net new loans to clients across performance in 2021. We had the highest pre-tax and net profit wealth management and personal banking. We now manage in 15 years, a 17.5% return on CET1 capital and a 14.1% return over USD 4.6 trillion in assets on behalf of our clients. And we on tangible equity. We maintained our cost / income ratio under increased our philanthropic activities, both with and for clients 74%, which is in line with 2020 and more than six percentage and as a firm. points better than the two years before that. For the second year At UBS, we are committed to supporting the communities in in a row, we exceeded all our targets, with all regions and which we work, to understand the issues they face, and develop businesses contributing to our performance. We deepened our long-term partnerships to catalyze positive change in people’s relationships with clients, resulting in high levels of activity and lives. We focus our efforts on social inequalities by supporting strong flows across all our segments. This business momentum education and skills development as areas where we can drive led to our highest revenues in over a decade. sustainable change. We also enable our employees to support Our results included two exceptional items. The first item is a their communities through volunteering by partnering with loss of USD 861 million that we incurred in the first half of 2021 organizations such as Powercoders in Switzerland, which trains on the default of a US-based client of our prime brokerage refugees in computer science and information technology skills. business. We have conducted a thorough review, we have put in The pandemic meant we continued to provide COVID-19 relief to place appropriate measures to strengthen our relevant risk the most vulnerable in 2021, including recovery and rebuilding management processes, and we have reflected the matter in our efforts through our community partners. Currently, to help annual performance assessment and compensation processes. victims of the war in Ukraine, UBS Optimus Foundation and our The second item occurred in the fourth quarter of 2021, when we Community Impact teams are providing emergency relief to took additional provisions of EUR 650 million, bringing the total refugees through the International Rescue Committee and are to EUR 1.1 billion for the French cross-border matter. As matching the first USD 5 million of donations from employees and announced in December 2021, we have filed an appeal with the clients, creating a combined impact of USD 10 million. Axel A. Weber Chairman of the Board of Directors Ralph A.J.G. Hamers Group Chief Executive Officer Due to the ongoing pressure placed on employees by closures, restrictions and lockdowns, we implemented new ways to help employees through these difficult times. We offered tools and resources to support employees’ physical, mental and social well- being, and provided extra flexibility for child and elderly care. As a result of our experience during the pandemic, we are developing more permanent ways of flexible working for our employees, while supporting a safe return to our offices as economies reopen. We believe a hybrid approach will support a better work / life balance and make us a more attractive employer, appealing to a more diverse pool of applicants, such as working parents, caregivers and those in continuing education. Moreover, flexible working, by the nature of its emphasis on technology and virtual collaboration, encourages an innovative mindset across our firm – which is a big part of our strategy. In addition, we are reshaping our future real estate footprint, reducing the number of buildings and square meters we occupy, while also investing in our locations to reimagine our workplace and support our sustainability ambitions. Capturing growth opportunities After introducing our purpose and strategy on a page, we took steps to ensure UBS is well positioned to capture the areas we see as having the greatest growth potential. For example, regionally, we expect most wealth will be created in the US and Asia Pacific. As a result, we have identified these as key growth markets and we have prioritized investments in those regions. EMEA continues to be a core region for us and important to our global footprint, and a region where we can improve profitability and drive focused growth. And in Switzerland, we are further building on our position as a digital leader. Affluent clients and entrepreneurs are expected to generate high revenue growth. So we are also expanding into new segments to reach a much broader set of clients. Our plans to acquire Wealthfront, announced in January 2022, will help us deliver a digital wealth management offering to Millennial and Gen Z affluent investors in the US, allow us to expand our wallet share, lower the cost to serve and drive long-term growth. Technology plays a large part in how we grow and deliver the personalized, relevant, on-time and seamless services that clients expect. That is why we are further investing in digitalization, including artificial intelligence, data and analytics – areas we have already been building up for years. We will digitalize what can be made digital and become more agile to deliver faster. While not increasing our total expenditure on technology, we are increasing the amount we spend on our strategic priorities. Our aim is to deliver around USD 1 billion in-year gross cost saves by 2023 in order to fund our growth initiatives. Leading in sustainability – our path to Net Zero Over the years, UBS has established itself as a recognized leader for sustainability in the financial sector. Recent ratings such as the Dow Jones Sustainability Index and CDP have reconfirmed this. To maximize impact and direct capital to where it is needed most, we focus on three areas: (i) Planet, where we are making climate a clear priority as we shift toward a lower carbon future; (ii) People, where we are taking action, both within our own workplace and within wider society, to promote a diverse, equitable and inclusive society; and (iii) Partnerships, where we are uniting with others and bringing people together around common goals to achieve greater impact. To meet our impact goals, we started assigning all Group Executive Board members environmental, social and governance (ESG)-related objectives in 2021. Sustainability is not just something we focus on because we think it is the right thing to do. We also have a duty: to help private clients protect and grow their wealth, to help firms transition to sustainable ways of doing business, to ensure clients’ long-term success and to support them in fulfilling their responsibility to society. We strongly believe that this is the best way to remain profitable and attractive to clients, investors and talent in the long term. We are seeing an ever-increasing demand in sustainable investing – invested assets in sustainability-focus and impact strategies increased 78% in 2021 – and we will continue to meet this need by growing our offering. 2 3 3 Our capital returns today and in the future Reflecting the step-up in profitability, we are proposing to increase the dividend to USD 0.50 per share for the 2021 financial year, and to have a progressive cash dividend thereafter. Additional excess capital will be used to buy back our shares, and we repurchased USD 2.6 billion of shares in 2021. Given our strong capital position, we are looking to repurchase up to USD 5 billion in 2022. Proposed elections to the Board of Directors Axel A. Weber is reaching the ten-year term limit set in our Organization Regulations as the Chairman of the Board and will therefore be stepping down in April 2022. On 20 November 2021, the Board of Directors of UBS Group AG announced that it will nominate Colm Kelleher as the new Chairman and Lukas Gähwiler as the new Vice Chairman for election to the Board at the AGM on 6 April 2022. Virtual AGM in 2022 To protect the health of shareholders and employees, in light of the COVID-19 pandemic and continued uncertainty, the Board of Directors has decided that the 2022 AGM will be held as a webcast. As such, it will not be possible to physically attend the AGM. Nevertheless, we look forward to your feedback and to welcoming you to this year’s virtual AGM on 6 April. Thank you for your ongoing support. Yours sincerely, Axel A. Weber Chairman of the Board of Directors Ralph A.J.G. Hamers Group Chief Executive Officer Annual Report 2021 | Letter to shareholders In 2021, we published our Net-Zero and Beyond statement, which sets out our commitment to transition our firm to net zero and help our clients meet their transition targets by 2050. We have developed and are transparently disclosing a climate road map with intermediate targets for 2025, 2030 and 2035. The “Say-on-Climate” advisory vote at the upcoming Annual General Meeting (the AGM) is a key milestone on our journey to net zero, reflecting our commitment to our shareholders having their say on our firm’s climate roadmap. Furthermore, we strongly believe in cross-company and cross-industry collaboration when it comes to achieving net zero. As such, we are a founding member of both the Net Zero Asset Managers Initiative and the Net-Zero Banking Alliance. Updated targets and ambitions to create value across stakeholders We are aiming to create sustainable value through the cycle. Reflecting our improved operating performance over the last two years, we updated our financial targets and kept our capital guidance unchanged, including deploying up to one-third of Group ratio denominator (LRD) in the Investment Bank. In addition, we outlined selected commercial and ESG aspirations to support the achievement of these targets. risk-weighted assets (RWA) and leverage First, for society at large, we are committed to building a better world through our sustainability focus and the numerous commitments you can find in our 2021 Annual and Sustainability Reports. For example, we aim to reach net-zero emissions across our business by 2050 and net-zero emissions resulting from our own operations by 2025. We will also help our clients do good, as we aspire to raise USD 1 billion in philanthropy assets to reach 25 million beneficiaries and we are targeting USD 400 billion in sustainability-focus and impact investments by 2025. Second, for our clients, we will assess how we are doing through our commercial aspirations. We are optimistic that we can maintain growth rates from net new fee-generating assets of 5% and above over the cycle. As a result, we aspire to surpass USD 5 trillion, and then USD 6 trillion, in invested assets as clients entrust us with managing their investments. And third, we are targeting a 15–18% return on CET1 capital. This is significantly higher than our previous target range and reflects the progress we have made over the last two years. To consistently achieve this, we are targeting a cost / income ratio of 70–73%. We have ambitious growth plans across our franchise and are retaining our target to grow profits in global wealth management by 10–15% over the cycle. 4 4 Annual Report 2021 | Letter to shareholders In 2021, we published our Net-Zero and Beyond statement, Our capital returns today and in the future which sets out our commitment to transition our firm to net zero and help our clients meet their transition targets by 2050. We Reflecting the step-up in profitability, we are proposing to have developed and are transparently disclosing a climate road increase the dividend to USD 0.50 per share for the 2021 financial map with intermediate targets for 2025, 2030 and 2035. The year, and to have a progressive cash dividend thereafter. “Say-on-Climate” advisory vote at the upcoming Annual General Additional excess capital will be used to buy back our shares, and Meeting (the AGM) is a key milestone on our journey to net zero, we repurchased USD 2.6 billion of shares in 2021. Given our reflecting our commitment to our shareholders having their say strong capital position, we are looking to repurchase up to USD 5 on our firm’s climate roadmap. Furthermore, we strongly believe billion in 2022. in cross-company and cross-industry collaboration when it comes to achieving net zero. As such, we are a founding member of both Proposed elections to the Board of Directors the Net Zero Asset Managers Initiative and the Net-Zero Banking Alliance. stakeholders Updated targets and ambitions to create value across therefore be stepping down in April 2022. On 20 November Axel A. Weber is reaching the ten-year term limit set in our Organization Regulations as the Chairman of the Board and will 2021, the Board of Directors of UBS Group AG announced that it will nominate Colm Kelleher as the new Chairman and Lukas We are aiming to create sustainable value through the cycle. Gähwiler as the new Vice Chairman for election to the Board at Reflecting our improved operating performance over the last two the AGM on 6 April 2022. years, we updated our financial targets and kept our capital guidance unchanged, including deploying up to one-third of Virtual AGM in 2022 Group risk-weighted assets (RWA) and leverage ratio denominator (LRD) in the Investment Bank. In addition, we To protect the health of shareholders and employees, in light of outlined selected commercial and ESG aspirations to support the the COVID-19 pandemic and continued uncertainty, the Board of achievement of these targets. Directors has decided that the 2022 AGM will be held as a First, for society at large, we are committed to building a better webcast. As such, it will not be possible to physically attend the world through our sustainability focus and the numerous AGM. Nevertheless, we look forward to your feedback and to commitments you can find in our 2021 Annual and Sustainability welcoming you to this year’s virtual AGM on 6 April. Reports. For example, we aim to reach net-zero emissions across our business by 2050 and net-zero emissions resulting from our Thank you for your ongoing support. can maintain growth rates from net new fee-generating assets of Yours sincerely, own operations by 2025. We will also help our clients do good, as we aspire to raise USD 1 billion in philanthropy assets to reach 25 million beneficiaries and we are targeting USD 400 billion in sustainability-focus and impact investments by 2025. Second, for our clients, we will assess how we are doing through our commercial aspirations. We are optimistic that we 5% and above over the cycle. As a result, we aspire to surpass USD 5 trillion, and then USD 6 trillion, in invested assets as clients entrust us with managing their investments. And third, we are targeting a 15–18% return on CET1 capital. This is significantly higher than our previous target range and reflects the progress we have made over the last two years. To consistently achieve this, we are targeting a cost / income ratio of 70–73%. We have ambitious growth plans across our franchise and are retaining our target to grow profits in global wealth management by 10–15% over the cycle. Axel A. Weber Chairman of the Board of Directors Ralph A.J.G. Hamers Group Chief Executive Officer 4 5 Corporate information UBS Group AG is incorporated and domiciled in Switzerland and operates under Art. 620ff. of the Swiss Code of Obligations as an Aktiengesellschaft, a corporation limited by shares. Its registered office is at Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, telephone +41-44-234 11 11, and its corporate identification number is CHE-395.345.924. UBS Group AG was incorporated on 10 June 2014 and was established in 2014 as the holding company of the UBS Group. UBS Group AG shares are listed on the SIX Swiss Exchange and on the New York Stock Exchange (ISIN: CH0244767585; CUSIP: H42097107). UBS Group AG owns 100% of the outstanding shares of UBS AG. Contacts Switchboards For all general inquiries ubs.com/contact Zurich +41-44-234 1111 London +44-207-567 8000 New York +1-212-821 3000 Hong Kong SAR +852-2971 8888 Singapore +65-6495 8000 Investor Relations UBS’s Investor Relations team manages relationships with institutional investors, research analysts and credit rating agencies. ubs.com/investors Zurich +41-44-234 4100 New York +1-212-882 5734 Media Relations UBS’s Media Relations team manages relationships with global media and journalists. ubs.com/media Zurich +41-44-234 8500 mediarelations@ubs.com London +44-20-7567 4714 ubs-media-relations@ubs.com New York +1-212-882 5858 mediarelations@ubs.com Hong Kong SAR +852-2971 8200 sh-mediarelations-ap@ubs.com Office of the Group Company Secretary The Group Company Secretary handles inquiries directed to the Chairman or to other members of the Board of Directors. UBS Group AG, Office of the Group Company Secretary P.O. Box, CH-8098 Zurich, Switzerland sh-company-secretary@ubs.com Zurich +41-44-235 6652 Shareholder Services UBS’s Shareholder Services team, a unit of the Group Company Secretary’s office, manages relationships with shareholders and the registration of UBS Group AG registered shares. UBS Group AG, Shareholder Services P.O. Box, CH-8098 Zurich, Switzerland sh-shareholder-services@ubs.com Zurich +41-44-235 6652 US Transfer Agent For global registered share-related inquiries in the US. Computershare Trust Company NA P.O. Box 505000 Louisville, KY 40233-5000, USA Shareholder online inquiries: www-us.computershare.com/ investor/contact Shareholder website: computershare.com/investor Calls from the US +1-866-305-9566 Calls from outside the US +1-781-575-2623 TDD for hearing impaired +1-800-231-5469 TDD for foreign shareholders +1-201-680-6610 Corporate calendar UBS Group AG Imprint Publication of the Sustainability Report 2021: Friday, 11 March 2022 Publisher: UBS Group AG, Zurich, Switzerland | ubs.com Annual General Meeting 2022 (webcast): Wednesday, 6 April 2022 Language: English / German | SAP-No. 80531E Publication of the first quarter 2022 report: Tuesday, 26 April 2022 Publication of the second quarter 2022 report: Tuesday, 26 July 2022 Publication of the third quarter 2022 report: Tuesday, 25 October 2022 © UBS 2022. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks. Paper production from socially responsible and ecologically sound forestry practices. 6 6 Corporate information UBS Group AG is incorporated and domiciled in Switzerland and operates under Art. 620ff. of the Swiss Code of Obligations as an Aktiengesellschaft, a corporation limited by shares. Its registered office is at Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, telephone +41-44-234 11 11, and its corporate identification number is CHE-395.345.924. UBS Group AG was incorporated on 10 June 2014 and was established in 2014 as the holding company of the UBS Group. UBS Group AG shares are listed on the SIX Swiss Exchange and on the New York Stock Exchange (ISIN: CH0244767585; CUSIP: H42097107). UBS Group AG owns 100% of the outstanding shares of UBS AG. Contacts Switchboards For all general inquiries ubs.com/contact Zurich +41-44-234 1111 London +44-207-567 8000 New York +1-212-821 3000 Hong Kong SAR +852-2971 8888 Singapore +65-6495 8000 Investor Relations UBS’s Investor Relations team manages relationships with institutional investors, research analysts and credit rating agencies. ubs.com/investors Zurich +41-44-234 4100 New York +1-212-882 5734 Media Relations UBS’s Media Relations team manages relationships with global media and journalists. ubs.com/media Zurich +41-44-234 8500 mediarelations@ubs.com London +44-20-7567 4714 ubs-media-relations@ubs.com New York +1-212-882 5858 mediarelations@ubs.com Hong Kong SAR +852-2971 8200 sh-mediarelations-ap@ubs.com Office of the Group Company Secretary The Group Company Secretary handles inquiries directed to the Chairman or to other members of the Board of Directors. UBS Group AG, Office of the Group Company Secretary P.O. Box, CH-8098 Zurich, Switzerland sh-company-secretary@ubs.com Zurich +41-44-235 6652 Shareholder Services UBS’s Shareholder Services team, a unit of the Group Company Secretary’s office, manages relationships with shareholders and the registration of UBS Group AG registered shares. UBS Group AG, Shareholder Services P.O. Box, CH-8098 Zurich, Switzerland sh-shareholder-services@ubs.com Zurich +41-44-235 6652 US Transfer Agent For global registered share-related inquiries in the US. Computershare Trust Company NA P.O. Box 505000 Louisville, KY 40233-5000, USA Shareholder online inquiries: www-us.computershare.com/ investor/contact Shareholder website: computershare.com/investor Calls from the US +1-866-305-9566 Calls from outside the US +1-781-575-2623 TDD for hearing impaired +1-800-231-5469 TDD for foreign shareholders +1-201-680-6610 Corporate calendar UBS Group AG Imprint Publication of the Sustainability Report 2021: Friday, 11 March 2022 Publisher: UBS Group AG, Zurich, Switzerland | ubs.com Annual General Meeting 2022 (webcast): Wednesday, 6 April 2022 Language: English / German | SAP-No. 80531E Publication of the first quarter 2022 report: Tuesday, 26 April 2022 Publication of the second quarter 2022 report: Tuesday, 26 July 2022 Publication of the third quarter 2022 report: Tuesday, 25 October 2022 © UBS 2022. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks. Paper production from socially responsible and ecologically sound forestry practices. Highlights of the 2021 financial year We demonstrated a strong performance across our business units and geographical regions throughout the 2021 financial year. Group results Resources Profitability USD billion 7.5 Net profit attributable to shareholders USD trillion 1.1 Total assets % 17.5 Return on common equity tier 1 capital (2020: USD 6.6 billion) (2020: USD 1.1 trillion) (2020: 17.4%) USD 2.06 Diluted earnings per share USD billion 60.7 Equity attributable to shareholders % 14.1 Return on tangible equity (2020: USD 1.77) (2020: USD 59.4 billion) (2020: 12.8%) 6 7 Annual Report 2021 Our key figures As of or for the year ended 31.12.191 3311..1122..2211 31.12.20 28,889 23,312 5,577 4,304 1.14 3355,,554422 2266,,005588 99,,448844 77,,445577 22..0066 32,390 24,235 8,155 6,557 1.77 11.3 12.8 17.4 11.7 3.4 73.3 19.4 52.3 1122..66 1144..11 1177..55 1122..00 33..44 7733..66 2211..11 1133..77 7.9 9.0 12.4 11.0 3.2 80.5 22.7 (4.7) USD million, except where indicated GGrroouupp rreessuullttss Operating income Operating expenses Operating profit / (loss) before tax Net profit / (loss) attributable to shareholders Diluted earnings per share (USD)2 PPrrooffiittaabbiilliittyy aanndd ggrroowwtthh33 Return on equity (%) Return on tangible equity (%) Return on common equity tier 1 capital (%) Return on risk-weighted assets, gross (%) Return on leverage ratio denominator, gross (%)4 Cost / income ratio (%) Effective tax rate (%) Net profit growth (%) RReessoouurrcceess33 Total assets Equity attributable to shareholders Common equity tier 1 capital5 Risk-weighted assets5 Common equity tier 1 capital ratio (%)5 Going concern capital ratio (%)5 Total loss-absorbing capacity ratio (%)5 Leverage ratio denominator4,5 Common equity tier 1 leverage ratio (%)4,5 Going concern leverage ratio (%)4,5 Total loss-absorbing capacity leverage ratio (%)5 Liquidity coverage ratio (%)6 Net stable funding ratio (%)6 OOtthheerr Invested assets (USD billion)7 Personnel (full-time equivalents) Market capitalization8 Total book value per share (USD)8 Total book value per share (CHF)8 Tangible book value per share (USD)8 Tangible book value per share (CHF)8 11 Refer to the “Accounting and financial reporting” and “Consolidated financial statements” sections of this report for information about the restatement of comparative information, where applicable. 22 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 33 Refer to the “Targets, aspirations and capital guidance” section of this report for more information about our performance targets. 44 Leverage ratio denominators and leverage ratios for year 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 55 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 66 The final Swiss net stable funding ratio (NSFR) regulation became effective on 1 July 2021. Prior to this date, the NSFR was based on estimated pro forma reporting. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 77 Consists of invested assets for Global Wealth Management, Asset Management and Personal & Corporate Banking. Refer to “Note 32 Invested assets and net new money” in the “Consolidated financial statements” section of this report for more information. 88 Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 11,,111177,,118822 6600,,666622 4455,,228811 330022,,220099 1155..00 2200..00 3344..77 11,,006688,,886622 44..2244 55..77 99..88 115555 111199 1,125,765 59,445 39,890 289,101 13.8 19.4 35.2 1,037,150 3.85 5.4 9.8 152 119 972,194 54,501 35,535 259,208 13.7 20.0 34.6 911,322 3.90 5.7 9.8 134 111 4,187 71,551 50,013 16.74 14.82 14.91 13.21 3,607 68,601 45,661 15.07 14.59 13.28 12.86 44,,559966 7711,,338855 6611,,223300 1177..8844 1166..2277 1155..9977 1144..5566 8 8 Annual Report 2021 Our key figures USD million, except where indicated GGrroouupp rreessuullttss Operating income Operating expenses Operating profit / (loss) before tax Net profit / (loss) attributable to shareholders Diluted earnings per share (USD)2 PPrrooffiittaabbiilliittyy aanndd ggrroowwtthh33 Return on equity (%) Return on tangible equity (%) Return on common equity tier 1 capital (%) Return on risk-weighted assets, gross (%) Return on leverage ratio denominator, gross (%)4 Cost / income ratio (%) Effective tax rate (%) Net profit growth (%) RReessoouurrcceess33 Total assets Equity attributable to shareholders Common equity tier 1 capital5 Risk-weighted assets5 Common equity tier 1 capital ratio (%)5 Going concern capital ratio (%)5 Total loss-absorbing capacity ratio (%)5 Leverage ratio denominator4,5 Common equity tier 1 leverage ratio (%)4,5 Going concern leverage ratio (%)4,5 Total loss-absorbing capacity leverage ratio (%)5 Liquidity coverage ratio (%)6 Net stable funding ratio (%)6 OOtthheerr Invested assets (USD billion)7 Personnel (full-time equivalents) Market capitalization8 Total book value per share (USD)8 Total book value per share (CHF)8 Tangible book value per share (USD)8 Tangible book value per share (CHF)8 As of or for the year ended 3311..1122..2211 31.12.20 31.12.191 3355,,554422 2266,,005588 99,,448844 77,,445577 22..0066 32,390 24,235 8,155 6,557 1.77 28,889 23,312 5,577 4,304 1.14 7.9 9.0 12.4 11.0 3.2 80.5 22.7 (4.7) 972,194 54,501 35,535 259,208 13.7 20.0 34.6 3.90 5.7 9.8 134 111 3,607 68,601 45,661 15.07 14.59 13.28 12.86 11,,111177,,118822 1,125,765 6600,,666622 4455,,228811 330022,,220099 59,445 39,890 289,101 11,,006688,,886622 1,037,150 911,322 1122..66 1144..11 1177..55 1122..00 33..44 7733..66 2211..11 1133..77 1155..00 2200..00 3344..77 44..2244 55..77 99..88 115555 111199 44,,559966 7711,,338855 6611,,223300 1177..8844 1166..2277 1155..9977 1144..5566 11.3 12.8 17.4 11.7 3.4 73.3 19.4 52.3 13.8 19.4 35.2 3.85 5.4 9.8 152 119 4,187 71,551 50,013 16.74 14.82 14.91 13.21 11 Refer to the “Accounting and financial reporting” and “Consolidated financial statements” sections of this report for information about the restatement of comparative information, where applicable. 22 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 33 Refer to the “Targets, aspirations and capital guidance” section of this report for more information about our performance targets. 44 Leverage ratio denominators and leverage ratios for year 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 55 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 66 The final Swiss net stable funding ratio (NSFR) regulation became effective on 1 July 2021. Prior to this date, the NSFR was based on estimated pro forma reporting. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 77 Consists of invested assets for Global Wealth Management, Asset Management and Personal & Corporate Banking. Refer to “Note 32 Invested assets and net new money” in the “Consolidated financial statements” section of this report for more information. 88 Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. Alternative performance measures An alternative performance measure (an APM) is a financial measure of historical or future financial performance, financial position or cash flows other than a financial measure defined or specified in the applicable recognized accounting standards or in other applicable regulations. We report a number of APMs in the discussion of the financial and operating performance of the Group, our business divisions and our Group Functions. We use APMs to provide a more complete picture of our operating performance and to reflect management’s view of the fundamental drivers of our business results. A definition of each APM, the method used to calculate it and the information content are presented under “Alternative performance measures” in the appendix to this report. Our APMs may qualify as non-GAAP measures as defined by US Securities and Exchange Commission (SEC) regulations. 11 2 44 Terms used in this report, unless the context requires otherwise “UBS,” “UBS Group,” “UBS Group AG consolidated,” “Group,” “the Group,” “we,” “us” and “our” UBS Group AG and its consolidated subsidiaries “UBS AG consolidated” UBS AG and its consolidated subsidiaries “UBS Group AG” and “UBS Group AG standalone” UBS Group AG on a standalone basis “UBS AG” and “UBS AG standalone” UBS AG on a standalone basis “UBS Switzerland AG” and “UBS Switzerland AG standalone” UBS Switzerland AG on a standalone basis “UBS Europe SE consolidated” UBS Europe SE and its consolidated subsidiaries “UBS Americas Holding LLC” and “UBS Americas Holding LLC consolidated” UBS Americas Holding LLC and its consolidated subsidiaries In this report, unless the context requires otherwise, references to any gender shall apply to all genders. 8 9 9 Our Board of Directors Our Board of Directors The Board of Directors (the BoD) of UBS Group AG, under the leadership of the Chairman, consists of between 6 and 12 members as per our Articles of Association. The BoD decides on the strategy of the Group upon recommendation by the Group Chief Executive Officer (the Group CEO) and is responsible for the overall direction, supervision and control of the Group and its management, as well as for supervising compliance with applicable laws, rules and regulations. The BoD exercises oversight over UBS Group AG and its subsidiaries and is responsible for establishing a clear Group framework to provide effective steering and governance supervision of the Group, taking into account the material risks to which UBS Group AG and its subsidiaries are exposed. The BoD has ultimate responsibility for the success of the Group and for delivering sustainable shareholder value within a framework of prudent and effective controls, approves all financial statements for issue, and appoints and removes all Group Executive Board (GEB) members. 10 10 The Board of Directors (the BoD) of UBS Group AG, under the governance framework to provide effective steering and leadership of the Chairman, consists of between 6 and 12 members supervision of the Group, taking into account the material risks to as per our Articles of Association. The BoD decides on the strategy which UBS Group AG and its subsidiaries are exposed. The BoD has of the Group upon recommendation by the Group Chief Executive ultimate responsibility for the success of the Group and for Officer (the Group CEO) and is responsible for the overall direction, delivering sustainable shareholder value within a framework of supervision and control of the Group and its management, as well prudent and effective controls, approves all financial statements for as for supervising compliance with applicable laws, rules and issue, and appoints and removes all Group Executive Board regulations. The BoD exercises oversight over UBS Group AG and (GEB) members. its subsidiaries and is responsible for establishing a clear Group 10 Our Board of Directors 1 Axel A. Weber Chairman of the Board of Directors / Chairperson of the Corporate Culture and Responsibility Committee / Chairperson of the Governance and Nominating Committee 2 Fred Hu Member of the Governance and Nominating Committee / member of the Risk Committee 3 Claudia Böckstiegel Member of the Board of Directors 4 Patrick Firmenich Member of the Audit Committee / member of the Corporate Culture and Responsibility Committee 5 Reto Francioni Member of the Compensation Committee / member of the Risk Committee 6 Jeremy Anderson Vice Chairman and Senior Independent Director / Chairperson of the Audit Committee / member of the Governance and Nominating Committee 7 Julie G. Richardson Chairperson of the Compensation Committee / member of the Governance and Nominating Committee / member of the Risk Committee 8 Nathalie Rachou Member of the Risk Committee 9 William C. Dudley Member of the Corporate Culture and Responsibility Committee / member of the Governance and Nominating Committee / member of the Risk Committee 10 Jeanette Wong Member of the Audit Committee / member of the Compensation Committee / member of the Corporate Culture and Responsibility Committee 11 Mark Hughes Chairperson of the Risk Committee / member of the Corporate Culture and Responsibility Committee 12 Dieter Wemmer Member of the Audit Committee / member of the Compensation Committee / member of the Governance and Nominating Committee The Board of Directors (the BoD) of UBS Group AG, under the governance framework to provide effective steering and leadership of the Chairman, consists of between 6 and 12 members supervision of the Group, taking into account the material risks to as per our Articles of Association. The BoD decides on the strategy which UBS Group AG and its subsidiaries are exposed. The BoD has of the Group upon recommendation by the Group Chief Executive ultimate responsibility for the success of the Group and for Officer (the Group CEO) and is responsible for the overall direction, delivering sustainable shareholder value within a framework of supervision and control of the Group and its management, as well prudent and effective controls, approves all financial statements for as for supervising compliance with applicable laws, rules and issue, and appoints and removes all Group Executive Board regulations. The BoD exercises oversight over UBS Group AG and (GEB) members. its subsidiaries and is responsible for establishing a clear Group 2 3 4 6 5 8 9 7 1 11 12 10 10 11 11 Our Group Executive Board Our Group Executive Board 1 Ralph A.J.G. Hamers Group Chief Executive Officer 1 Ralph A.J.G. Hamers 2 Mike Dargan Group Chief Executive Officer Group Chief Digital and Information Officer 2 Mike Dargan Group Chief Digital and Information Officer 3 Tom Naratil 3 Tom Naratil Co-President Global Wealth Management and President UBS Americas Co-President Global Wealth Management and President UBS Americas 4 Christian Bluhm 4 Christian Bluhm Group Chief Risk Officer Group Chief Risk Officer 5 Sabine Keller-Busse 5 Sabine Keller-Busse President Personal & Corporate Banking and President Personal & Corporate Banking and President UBS Switzerland President UBS Switzerland 6 Edmund Koh 6 Edmund Koh President UBS Asia Pacific President UBS Asia Pacific 7 Markus Ronner Group Chief Compliance and Governance Officer 7 Markus Ronner 8 Suni Harford Group Chief Compliance and Governance Officer President Asset Management 8 Suni Harford 9 Barbara Levi (since 1 November 2021) President Asset Management Group General Counsel 10 Robert Karofsky 9 Barbara Levi (since 1 November 2021) President Investment Bank Group General Counsel 11 Iqbal Khan 10 Robert Karofsky Co-President Global Wealth Management and President UBS Europe, Middle East and Africa President Investment Bank 12 Kirt Gardner Group Chief Financial Officer 11 Iqbal Khan 13 Markus U. Diethelm (until 31 October 2021) Co-President Global Wealth Management and President UBS Europe, Middle East and Africa Group General Counsel 12 Kirt Gardner Group Chief Financial Officer 13 Markus U. Diethelm (until 31 October 2021) Group General Counsel 12 12 12 3 4 5 2 1 7 6 9 10 12 13 8 11 UBS Group AG operates under a strict dual board structure, as mandated by Swiss banking law, and therefore the BoD delegates the management of the business to the GEB. Under the leadership of the Group CEO, the GEB was comprised of 12 members as of 31 December 2021 and has executive management responsibility for the steering of the Group and its business. It assumes overall responsibility for developing the strategies of the Group, the business divisions and Group Functions, and implements the BoD- approved strategies. › Refer to “Board of Directors” and “Group Executive Board” in the “Corporate governance” section of this report or to ubs.com/bod and ubs.com/geb for the full biographies of our BoD and GEB members 13 13 Our evolution Since our origins in the mid-19th century, many financial institutions have become part of the history of our firm and helped shape our development. 1998 was a major turning point: two of the three largest Swiss banks, Union Bank of Switzerland and Swiss Bank Corporation (SBC), merged to form UBS. Both banks were well established and successful in their own right. Union Bank of Switzerland had grown organically to become the largest Swiss bank. In contrast, SBC had grown mainly through strategic partnerships and acquisitions, including S.G. Warburg in 1995. In 2000, we acquired PaineWebber, a US brokerage and asset management firm with roots going back to 1879, establishing us as a significant player in the US. Over the past 50 years, we have also built a strong presence in the Asia Pacific region, where we are the largest private bank1, with access to asset management and investment banking capabilities. focused on our After incurring significant losses in the 2008 financial crisis, we started a strategic transformation in 2011 toward a business traditional businesses: wealth model management, and personal and corporate banking in Switzerland. We sought to revert to our roots, emphasizing a client-centric model that requires less risk-taking and capital, and we successfully completed that transformation. Today, we are a leading truly global wealth manager,2 with over USD 3.3 trillion in invested assets, a leading Swiss personal and corporate bank, a large-scale and diversified global asset manager, and a focused investment bank. In 2014, we began adapting our legal entity structure in response to too-big-to-fail requirements and other regulatory initiatives. First, we established UBS Group AG as the ultimate parent holding company for the Group. In 2015, we transferred personal and corporate banking and Swiss-booked wealth management businesses from UBS AG to the newly established UBS Switzerland AG. That same year we set up UBS Business Solutions AG as the Group’s service company. In 2016, UBS Americas Holding LLC became the intermediate holding company for our US subsidiaries and our wealth management subsidiaries across Europe were merged into UBS Europe SE. In 2019, we merged UBS Limited, our UK-headquartered subsidiary, into UBS Europe SE, our Germany-headquartered European subsidiary. The chart below gives an overview of our principal legal entities and our legal entity structure. › Refer to ubs.com/history for more information › Refer to the “Risk factors” and “Regulatory and legal developments” sections of this report for more information 11 Digital Wealth Management in Asia Pacific, KPMG 2021. 22 Statements of market position for Global Wealth Management are based on UBS’s internal estimates and publicly available information about competitors’ invested assets. The legal structure of the UBS Group (cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70) (cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:19) (cid:19)(cid:18)(cid:18)(cid:7) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41) (cid:19)(cid:18)(cid:18)(cid:7) (cid:55)(cid:36)(cid:53)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85) (cid:53)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:35)(cid:41) (cid:55)(cid:36)(cid:53)(cid:2)(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:2)(cid:53)(cid:39)(cid:20) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2) (cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:35)(cid:41) (cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86) (cid:80)(cid:81)(cid:80)(cid:15)(cid:55)(cid:53)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:21) (cid:55)(cid:36)(cid:53) (cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:41) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2) (cid:42)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:46)(cid:46)(cid:37) (cid:19)(cid:18)(cid:18)(cid:7) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16) (cid:19)(cid:18)(cid:18)(cid:7) (cid:55)(cid:36)(cid:53)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:55)(cid:53)(cid:35) (cid:55)(cid:36)(cid:53)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2) (cid:53)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:55)(cid:53)(cid:2)(cid:46)(cid:46)(cid:37) (cid:55)(cid:36)(cid:53)(cid:2)(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2) (cid:53)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16) (cid:55)(cid:36)(cid:53)(cid:2)(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:46)(cid:46)(cid:37)(cid:22) (cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86) (cid:55)(cid:53)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:23) (cid:42)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:80)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:87)(cid:68)(cid:15)(cid:73)(cid:84)(cid:81)(cid:87)(cid:82)(cid:85)(cid:2)(cid:85)(cid:87)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:67)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:83)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:16) (cid:19)(cid:2) (cid:52)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2) (cid:86)(cid:81)(cid:2) (cid:112)(cid:48)(cid:81)(cid:86)(cid:71)(cid:2) (cid:20)(cid:27)(cid:2) (cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:2) (cid:75)(cid:80)(cid:2) (cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2) (cid:67)(cid:80)(cid:70)(cid:2) (cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2) (cid:71)(cid:80)(cid:86)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:113)(cid:2) (cid:75)(cid:80)(cid:2) (cid:86)(cid:74)(cid:71)(cid:2) (cid:112)(cid:37)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2) (cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2) (cid:85)(cid:86)(cid:67)(cid:86)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:113)(cid:2) (cid:85)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:81)(cid:72)(cid:2) (cid:86)(cid:74)(cid:75)(cid:85)(cid:2) (cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2) (cid:72)(cid:81)(cid:84)(cid:2) (cid:79)(cid:81)(cid:84)(cid:71)(cid:2) (cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:67)(cid:68)(cid:81)(cid:87)(cid:86)(cid:2) (cid:55)(cid:36)(cid:53)(cid:111)(cid:85)(cid:2) (cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:87)(cid:68)(cid:15)(cid:73)(cid:84)(cid:81)(cid:87)(cid:82)(cid:85)(cid:16)(cid:2) (cid:20)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:46)(cid:75)(cid:79)(cid:75)(cid:86)(cid:71)(cid:70)(cid:2)(cid:89)(cid:67)(cid:85)(cid:2)(cid:79)(cid:71)(cid:84)(cid:73)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:86)(cid:81)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:2)(cid:53)(cid:39)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:19)(cid:2)(cid:47)(cid:67)(cid:84)(cid:69)(cid:74)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:16)(cid:2) (cid:21)(cid:2)(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2) (cid:80)(cid:81)(cid:80)(cid:15)(cid:55)(cid:53)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:73)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:71)(cid:75)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:78)(cid:91)(cid:2)(cid:68)(cid:91)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:78)(cid:91)(cid:2)(cid:86)(cid:74)(cid:84)(cid:81)(cid:87)(cid:73)(cid:74)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:41)(cid:2)(cid:81)(cid:84)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:35)(cid:41)(cid:16)(cid:2) (cid:22)(cid:2)(cid:49)(cid:72)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:78)(cid:91)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2) (cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:19)(cid:7)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:42)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:46)(cid:46)(cid:37)(cid:16)(cid:2) (cid:23)(cid:2)(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:55)(cid:53)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:73)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:71)(cid:75)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:78)(cid:91)(cid:2)(cid:68)(cid:91)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:78)(cid:91)(cid:2)(cid:86)(cid:74)(cid:84)(cid:81)(cid:87)(cid:73)(cid:74)(cid:2) (cid:55)(cid:36)(cid:53)(cid:2)(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:53)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16) 14 14 Our strategy, business model and environment Management report 1 Our strategy, business model and environment | Our strategy Our strategy Our purpose As the world’s leading wealth manager,1 we have an opportunity to make a difference for our clients, our employees, and society at large. It all starts with our purpose: Reimagining the power of investing. Connecting people for a better world. Our purpose unites us behind a common goal, provides direction on the way forward and helps us build on our strengths. We will reimagine the power of investing by developing solutions that change how people look at finance and investing. The power of investing can support achieving one’s personal aspirations, whether through buying a home, growing a company, supporting future financial goals or having an impact. We will connect people, both internally and externally, to convene an ecosystem where ideas and opportunities come together to be successful and to make a difference. We will help build a better world by thinking sustainably and creating opportunities that help reduce, rather than contribute to, inequalities. Sustainability is at the core of our purpose We know finance has a powerful influence on the world. At UBS, we are reimagining the power of people and investments, to help create a better world for everyone: a fairer society, a more prosperous economy and a healthier environment. We are partnering with our clients to help them mobilize their capital toward a more sustainable world. It is why we have put sustainability at the heart of our own purpose. To help us maximize our impact and direct capital to where it is needed most, we are focusing on three key areas to drive the sustainability transition: planet, people, partnerships. Planet: We are making climate a clear priority as we shift toward a lower-carbon future. We will provide transparency on our milestones along the way to make sure our progress can be tracked. We are not only focused on our own journey; we are also supporting our clients in their own transitions. People: Through our interactions, we are working to address wealth inequality, sharpening the focus of our client and corporate philanthropy, and our employee-led community affairs activities centered on health and education. Partnerships: By working in partnership with other thought leaders and standard setters, our goal is to make an impact on a truly global scale. To create change, we realize that all of us have to unite around common goals. That is why we engage with regulators, policymakers and others to create standards and support research and development across the financial sector. Our promise to our clients Helping clients to achieve their financial goals is the essence of what we do. We aim to differentiate our service by delivering a client experience that is: – Personalized: Our products and services are as personal as our clients’ needs. – Relevant: What we deliver to our clients is relevant and matters to them. – On-time: Clients set the pace and can act on opportunities anytime and anywhere. – Seamless: Interacting with us is simple, seamless, and intuitive. 11 Based on Euromoney’s Award for Excellence, published on 10 September 2021: euromoney.com/article/28teruws4k57c6h8c83k3/awards/awards-for-excellence/worlds-best-bank-for-wealth-management-2021-ubs. 16 16 Our strategy, business model and environment | Our strategy Our strategy Our purpose large. we are focusing on three key areas to drive the sustainability transition: planet, people, partnerships. As the world’s leading wealth manager,1 we have an opportunity Planet: We are making climate a clear priority as we shift to make a difference for our clients, our employees, and society at toward a lower-carbon future. We will provide transparency on our milestones along the way to make sure our progress can be It all starts with our purpose: Reimagining the power of tracked. We are not only focused on our own journey; we are also investing. Connecting people for a better world. Our supporting our clients in their own transitions. purpose unites us behind a common goal, provides direction on People: Through our interactions, we are working to address the way forward and helps us build on our strengths. wealth inequality, sharpening the focus of our client and We will reimagine the power of investing by developing corporate philanthropy, and our employee-led community affairs solutions that change how people look at finance and investing. activities centered on health and education. The power of investing can support achieving one’s personal Partnerships: By working in partnership with other thought aspirations, whether through buying a home, growing a leaders and standard setters, our goal is to make an impact on a company, supporting future financial goals or having an impact. truly global scale. To create change, we realize that all of us have We will connect people, both internally and externally, to to unite around common goals. That is why we engage with convene an ecosystem where ideas and opportunities come regulators, policymakers and others to create standards and together to be successful and to make a difference. support research and development across the financial sector. We will help build a better world by thinking sustainably and creating opportunities that help reduce, rather than contribute to, Our promise to our clients inequalities. Sustainability is at the core of our purpose Helping clients to achieve their financial goals is the essence of what we do. We aim to differentiate our service by delivering a client experience that is: We know finance has a powerful influence on the world. At UBS, – Personalized: Our products and services are as personal as our we are reimagining the power of people and investments, to help clients’ needs. create a better world for everyone: a fairer society, a more – Relevant: What we deliver to our clients is relevant and prosperous economy and a healthier environment. We are matters to them. partnering with our clients to help them mobilize their capital – On-time: Clients set the pace and can act on opportunities toward a more sustainable world. It is why we have put anytime and anywhere. sustainability at the heart of our own purpose. To help us – Seamless: Interacting with us is simple, seamless, and maximize our impact and direct capital to where it is needed most, intuitive. Convening THE global ecosystem for investing We are at our best when our clients are able to access all of UBS through a single relationship, to get a differentiated, personalized experience, and when they are connected to other areas of the firm, to providers, and to other clients with similar goals. With our global footprint and USD 4.6 trillion in invested assets, combined with our thought leadership, we not only attract clients, but are also interesting to external contributors. We are uniquely positioned to be the orchestrator of this ecosystem. We are a gateway to a large and diverse client base, we have strong relationships with contributors and we are a thought leader in the industry. This positions us to curate offerings and opportunities in the ecosystem, while leveraging our networks, data, and analytics, to provide ultimate matchmaking between clients and contributors. That is why our vision is to convene THE global ecosystem for investing – where thought leadership is impactful, people and ideas are connected, and opportunities are brought to life. Our global ecosystem delivers the power of investing to our clients Contributors benefit from: • Access to the world’s most valuable customers • Shared value creation • Scale of our global ecosystem Clients benefit from: • Holistic and curated one-stop offering • Personalized, relevant, on-time and seamless solutions • Liquidity and scale in execution Illustrative value flow through UBS’s orchestration Investment, advice, execution, and financing Corporate Advisory Content and thought leadership Gateway as orchestrator Wealth Planning, custody, and cash transactions Intuitive interface 11 Based on Euromoney’s Award for Excellence, published on 10 September 2021: euromoney.com/article/28teruws4k57c6h8c83k3/awards/awards-for-excellence/worlds-best-bank-for-wealth-management-2021-ubs. 16 0 17 17 Our strategy, business model and environmentOur strategy, business model and environment | Our strategy Our strategic imperatives Five strategic imperatives will help us deliver on our strategy, bring our purpose to life, fulfill our client promise and achieve our vision. Behind these are a set of initiatives that will develop UBS along our strategic direction. Clients, connections, contributors – delivering the power of investing UBS is a firm that attracts clients, employees and thought leaders who have the power to enable change and bring ideas to life, and who have capacity to do a lot of good. By bringing the best of UBS to our clients in a seamless experience, growing our ecosystem and encouraging connections across it, we can deliver the full power of investing to our clients. Client needs can be more broadly met. Our clients and the trust they place in us will be put at the center of everything we do. Clients will benefit from having us as a trusted guide and thought partner, having all our products and services available at their fingertips and getting a differentiated and personalized experience. Focus – play where we are positioned to win We intend to maintain our position as a leading global wealth manager and to build on this strength. We will prioritize our efforts where we can add the most value and make a difference. To achieve this we are working to reduce duplication and reallocate resources as necessary, all while growing our position as the world’s leading wealth manager. Technology – make technology our differentiator We will use our investments in technology to deliver a seamless client experience as part of our client promise. We have been building our technology foundations over past years. We will move forward by focusing on how clients experience UBS every day, becoming more agile and focusing on outcomes through a modular approach. With this mind, we intend to transform the way we use and consider technology, thinking about it as a differentiator for us. Simplification and efficiency – increase ease of doing business and enable our journey We can make it easier for our clients to do business with us, as well as for our employees to make decisions and take responsibility. We intend to further streamline and standardize our functions, processes, entities and general ways of doing business to increase efficiency and increase capacity to invest for future growth. Culture – mobilize employees behind our future vision and act as one firm We already have a strong, inclusive culture, grounded in our three keys to success: our Pillars, Principles and Behaviors. We will further strengthen our culture so we can do more and do it better. Our purpose will unite us. We will act as one firm, with common values and ambitions. In order to be successful on our journey, we will further develop our cultural priorities. 18 18 Our strategy, business model and environment | Our strategy Our strategic imperatives Leveling up technology Five strategic imperatives will help us deliver on our strategy, bring our purpose to life, fulfill our client promise and achieve our vision. Behind these are a set of initiatives that will develop UBS along our strategic direction. Clients, connections, contributors – delivering the power of investing UBS is a firm that attracts clients, employees and thought leaders who have the power to enable change and bring ideas to life, and who have capacity to do a lot of good. By bringing the best of UBS to our clients in a seamless experience, growing our ecosystem and encouraging connections across it, we can deliver the full power of investing to our clients. Client needs can be more broadly met. Our clients and the trust they place in us will be put at the center of everything we do. Clients will benefit from having us as a trusted guide and thought partner, having all our products and services available at their fingertips and getting a differentiated and personalized experience. Focus – play where we are positioned to win We intend to maintain our position as a leading global wealth manager and to build on this strength. We will prioritize our efforts where we can add the most value and make a difference. To achieve this we are working to reduce duplication and reallocate resources as necessary, all while growing our position as the world’s leading wealth manager. Technology – make technology our differentiator We will use our investments in technology to deliver a seamless client experience as part of our client promise. We have been building our technology foundations over past years. We will move forward by focusing on how clients experience UBS every day, becoming more agile and focusing on outcomes through a modular approach. With this mind, we intend to transform the way we use and consider technology, thinking about it as a differentiator for us. Simplification and efficiency – increase ease of doing business and enable our journey We can make it easier for our clients to do business with us, as well as for our employees to make decisions and take responsibility. We intend to further streamline and standardize our functions, processes, entities and general ways of doing business to increase efficiency and increase capacity to invest for future growth. Culture – mobilize employees behind our future vision and act as one firm We already have a strong, inclusive culture, grounded in our three keys to success: our Pillars, Principles and Behaviors. We will further strengthen our culture so we can do more and do it better. Our purpose will unite us. We will act as one firm, with common values and ambitions. In order to be successful on our journey, we will further develop our cultural priorities. Introduction Modern tech The world is faster, more digital and more data-driven than ever before, with clients increasingly demanding services that are digital first, anytime and anywhere, and underpinned by first-class technology. In addition, the financial industry ecosystem is constantly evolving, becoming even more competitive, open, connected and location-independent every day. We believe the bank of the future will leverage a lean, modern tech estate and Cloud-based applications. Modern tech makes a shorter time to market possible, removes dependencies, accelerates digitalization and facilitates connection with the financial industry ecosystem to provide better and faster client services. This presents an opportunity for us to fully embrace technology and make it a differentiator for our firm. Doing so is central to our client promise to deliver a client experience that is personalized, relevant, on-time and seamless. In line with our modern tech ambitions, we migrated over 1,000 applications to the Cloud during 2021 and established a governance framework to identify and decommission legacy technologies. To support our ambitions, we have appointed a Group Chief Digital and Information Officer to the Group Executive Board. To guide our digital transformation and to enhance the way we live up to our client promise, we have also established a Leveling up strategy based on five key pillars: Agile@UBS; quarterly business reviews and digital roadmaps; modern tech; automation; and engineering excellence (digital culture). Agile@UBS In order to deliver digital solutions faster and remain responsive and adaptable, we are introducing a unified agile approach across the whole firm. To support this, we have developed a robust framework and rollout plan, which includes clearly defined role profiles, a bespoke playbook and a dedicated academy training suite. Currently, we have 10,000 employees across the firm transitioning to the new Agile@UBS ways of working and we expect this to increase to more than 20,000 by the end of 2022. Relevant resources and training will also be available to all staff, enabling everyone to apply agile principles to their work, thereby helping to deliver an even better client experience. Quarterly business reviews and digital roadmaps Quarterly business reviews (QBRs) and digital roadmaps help us to manage our technology investment portfolio in a more strategic and flexible way. The QBRs serve as a forum to agree on the most important objectives that align with our strategy and are intended to ensure we deliver more frequent and valuable outcomes for our clients. The digital roadmaps help us to keep investment and design decisions aligned to our client promise and our longer- term vision. Automation To achieve our vision, we are building a best-on-street development and technology operations experience, powered by modern development tools and automation techniques. We have also introduced a new Artificial Intelligence, Data and Analytics (ADA) center of expertise. ADA will bring together data scientists and analytics experts from across the firm to ensure a consistent firm-wide approach to these topics. ADA will also help empower our strategy and ecosystem, using AI and machine learning for the benefit of our clients. Engineering excellence (digital culture) To succeed in making technology a differentiator for our firm, we must attract and retain the best engineers, which is only possible by creating and fostering an engineering and digital culture of excellence. Best-in-class tech learning journeys and curricula for our engineers, a respected Certified and Distinguished Engineers framework, an effective hiring strategy, and targeted competency assessments and development plans for our technical staff will be implemented to support this ambition. › Refer to the “Our businesses” section of this report for more information about how we deploy our technology approach in our businesses 18 19 19 Our strategy, business model and environment Our strategy, business model and environment | Targets, aspirations and capital guidance Targets, aspirations and capital guidance We aim to create sustainable value through the cycle. Reflecting our improved operating performance over the last two years, in February 2022 we updated our financial targets, which had previously been set in January 2020. In addition, we have outlined selected commercial and environmental, social and governance (ESG) aspirations, which support these targets. Our capital guidance remains unchanged. We intend to operate with a CET1 capital ratio of around 13% and a CET1 leverage ratio of greater than 3.7%. The Investment Bank is expected to represent up to one-third of Group risk-weighted assets (RWA) and liquidity ratio denominator (LRD). Performance against targets, aspirations and capital guidance is taken into account when determining variable compensation. The table below shows our updated financial targets and aspirations, based on reported results. › Refer to “Society” and “Our focus on sustainability and climate” in the “How we create value for our stakeholders” section and to the “Corporate governance” section of this report for more information about ESG › Refer to the “Compensation” section of this report for more information about variable compensation › Refer to “Alternative performance measures” in the appendix to this report for definitions of and further information about our performance measures Targets and aspirations ESG Selected aspirations Commercial Selected aspirations Financial Targets More than USD 6 trillion invested assets across Global Wealth Management, Asset Management and Personal & Corporate Banking 15–18% return on CET1 capital 70–73% cost / income ratio More than 5% growth2 in net new fee-generating assets of Global Wealth Management 10–15%2 growth in Global Wealth Management profit before tax Net-zero own operations (scopes 1 and 2) by 2025 USD 235 billion invested assets aligned to net zero by 2030, Asset Management USD 1 billion philanthropy donations to reach 25 million beneficiaries raised by 2025 USD 400 billion invested assets in sustainability-focus and impact investing1 by 2025 11 Sustainability-focus and impact investing: sustainability focus is strategies where sustainability is an explicit part of the investment guidelines, universe, selection, and / or investment process; impact investing is strategies that have an explicit intention to generate measurable, verifiable, positive sustainability outcomes. Impact generated is attributable to investor action and / or contribution. 22 Over the cycle. 20 20 Our strategy, business model and environment | Targets, aspirations and capital guidance Targets, aspirations and capital guidance Our businesses We aim to create sustainable value through the cycle. Reflecting Performance against targets, aspirations and capital guidance our improved operating performance over the last two years, in is taken into account when determining variable compensation. February 2022 we updated our financial targets, which had The table below shows our updated financial targets and previously been set in January 2020. aspirations, based on reported results. In addition, we have outlined selected commercial and environmental, social and governance (ESG) aspirations, which › Refer to “Society” and “Our focus on sustainability and climate” in the “How we create value for our stakeholders” section and support these targets. to the “Corporate governance” section of this report for more Our capital guidance remains unchanged. We intend to information about ESG operate with a CET1 capital ratio of around 13% and a CET1 › Refer to the “Compensation” section of this report for more leverage ratio of greater than 3.7%. The Investment Bank is information about variable compensation expected to represent up to one-third of Group risk-weighted assets (RWA) and liquidity ratio denominator (LRD). › Refer to “Alternative performance measures” in the appendix to this report for definitions of and further information about our performance measures Delivering one ecosystem We operate through four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management and the Investment Bank. Our global reach and the breadth of our expertise are major assets setting us apart from our competitors. We see joint efforts as key to our growth, both within and between business divisions. We aim to unlock the power of one UBS through our innovative solutions and differentiated offerings. We are at our best when we combine our strengths to provide our clients more comprehensive and better solutions through, for example, a Unified Global Markets team across Global Wealth Management and the Investment Bank, and a Global Family Office joint venture. Initiatives such as the Group Franchise Awards encourage employees to look for ways to connect across teams and offer the whole firm to our clients. How we deliver the whole firm to our clients – examples Targets and aspirations Wealth management platforms ESG Selected aspirations Commercial Selected aspirations Financial Targets Net-zero own operations More than USD 6 trillion 15–18% invested assets across Global Wealth return on CET1 capital (scopes 1 and 2) by 2025 Management, Asset Management and Personal & Corporate Banking More than 5% growth2 in net new fee-generating assets of Global Wealth Management 70–73% cost / income ratio 10–15%2 growth in Global Wealth Management profit before tax USD 235 billion invested assets aligned to net zero by 2030, Asset Management USD 1 billion philanthropy donations to reach 25 million beneficiaries raised by 2025 USD 400 billion invested assets in sustainability-focus and impact investing1 by 2025 11 Sustainability-focus and impact investing: sustainability focus is strategies where sustainability is an explicit part of the investment guidelines, universe, selection, and / or investment process; impact investing is strategies that have an explicit intention to generate measurable, verifiable, positive sustainability outcomes. Impact generated is attributable to investor action and / or contribution. 22 Over the cycle. Separately managed accounts Shifts and referrals Global Family Ofﬁce Global Lending Unit Unified Global Markets team In all locations outside the Americas, we utilize the Wealth Management Platform, which is shared between Global Wealth Management and Personal & Corporate Banking in Switzerland. This platform can be navigated intuitively and supports strong advice capabilities across all channels, helping our clients to benefit from a broader universe of products and services, simplified onboarding, and a better banking experience. In the Americas, our clients benefit from the Wealth Management Americas Platform, as well as our innovative partnership with Broadridge, which is aimed at improving productivity and the user experience by revamping the technology used for our advisors’ workstations. In the US, we combined portfolio management and execution resources within Asset Management during 2020. Alongside this, we introduced a new approach where Global Wealth Management clients can access selected separately managed account (SMA) strategies in the Americas with no additional management fees. This transformative move allows our advisors to focus on delivering the best ideas, solutions and capabilities to our clients, regardless of where they originate in the firm. To ensure that our clients are best served according to their needs and foster growth by offering a universal bank delivery model in Switzerland, we have introduced a holistic collaboration framework for Personal & Corporate Banking. We systematically initiate client shifts from Personal Banking to Global Wealth Management when the clients’ investing needs become sufficiently complex. In addition, we encourage our client advisors to continuously generate leads for services provided by other business divisions. Typical examples are corporate and institutional clients being introduced to Asset Management for mandate solutions or to the Investment Bank for capital market transactions, thus providing access to our global expertise, and entrepreneurs being introduced to Global Wealth Management, ensuring holistic coverage of their corporate and private needs. Our Global Family Ofﬁce unit brings together the capabilities of Global Wealth Management, Asset Management and the Investment Bank to leverage growth opportunities and deliver holistic solutions. It provides customized, institutional-style services to wealthy families and individuals seeking access to equity markets and advisory services, and assisting clients with raising capital from public and private markets. As a further step in serving the financing and lending needs of all UBS clients worldwide, we set up a division-agnostic Global Lending Unit in 2020. Its key objective is delivering lending capabilities to clients of both the Investment Bank and Global Wealth Management. The unit provides product expertise to clients through collaboration with Investment Bank bankers and Global Wealth Management advisors. It is organized with a regional focus by grouping existing regional resources and competencies to best serve respective markets and clients. We are continuing to develop a strategic partnership between Global Wealth Management and the Investment Bank that is focused on growth – in our ultra high net worth, middle market institutions and public finance businesses – and identifying synergies across the supporting infrastructure. This important initiative includes a Unified Global Markets team, integrating risk management systems and simplifying our regional operating processes. 20 21 21 Our strategy, business model and environment Our strategy, business model and environment | Our businesses Global Wealth Management As a leading truly global wealth manager,1 with over USD 3.3 trillion in invested assets, our goal is to provide tailored financial services, advice and investable solutions to wealthy individuals and families around the world. The spectrum of our services ranges from investment management to estate planning and in addition to specific wealth corporate finance advice, management products and services. The business is managed globally across the regions. Organizational changes As part of the Group-wide creation of the Artificial Intelligence, Data and Analytics center of expertise in October 2021, Global Wealth Management established the Smart Technologies & Advanced Analytics Team. Leveraging our Evidence Lab Innovations the Smart team’s experience and expertise, Technologies & Advanced Analytics Team focuses on developing a smart ecosystem that applies artificial intelligence, advanced analytics and data science to empower our advisors with insights and tools that help them anticipate client needs and deepen client relationships. On 1 July 2021, the Global Wealth Management Operations team was formally integrated into Global Wealth Management, following the Group-wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients. We continually review all our businesses for growth opportunities, future potential and efficiency. As a result, in 2021, we completed the sale of our domestic wealth management business in Austria. We also announced our intention to sell our domestic wealth management business in Spain. As part of the latter sale, the parties aim to negotiate a cooperation agreement to provide clients with access to selected UBS products and services. We expect this deal to close in the third quarter of 2022. In December 2021, we signed an agreement to sell UBS Swiss Financial Advisers AG, a Switzerland-based SEC-registered investment advisor and FINMA-licensed securities firm that offers US clients tailored investment solutions. On 26 January 2022, we entered into an agreement to acquire Wealthfront, an industry- leading digital wealth management provider. This acquisition is aligned with our growth strategy in the Americas, will broaden our reach among affluent investors and add a new digital-first offering, increasing our distribution capabilities. Our focus We serve high net worth and ultra high net worth individuals, families and family offices worldwide, as well as affluent clients in selected markets. Our dedicated Global Family Office unit works with ultra high net worth individuals and their families to deliver bespoke solutions using the best of our global capabilities from the Investment Bank and Asset Management. Already a market leader in the ultra high net worth segment outside the US,1 we are also executing our strategy to be the firm of choice for the wealthiest clients in the US, many of whom already have relationships with UBS. Our global footprint enables us to capture growth in the largest and fastest-growing wealth markets (the US and Asia Pacific, respectively). Our Chief Investment Office (CIO) celebrated its 10th anniversary in the first quarter of 2021. Growing from just three employees in 2011 to over 1,100 by year-end 2021, our CIO has a presence in 18 locations and is responsible for investment advice and management of more than USD 3.3 trillion in assets globally. Our CIO’s insights provide the foundation for the global UBS ecosystem, which connects clients with content and solutions. Close idea generation and product development results in CIO-aligned solutions delivering real value to clients and spurring innovations such as the investment modules in UBS Manage Advanced [My Way]. In Asia the Direct Investment Insights function in our online banking platform enables clients to trade directly based on CIO insights via their smartphones or devices. integration between By making operational processes more efficient, we also enhance advisor productivity. Our investment in operating platforms and tools that support our clients and advisors is aimed at better serving our clients’ needs and improving efficiency. As of 31 December 2021, more than 85% of invested assets outside the Americas were booked on our strategic Wealth Management Platform. In the US, in collaboration with software provider Broadridge, we are building the Wealth Management Americas Platform, for which we continue software delivery, with full conversion targeted for 2023. The development of our platforms is happening alongside enhancements to our digital capabilities, for the benefit of our clients and advisors. › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization How we operate Our global footprint and presence in the world’s largest and fastest-growing markets position us well to serve clients with global interests and demands. They also make broad access across solutions and geographies in different market conditions possible. The US is our largest market, accounting for around half of our invested assets. We are the largest private bank in Asia Pacific2 and one of the largest in Latin America,1 in terms of invested assets. In Switzerland, we hold the leading market position1 and can deploy the full range of UBS’s products and services. Our domestic footprint in Western and Central Europe, the Middle East, and Africa enables us to provide locally tailored offerings and ensures we are close to our clients. In April 2021, we opened a wealth management advisory office in Doha, Qatar, as a further sign of our commitment to the Middle East, an important and growing region for us. 11 Statements of market position for Global Wealth Management are based on UBS’s internal estimates and publicly available information about competitors’ invested assets. 22 Digital Wealth Management in Asia Pacific, KPMG 2021. 22 22 Our strategy, business model and environment | Our businesses Global Wealth Management As a leading truly global wealth manager,1 with over USD 3.3 of choice for the wealthiest clients in the US, many of whom trillion in invested assets, our goal is to provide tailored financial already have relationships with UBS. Our global footprint enables services, advice and investable solutions to wealthy individuals us to capture growth in the largest and fastest-growing wealth and families around the world. The spectrum of our services markets (the US and Asia Pacific, respectively). ranges from investment management to estate planning and Our Chief Investment Office (CIO) celebrated its 10th corporate finance advice, in addition to specific wealth anniversary in the first quarter of 2021. Growing from just three management products and services. The business is managed employees in 2011 to over 1,100 by year-end 2021, our CIO has globally across the regions. Organizational changes a presence in 18 locations and is responsible for investment advice and management of more than USD 3.3 trillion in assets globally. Our CIO’s insights provide the foundation for the global UBS ecosystem, which connects clients with content and solutions. As part of the Group-wide creation of the Artificial Intelligence, Close integration between idea generation and product Data and Analytics center of expertise in October 2021, Global development results in CIO-aligned solutions delivering real value Wealth Management established the Smart Technologies & to clients and spurring innovations such as the investment Advanced Analytics Team. Leveraging our Evidence Lab modules in UBS Manage Advanced [My Way]. In Asia the Direct Innovations team’s experience and expertise, the Smart Investment Insights function in our online banking platform Technologies & Advanced Analytics Team focuses on developing enables clients to trade directly based on CIO insights via their a smart ecosystem that applies artificial intelligence, advanced smartphones or devices. analytics and data science to empower our advisors with insights By making operational processes more efficient, we also and tools that help them anticipate client needs and deepen client enhance advisor productivity. Our investment in operating relationships. platforms and tools that support our clients and advisors is aimed On 1 July 2021, the Global Wealth Management Operations at better serving our clients’ needs and improving efficiency. As team was formally integrated into Global Wealth Management, of 31 December 2021, more than 85% of invested assets outside following the Group-wide decision to move each of the firm’s the Americas were booked on our strategic Wealth Management business-aligned Operations teams into their respective divisions Platform. In the US, in collaboration with software provider in order to become even more client-centric, agile and digital, Broadridge, we are building the Wealth Management Americas while creating a seamless experience for our clients. Platform, for which we continue software delivery, with full We continually review all our businesses for growth conversion targeted for 2023. The development of our platforms opportunities, future potential and efficiency. As a result, in 2021, is happening alongside enhancements to our digital capabilities, we completed the sale of our domestic wealth management for the benefit of our clients and advisors. business in Austria. We also announced our intention to sell our domestic wealth management business in Spain. As part of the latter sale, the parties aim to negotiate a cooperation agreement to provide clients with access to selected UBS products and services. We expect this deal to close in the third quarter of 2022. › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization In December 2021, we signed an agreement to sell UBS Swiss How we operate Financial Advisers AG, a Switzerland-based SEC-registered investment advisor and FINMA-licensed securities firm that offers Our global footprint and presence in the world’s largest and US clients tailored investment solutions. On 26 January 2022, we fastest-growing markets position us well to serve clients with entered into an agreement to acquire Wealthfront, an industry- global interests and demands. They also make broad access across leading digital wealth management provider. This acquisition is solutions and geographies in different market conditions possible. aligned with our growth strategy in the Americas, will broaden The US is our largest market, accounting for around half of our our reach among affluent investors and add a new digital-first invested assets. We are the largest private bank in Asia Pacific2 offering, increasing our distribution capabilities. and one of the largest in Latin America,1 in terms of invested assets. In Switzerland, we hold the leading market position1 and can deploy the full range of UBS’s products and services. Our domestic We serve high net worth and ultra high net worth individuals, footprint in Western and Central Europe, the Middle East, and families and family offices worldwide, as well as affluent clients in Africa enables us to provide locally tailored offerings and ensures selected markets. Our dedicated Global Family Office unit works we are close to our clients. with ultra high net worth individuals and their families to deliver In April 2021, we opened a wealth management advisory bespoke solutions using the best of our global capabilities from office in Doha, Qatar, as a further sign of our commitment to the the Investment Bank and Asset Management. Middle East, an important and growing region for us. Already a market leader in the ultra high net worth segment outside the US,1 we are also executing our strategy to be the firm 11 Statements of market position for Global Wealth Management are based on UBS’s internal estimates and publicly available information about competitors’ invested assets. 22 Digital Wealth Management in Asia Pacific, KPMG 2021. Our focus 22 Joint efforts with the Investment Bank, Asset Management and selected external partners enable us to offer clients broad access to financing, global capital markets and bespoke portfolio solutions. For example, in the Americas, our Private Markets OneBank Partnership has established one centralized function to manage the origination and distribution of all private markets transactions, side by side with the cross-divisional origination of the Investment Bank’s Global Banking business. Additionally, to ensure we are placing resources close to clients, dedicated investment bankers are now embedded in Global Wealth Management’s Private Wealth Services Hubs across the US. These investment bankers work side by side with our financial advisors to drive focused, proactive coverage of investment banking business from our wealthiest clients. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions Our competitors fall into two categories: peers with a strong position in the Americas but more limited global footprints, such as Morgan Stanley and JP Morgan; and peers with similar international footprints and operating models, but with significantly smaller presences than UBS in the US, such as Credit Suisse and Julius Baer. We have strategically built strong positions in the fastest-growing client segment (ultra high net worth) and region (Asia Pacific). The size and the diversification of our footprint, as well as our premium brand and reputation, would be difficult and expensive to replicate. What we offer Our distinctive approach to wealth management is designed to help our clients pursue what matters most to them. We aim to offer clients the best solutions, services and expertise globally. Our experts provide thought leadership, investment analysis and investment strategies, and develop and source solutions for our clients. The CIO provides our UBS House View, identifying investment opportunities designed to protect and increase our clients’ wealth over the longer term. Regional client strategy teams use direct client feedback, findings from periodic Investor Watch surveys and insights from the Smart Technologies & Advanced Analytics Team to deepen our understanding of clients’ needs. Our product specialists deliver investment solutions, including our flagship investment mandates, as well as innovative long-term themes and sustainable investment offerings. Clients benefit from our comprehensive expertise, including wealth planning, investing, sustainability and impact investing, philanthropy, corporate and banking services, as well as family advisory services. We also offer extensive mortgage, securities- based and structured lending expertise. In 2020, we became the first major global financial institution to make sustainable investments the preferred solution for private clients investing globally. This focus led to high levels of client activity in 2021 and reflected both our own belief in sustainable and impact investing from a performance perspective and increased client demand for relevant advice and solutions. Our discretionary offerings aligned to our sustainable investing strategic asset allocation exceeded USD 30 billion in invested assets as of 31 December 2021. Our clients accounted for 75% (USD 647 million) of MPM Capital’s Oncology Impact Fund 2 (OIF 2), which closed in 2021, following the record-setting success of the UBS Oncology Impact Fund (OIF 1) in 2016. UBS clients invested more than USD 1 billion across both Funds. OIF 2 is one of the largest dedicated impact investment funds in biotech history.1 › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about sustainability matters We also continue to broaden our offering across asset classes and themes, collaborating with external partners, such as Rockefeller Asset Management, Rethink Impact and Bridge Investment Group, to provide clients with access to differentiated sustainable and impact investing opportunities. We constantly work on responding swiftly to changing client needs and further differentiating our leading discretionary and advisory mandate offerings. As part of our long-term cooperation with Partners Group, we have enhanced our offering by broadening access to private equity. Clients can diversify their mandates into private equity by accessing fully paid-in solutions provided by Partners Group and UBS. In 2020, we launched UBS Manage Advanced [My Way], a solution enabling clients to truly individualize their portfolios. Based on strong momentum, client demand and inflows, we intend to expand this solution into other markets. › Refer to “Clients” in the “How we create value for our stakeholders” section and “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization 11 Based on a review of healthcare thematic funds using data from PitchBook as of August 2021; impact investing definitions may vary. 23 23 Our strategy, business model and environmentOur strategy, business model and environment | Our businesses As of or for the year ended 31 December 2021 CIO advises on and manages USD 3.3 trillion in invested assets USD 27 billion flows into our SMA¹ initiative (Americas) USD 107 billion of NNFGA,² 8% growth Best Wealth Manager for the seventh time in a decade (Euromoney 2021) Private markets invested assets reached USD 58 billion, with USD 25 billion in new commitments 1 Separately managed accounts. 2 Net new fee-generating assets. USD 5 billion sales via My Way with the number of mandates tripling to 4,300 (outside of the Americas) USD 25.1 billion of net new loans USD 12 billion flows into our discretionary sustainable investment mandates 24 24 Our strategy, business model and environment | Our businesses As of or for the year ended 31 December 2021 CIO advises on and manages USD 3.3 trillion in invested assets USD 27 billion flows into our SMA¹ initiative (Americas) USD 107 billion of NNFGA,² 8% growth Best Wealth Manager for the seventh time in a decade (Euromoney 2021) Private markets invested assets reached USD 58 billion, with USD 25 billion in new commitments 1 Separately managed accounts. 2 Net new fee-generating assets. USD 5 billion sales via My Way with the number of mandates tripling to 4,300 (outside of the Americas) USD 25.1 billion of net new loans USD 12 billion flows into our discretionary sustainable investment mandates Personal & Corporate Banking As a leading Swiss personal and corporate bank, we provide comprehensive financial products and services to private, corporate and institutional clients. Personal & Corporate Banking is the core of our universal bank in Switzerland. Organizational changes On 1 July 2021, the Personal & Corporate Banking Operations team was formally integrated into Personal & Corporate Banking, following the Group-wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients. Our focus Continued innovation and constant customer focus are the factors that differentiate us, as a market leader across all business areas we strive to grow at a rate higher than the market. We aim to be digital at the core: our client promise is to bring the bank to the app, enabling a user experience that is personalized, relevant, on-time and seamless. Even before the COVID-19 pandemic, digitalization had become a major part of our everyday lives. The pandemic has increased its relevance and accelerated the pace of technological change. To drive this transformation, we need to better connect business and technology, focus on the needs of our clients, and empower our teams end to end; in other words, we need to be agile. The agile transformation is essential for every part of our organization. Agile is not new to us – we previously gained experience with the Digital Factory and Lighthouses – but we are now scaling it to the next level. In 2021, we set up a new virtual Agile Delivery Organization. › Refer to “Clients” in the “How we create value for our stakeholders” section and “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization In 2021, we brought additional sustainable finance solutions to the market. We introduced Green Mortgages brokered via key4, the first Swiss real estate platform for investment properties offering sustainable mortgages in Switzerland. In addition, we now offer Swiss retail clients Renovation Mortgages that provide preferential interest rates to support energy-efficient renovations and construction. On the investment side, we complemented our UBS Vitainvest product family with a passive solution, making it possible to invest for retirement in a sustainable way through Swiss third-pillar pension funds and vested benefits accounts. We also launched the innovative UBS Sustainability Analytics offering, helping institutional clients to achieve full transparency by screening their portfolios with regard to sustainability aspects. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about sustainability-related topics We collaborate with other companies to better satisfy our clients’ diverse needs. For example, in 2021, we started a project with Swiss fintech start-up Yokoy to provide extensive cash management services to corporate clients, from automated generation of expense reports to validation of supplier invoices. How we operate We operate primarily in our Swiss home market. With our Personal Banking and Corporate & Institutional Clients business areas, we are organized into 10 regions, covering distinct Swiss economic areas. Due to increasing client demand for remote access and the increased offering via our in-demand digital and remote channels, in the first quarter of 2021 we reduced our branch network by 44 branches to 195 branches. This followed the closure of 28 branches in 2020. We also support the international business activities of our Swiss corporate clients through local hubs in New York, Frankfurt, Singapore and Hong Kong SAR. No other Swiss bank offers its corporate clients local banking capabilities abroad. In Personal Banking, our main competitors are Credit Suisse, PostFinance, Raiffeisen, cantonal banks, and other regional and local Swiss banks; we also face competition from international neobanks and other national digital market participants. Areas of competition are basic banking services, mortgages and foreign exchange, as well as investment mandates and funds. In Corporate & Institutional Clients, Credit Suisse, cantonal banks and globally active foreign banks are our main competitors. We compete in basic banking services, cash management, trade and export finance, asset servicing, investment advice for institutional clients, corporate finance and lending, and cash and securities transactions for banks. 24 25 25 Our strategy, business model and environment Our strategy, business model and environment | Our businesses What we offer Our personal banking clients have access to a comprehensive, life- cycle-based offering, a broad range of basic banking products, from payments to deposits, cards, and convenient online and mobile banking, as well as lending (predominantly mortgages), investments and retirement services. This is complemented by our UBS KeyClub reward program, which provides clients in Switzerland with exclusive and attractive offers (some from third- party partners). We work closely with Global Wealth Management to provide our clients with access to leading private banking and wealth management services. As of or for the year ended 31 December 2021 Our corporate and institutional clients benefit from our financing and investment solutions, in particular access to equity and debt capital markets, syndicated and structured credit, private placements, financing. We offer transaction banking solutions for payment and cash management services, trade and export finance, and global custody solutions for institutional clients. leasing, and traditional We work closely with the Investment Bank to offer capital market and foreign exchange products, hedging strategies, and trading capabilities, as well as corporate finance advice. In cooperation with Asset Management, we also provide fund and portfolio management solutions. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions 2.6 million clients served in Personal Banking ~¹⁄³ of Swiss households served >100,000 corporate and institutional clients 195 branches in Switzerland >90% of large Swiss corporations served Best Bank in Switzerland (Euromoney 2021) 26 26 Our strategy, business model and environment | Our businesses Our personal banking clients have access to a comprehensive, life- and debt capital markets, syndicated and structured credit, private cycle-based offering, a broad range of basic banking products, placements, leasing, and traditional financing. We offer from payments to deposits, cards, and convenient online and transaction banking solutions for payment and cash management mobile banking, as well as lending (predominantly mortgages), services, trade and export finance, and global custody solutions investments and retirement services. This is complemented by our for institutional clients. UBS KeyClub reward program, which provides clients in We work closely with the Investment Bank to offer capital Switzerland with exclusive and attractive offers (some from third- market and foreign exchange products, hedging strategies, and party partners). We work closely with Global Wealth trading capabilities, as well as corporate finance advice. In Management to provide our clients with access to leading private cooperation with Asset Management, we also provide fund and banking and wealth management services. portfolio management solutions. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions As of or for the year ended 31 December 2021 2.6 million clients served in Personal Banking ~¹⁄³ of Swiss households served >100,000 corporate and institutional clients Best Bank in Switzerland (Euromoney 2021) 195 branches in Switzerland >90% of large Swiss corporations served What we offer Our corporate and institutional clients benefit from our financing and investment solutions, in particular access to equity Asset Management Asset Management is a large-scale and diversified global asset manager, with USD 1.2 trillion in invested assets. We offer investment capabilities and styles across all major traditional and alternative asset classes, as well as advisory support to institutions, wholesale intermediaries and Global Wealth Management clients around the world. Organizational changes Following the sale of our majority stake in 2020, in 2021 we sold our remaining minority investment (48.8%) in Clearstream Fund Centre AG (previously Fondcenter AG) to Deutsche Börse AG. Long-term commercial cooperation arrangements remain in place for the provision of services by Clearstream to UBS, including collaboration on jointly servicing banks and insurance companies. On 1 July 2021, the Asset Management Operations team was formally integrated into Asset Management, following the Group- wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients. Our focus Our strategy is focused on capitalizing on the areas where we have a leading position and differentiated capabilities, so as to drive further profitable growth and scale. Sustainable and impact investing remains a key area, as clients increasingly seek solutions that combine their investment goals with sustainability objectives. We are continuing the expansion of our world-class capabilities through: product and service innovation; dedicated research; integrating environmental, social and governance (ESG) factors into our investment processes by leveraging our proprietary analytics; and active corporate engagement. During 2021, we enhanced our ESG methodology and data sets, deepened the integration of carbon data into our investment processes, and worked to expand our ESG integration across alternative asset classes. We also increased the entire range of UBS sustainable exchange-traded funds (ETFs), which represented USD 40 billion in invested assets as of 31 December 2021. These ETFs provide exposure to various asset classes with significantly lower carbon intensity compared with their respective market cap-weighted parent indices and help investors to both reduce their climate risks and benefit from opportunities arising from the shift toward a lower-carbon economy. In addition, we continued to expand our Climate Aware suite of products and our Climate Aware invested assets grew to USD 23 billion, a 53% increase year on year. Our sustainability focus and impact invested assets totaled USD 172 billion, a 77% increase year on year. As a founding member of the Net Zero Asset Managers1 initiative, we published an interim target and have committed to align USD 235 billion of invested assets by 2030. We are one of the largest and most diversified firms to have set a 2030 target and we continue to work with our clients, standard setters and industry bodies to help develop the new methodologies, tools and data needed by investors to effect further change. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about sustainability matters In response to the increasing importance of private markets and alternative investments, we are building on our existing expertise in these areas, including our real estate and hedge fund businesses, as well as our capabilities across infrastructure, private equity and private debt. We also continue to develop our award-winning2 indexed businesses globally, including ETFs in Europe, Switzerland and Asia. We focus on sustainable investing across our index product range and provide customization while leveraging our highly scalable platform. › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization Geographically, we are building on our extensive and long- standing presence in the Asia Pacific region. In China, one of the world’s fastest-growing asset management markets, we continue to invest in our leading presence and products, both on- and off-shore, and are ranked as the number one foreign manager of inbound invested assets in Greater China.3 In the rapidly evolving and attractive wholesale segment, we aim to significantly expand our market share through a combination of measures: a continued increase in the share of clients’ business; expansion of our strategic partnerships with distributors; the build-out of our client service and product shelf offerings; and launch of new white-labeling and implementation capabilities. the 11 netzeroassetmanagers.org 22 Passive Manager of the Year in the Insurance Asset Risk EMEA Awards, January 2021 and ranked fourth largest ETF provider in Europe as of December 2021 (source: ETFGI). 33 Ranking compiled by Broadridge in October 2021. 26 27 27 Our strategy, business model and environment Our strategy, business model and environment | Our businesses We also continue our joint efforts with the other business divisions, in particular with Global Wealth Management, enabling our teams to draw on the best ideas, solutions and capabilities from across the firm in order to deliver superior investment performance and experiences for our clients. For example, the separately managed accounts initiative with Global Wealth Management in the US generated USD 27 billion in net new money inflows in 2021 and USD 127 billion in invested assets. This firmly positions us to capture attractive opportunities in other channels by leveraging our world-class expertise and capabilities to meet growing client demand. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions To support our growth, we are focused on disciplined execution of our operational excellence initiatives. This includes further automation, simplification, process optimization and offshoring / nearshoring of selected activities, complemented by continued modernization of our platform and development of our analytics and data capabilities. How we operate Our business division is organized into five areas: Client Coverage, Investments, Real Estate & Private Markets, Products and the COO (Operations). We cover the main asset management markets globally, and have a local presence in 23 locations across four regions: the As of or for the year ended 31 December 2021 USD 27 billion net new money from the SMA1 initiative Americas, Asia Pacific, EMEA and Switzerland. We have nine main hubs: Chicago, New York, London, Zurich, Singapore, Hong Kong SAR, Shanghai, Tokyo and Sydney. Our main competitors are global firms with wide-ranging capabilities and distribution channels, such as Amundi, BlackRock, DWS, Goldman Sachs Asset Management, Invesco, JPMorgan Asset Management, Morgan Stanley Investment Management and Schroders, as well as firms with a specific market or asset- class focus. What we offer We offer clients a wide range of investment products and services in different asset classes, in the form of segregated, pooled or advisory mandates, as well as registered investment funds in various jurisdictions. Our traditional and alternative capabilities include equities, fixed income, hedge funds, real estate and private markets, and indexed and alternative beta strategies (including exchange- traded funds), as well as sustainable and impact investing products and solutions. Our Investment Solutions business draws on the breadth of our capabilities to offer: asset allocation and currency investment strategies across the risk–return spectrum; customized multi-asset solutions, advisory and fiduciary services; and multi-manager hedge fund solutions and advisory services. USD 90 billion assets in Asia Pacific / China investment strategies USD 153 billion assets invested in alternatives2 9 main hubs Chicago, New York, London, Zurich, Singapore, Hong Kong SAR, Shanghai, Tokyo, Sydney USD 172 billion in sustainability focus and impact invested assets 1 Separately managed accounts. 2 Hedge fund businesses, private markets and real estate. 28 28 Our strategy, business model and environment | Our businesses We also continue our joint efforts with the other business Americas, Asia Pacific, EMEA and Switzerland. We have nine main divisions, in particular with Global Wealth Management, enabling hubs: Chicago, New York, London, Zurich, Singapore, Hong Kong Investment Bank our teams to draw on the best ideas, solutions and capabilities SAR, Shanghai, Tokyo and Sydney. from across the firm in order to deliver superior investment Our main competitors are global firms with wide-ranging performance and experiences for our clients. For example, the capabilities and distribution channels, such as Amundi, BlackRock, separately managed accounts initiative with Global Wealth DWS, Goldman Sachs Asset Management, Invesco, JPMorgan Management in the US generated USD 27 billion in net new Asset Management, Morgan Stanley Investment Management money inflows in 2021 and USD 127 billion in invested assets. This and Schroders, as well as firms with a specific market or asset- firmly positions us to capture attractive opportunities in other class focus. channels by leveraging our world-class expertise and capabilities to meet growing client demand. What we offer › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions We offer clients a wide range of investment products and services in different asset classes, in the form of segregated, pooled or To support our growth, we are focused on disciplined advisory mandates, as well as registered investment funds in execution of our operational excellence initiatives. This includes various jurisdictions. further automation, simplification, process optimization and Our traditional and alternative capabilities include equities, offshoring / nearshoring of selected activities, complemented by fixed income, hedge funds, real estate and private markets, and continued modernization of our platform and development of our indexed and alternative beta strategies (including exchange- analytics and data capabilities. traded funds), as well as sustainable and impact investing How we operate products and solutions. Our Investment Solutions business draws on the breadth of our capabilities to offer: asset allocation and currency investment Our business division is organized into five areas: Client Coverage, strategies across the risk–return spectrum; customized multi-asset Investments, Real Estate & Private Markets, Products and the COO solutions, advisory and fiduciary services; and multi-manager (Operations). hedge fund solutions and advisory services. We cover the main asset management markets globally, and have a local presence in 23 locations across four regions: the As of or for the year ended 31 December 2021 USD 27 billion net new money from the SMA1 initiative USD 90 billion assets in Asia Pacific / China investment strategies USD 153 billion assets invested in alternatives2 9 main hubs Chicago, New York, London, Zurich, Singapore, Hong Kong SAR, Shanghai, Tokyo, Sydney USD 172 billion in sustainability focus and impact invested assets 1 Separately managed accounts. 2 Hedge fund businesses, private markets and real estate. 28 The Investment Bank provides services to institutional, corporate and wealth management clients, helping them raise capital, invest and manage risks, while targeting attractive and sustainable risk- adjusted returns for shareholders. Our traditional strengths are in equities, foreign exchange, research, advisory services and capital markets, complemented by a targeted rates and credit platform. We use our data-driven research and technology capabilities to help clients adapt to evolving market structures and changes in regulatory, technological, economic and competitive landscapes. Aiming to deliver market-leading solutions by using our intellectual capital and electronic platforms, we work closely with Global Wealth Management, Personal & Corporate Banking and Asset Management to bring the best of UBS’s capabilities to our clients. We do so with a disciplined approach to balance sheet deployment and costs. Organizational changes In February 2021, we announced that Piero Novelli, Co-President Investment Bank, would step down, and, effective 1 April 2021, Robert Karofsky, Co-President Investment Bank, was appointed sole President Investment Bank. On 1 July 2021, the Investment Bank Operations team was formally integrated into the Investment Bank, following the Group-wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients. In January 2022, Global Research and the Strategic Insights team, formerly part of Evidence Lab Innovations, were integrated into the Investment Bank as Investment Bank Research. This new setup has better aligned our research coverage with the needs of our clients, while continuing to provide research and analytical services across the firm. Our focus Our priority is providing seamless client service and high-quality execution, through disciplined growth in the capital-light advisory and execution businesses, while accelerating our digital transformation. We aspire to provide best-in-class services and solutions to our corporate, institutional and wealth management clients through an integrated, solutions-led approach. In Global Banking, we position ourselves as trusted advisors via our deep client coverage and ability to provide access to the full capabilities of UBS. Our global coverage model utilizes our vast international industry expertise and product capabilities to meet the emerging needs of clients. We provide clients with excellence in execution, financing and structured solutions through our Global Markets franchise. In Global Markets, our sharpest competitive edge comes from coordinating our services across a wide range of asset classes and products. We provide nimble, innovative and bespoke access to solutions, from market and insight tools to trading strategies and execution. Investment Bank Research continues to publish research based on primary data to concentrate on data-driven outcomes and offer clients key insights on securities and themes in major financial markets around the globe. In April 2021, Research entered into a strategic partnership with Lynk Global, an artificial- intelligence-driven knowledge-as-a-service platform, to help clients make better, more informed investment and business decisions. In September 2021, we announced a strategic research redistribution agreement with Wind, the leading financial information provider in China, to offer onshore content to clients who invest through Wind. Investment Bank Research was also a founding partner and investor in Visible Alpha, a model aggregation platform that is now firmly embedded in many of the workflows of our core clients. Our digital strategy harnesses technology to provide access to a wide range of sources of global liquidity and differentiated content. The Investment Bank strives to be the digital investment bank of the future, taking our best ideas and turning them into reality, with innovation-led businesses driving efficiencies and solutions. We aim to develop new products and solutions consistent with our capital-efficient business model, which are most often related to new technologies or changing market standards. In February 2021, we announced the creation of a single Digital Platforms function within the Investment Bank across Global Markets and Global Banking, utilizing digital competencies to benefit all products and maximizing the return on our technology spend in close partnership with Group Technology. Digital Platforms combines product expertise with deep technical know-how, aiming to reduce the number of systems and increase automation, maximizing client impact, revenue and digital adoption. The Digital Platforms function was an early adopter of Agile@UBS, an evolution of the historically close collaboration with our Chief Data and Information Office, creating long-lived teams that learn and continuously improve, which in turn attracts the best talent. Our Investment Bank Accelerated Digital Agile Platform Transformation initiatives form the basis of our digital roadmap, with the ambition of having a simplified and ultra-modern technology landscape that is secure and stable, where we re-use more of everything and where the platforms work together to drive progress toward our overall strategic imperatives. › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization 29 29 Our strategy, business model and environment Our strategy, business model and environment | Our businesses Our global reach gives attractive options for growth. In the Americas, the largest investment banking fee pool globally, we focus on increasing market share in our core Global Banking and Global Markets businesses. In Asia Pacific, opportunities arise mainly from expected market internationalization and growth in China, where we plan to grow by strengthening our presence, both onshore and offshore. In EMEA, we plan to leverage our strong base and brand recognition even further. Joint efforts between the Investment Bank and the other business divisions (for example, our work with Global Wealth Management on the Unified Global Markets team and the Global Lending Unit) and, externally, strategic partnerships (for example, UBS BB jointly with Banco do Brasil, focused on Latin America) continue to be key strategic priorities. We expect these initiatives to continue to lead to growth by delivering global products to each region, leveraging our global connectivity across borders and sharing and strengthening our best client relationships. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions How we operate Our business division consists of two areas: Global Banking and Global Markets, supported by Investment Bank Research. Governed by the Executive, Operating, Risk, and Asset and Liability forums, each business area is organized globally by product. Our geographically balanced business has a global reach, with a presence in more than 30 countries and offices in ten major financial hubs. Competing firms operate in many of our markets, but our strategy differentiates us, with its focus on leadership in the areas where we have chosen to compete, and a business model that leverages talent and technology rather than balance sheet. Our main competitors are the major global investment banks (e.g., Morgan Stanley, Credit Suisse and Goldman Sachs) and corporate investment banks (e.g., Bank of America, Barclays, Citigroup, BNP Paribas, Deutsche Bank and JPMorgan Chase). We also compete with boutique investment banks and fintech firms in certain regions and products. Joint efforts with Global Wealth Management and Asset Management enable us to provide clients with broad access to financing, global capital markets and portfolio solutions. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions What we offer Our Global Banking business advises clients on strategic business opportunities, such as mergers, acquisitions and related strategic matters, and helps them raise capital, both on public and private markets, to fund their activities. Our Global Markets business enables clients to buy, sell and finance securities on capital markets worldwide, and to manage their risks and liquidity. We distribute, trade, finance and clear cash equity and equity-linked products, as well as structuring, originating and distributing new equity and equity-linked issues. From origination and distribution to managing risk and providing liquidity in foreign exchange, rates, credit and precious metals, we help clients to realize their financial goals. Our Investment Bank Research business offers clients differentiated content about major financial markets and securities around the globe, with coverage of over 3,000 stocks in 24 countries. The Strategic Insights team provides timely and relevant information and insights to help clients quickly make decisions regarding their most important questions. We seek to develop new products and solutions consistent with our capital-efficient business model, typically related to new technologies or changing market standards. › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about innovation and digitalization 30 30 As of or for the year ended 31 December 2021 USD 8 billion investments facilitated by Private Markets Inaugural launch of green bonds issued under our Green Funding Framework Presence in >30 countries Ranked 2nd in foreign exchange (Euromoney 2021) Ranked 4th in cash equities1 6.5 million reads across ~45,000 Research documents 10 financial hubs Chicago, New York, London, Zurich, Frankfurt, Singapore, Hong Kong SAR, Shanghai, Tokyo, Sydney 1 Coalition Greenwich Competitor Analytics (third quarter, year-to-date, 2021), based on UBS’s product taxonomy. Our strategy, business model and environment | Our businesses Our global reach gives attractive options for growth. In the with boutique investment banks and fintech firms in certain Americas, the largest investment banking fee pool globally, we regions and products. focus on increasing market share in our core Global Banking and Joint efforts with Global Wealth Management and Asset Global Markets businesses. In Asia Pacific, opportunities arise Management enable us to provide clients with broad access to mainly from expected market internationalization and growth in financing, global capital markets and portfolio solutions. China, where we plan to grow by strengthening our presence, both onshore and offshore. In EMEA, we plan to leverage our › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions strong base and brand recognition even further. Joint efforts between the Investment Bank and the other What we offer business divisions (for example, our work with Global Wealth Management on the Unified Global Markets team and the Global Our Global Banking business advises clients on strategic business Lending Unit) and, externally, strategic partnerships (for example, opportunities, such as mergers, acquisitions and related strategic UBS BB jointly with Banco do Brasil, focused on Latin America) matters, and helps them raise capital, both on public and private continue to be key strategic priorities. We expect these initiatives markets, to fund their activities. to continue to lead to growth by delivering global products to Our Global Markets business enables clients to buy, sell and each region, leveraging our global connectivity across borders and finance securities on capital markets worldwide, and to manage sharing and strengthening our best client relationships. › Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions How we operate their risks and liquidity. We distribute, trade, finance and clear cash equity and equity-linked products, as well as structuring, originating and distributing new equity and equity-linked issues. From origination and distribution to managing risk and providing liquidity in foreign exchange, rates, credit and precious metals, we help clients to realize their financial goals. Our business division consists of two areas: Global Banking and Our Investment Bank Research business offers clients Global Markets, supported by Investment Bank Research. differentiated content about major financial markets and Governed by the Executive, Operating, Risk, and Asset and securities around the globe, with coverage of over 3,000 stocks Liability forums, each business area is organized globally by in 24 countries. The Strategic Insights team provides timely and product. Our geographically balanced business has a global relevant information and insights to help clients quickly make reach, with a presence in more than 30 countries and offices in decisions regarding their most important questions. ten major financial hubs. We seek to develop new products and solutions consistent Competing firms operate in many of our markets, but our with our capital-efficient business model, typically related to new strategy differentiates us, with its focus on leadership in the areas technologies or changing market standards. where we have chosen to compete, and a business model that leverages talent and technology rather than balance sheet. Our main competitors are the major global investment banks (e.g., › Refer to “Clients” in the “How we create value for our stakeholders” section and to “Leveling up technology” in the “Our strategy” section of this report for more information about Morgan Stanley, Credit Suisse and Goldman Sachs) and corporate innovation and digitalization investment banks (e.g., Bank of America, Barclays, Citigroup, BNP Paribas, Deutsche Bank and JPMorgan Chase). We also compete The Investment Bank is focused on meeting the needs of clients with regard to environmental, social and governance (ESG) considerations and sustainable finance, helping to reshape business models and investment opportunities and to develop sustainable finance products and solutions across the Investment Bank. Since 2005, we have addressed increasing client demand for sustainable investing by providing thematic and sector research and investment solutions through socially responsible and impact exchange-traded funds and index-linked notes. In addition, we offer capital-raising and strategic advisory services globally to companies that make positive contributions to climate change mitigation and adaptation. We provide advice on innovative financing strategies, guiding clients through inaugural green issuances and positioning them in multi-currency markets. In September 2021, we announced the formation of our ESG Advisory team in Global Banking, aiming to support our clients’ sustainability strategies. As part of the Group’s net-zero commitments, the Investment Bank has developed science-based intermediate emission targets for 2030 for its lending business in priority sectors (fossil fuels and power generation). In June 2021, we announced the inaugural launch of two senior unsecured green bonds under our Green Funding Framework. › Refer to the “Taking action on a net-zero future – our climate report” section of the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about the Investment Bank’s targets for its lending business As of or for the year ended 31 December 2021 USD 8 billion investments facilitated by Private Markets Inaugural launch of green bonds issued under our Green Funding Framework Ranked 4th in cash equities1 Presence in >30 countries Ranked 2nd in foreign exchange (Euromoney 2021) 6.5 million reads across ~45,000 Research documents 10 financial hubs Chicago, New York, London, Zurich, Frankfurt, Singapore, Hong Kong SAR, Shanghai, Tokyo, Sydney 1 Coalition Greenwich Competitor Analytics (third quarter, year-to-date, 2021), based on UBS’s product taxonomy. 30 31 31 Our strategy, business model and environmentOur strategy, business model and environment | Our businesses Group Functions Group Functions provides services to the Group, focusing on effectiveness, risk mitigation and efficiency. Group Functions also includes the Non-core and Legacy Portfolio unit. How we are organized Group Functions The major areas within Group Functions are Group Services (which consists of Technology, Corporate Services, Human Resources, Finance, Legal, Risk Control, Compliance, Regulatory & Governance, Communications & Branding, and Group Sustainability and Impact), Group Treasury, and Non-core and Legacy Portfolio. In recent years, we have aligned support functions and business divisions. The vast majority of such functions are fully aligned or shared among business divisions, where they have full management responsibility. By keeping the activities of the businesses and support functions close, we increase efficiency and create a working environment built on accountability and collaboration. On 1 July 2021, following the Group-wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients, each of the Operations teams were formally moved out of Group Functions and integrated into the respective business divisions. Non-core and Legacy Portfolio, a small residual set of activities in Group Treasury and certain other costs that are mainly related to deferred tax assets and costs relating to our legal entity transformation program are all retained centrally. Group Treasury Group Treasury manages balance sheet structural risk (e.g., interest rate, structural foreign exchange and collateral risks) and the risks associated with our liquidity and funding portfolios. Group Treasury serves all business divisions and its risk management is integrated into the Group risk governance framework. Non-core and Legacy Portfolio Non-core and Legacy Portfolio manages legacy positions from businesses exited by the Investment Bank, following a largely passive wind-down strategy. Overseen by a committee chaired by the Group Chief Financial Officer, its portfolio also includes positions relating to legal matters arising from businesses transferred to it at the time of its formation. › Refer to “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information about litigation, regulatory and similar matters 32 32 Our strategy, business model and environment | Our businesses Group Functions Group Functions provides services to the Group, focusing on Group Treasury effectiveness, risk mitigation and efficiency. Group Functions also Group Treasury manages balance sheet structural risk (e.g., includes the Non-core and Legacy Portfolio unit. interest rate, structural foreign exchange and collateral risks) and the risks associated with our liquidity and funding portfolios. Group Treasury serves all business divisions and its risk management is integrated into the Group risk governance framework. How we are organized Group Functions The major areas within Group Functions are Group Services (which consists of Technology, Corporate Services, Human Non-core and Legacy Portfolio Resources, Finance, Legal, Risk Control, Compliance, Regulatory Non-core and Legacy Portfolio manages legacy positions from & Governance, Communications & Branding, and Group businesses exited by the Investment Bank, following a largely Sustainability and Impact), Group Treasury, and Non-core and passive wind-down strategy. Overseen by a committee chaired by Legacy Portfolio. the Group Chief Financial Officer, its portfolio also includes In recent years, we have aligned support functions and positions relating to legal matters arising from businesses business divisions. The vast majority of such functions are fully transferred to it at the time of its formation. aligned or shared among business divisions, where they have full management responsibility. By keeping the activities of the businesses and support functions close, we increase efficiency and › Refer to “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information about litigation, regulatory and similar create a working environment built on accountability and matters collaboration. On 1 July 2021, following the Group-wide decision to move each of the firm’s business-aligned Operations teams into their respective divisions in order to become even more client-centric, agile and digital, while creating a seamless experience for our clients, each of the Operations teams were formally moved out of Group Functions and integrated into the respective business divisions. Non-core and Legacy Portfolio, a small residual set of activities in Group Treasury and certain other costs that are mainly related to deferred tax assets and costs relating to our legal entity transformation program are all retained centrally. Our environment Market climate Global economic developments in 2021 2021 was a positive year for the global economy and most markets. Growth rebounded, with the global economy expanding 6.1%, after contracting 3.0% in 2020. The recovery was also broad based, with all major nations experiencing a revival in demand as pandemic restrictions were gradually relaxed and the policies of major central banks remained supportive. Swiss GDP increased 3.5% in 2021, after decreasing 2.5% in 2020. US GDP grew 5.7%, after decreasing 3.4%. The Eurozone economy expanded 5.2%, after contracting 6.5% in the prior year. UK GDP increased 7.2% in 2021, after a decrease of 9.4% in 2020. China’s economy grew 8.1%, up from 2.2% in 2020, although momentum slowed toward the end of 2021 and into 2022. Other leading Asian economies recovered strongly in 2021, with India’s GDP growing 8.7%, Singapore’s GDP increasing 7.6% and South Korea’s GDP expanding 3.9%. Japan experienced less growth, with GDP increasing 1.7% after a 4.5% contraction in 2020. Growth in the top emerging markets was mixed, with a moderate 1.7% growth rate in Thailand and 3.7% in Indonesia, compared with a more robust 5.3% in Mexico and 4.5% in Brazil. Elevated inflation emerged as a concern through 2021 in much of the world, as the pandemic continued to disrupt supply chains and shift patterns of demand. By the end of the year, US inflation was running at the fastest pace since 1982 on a year-on-year basis. This caused the US Federal Reserve to move toward monetary tightening, announcing a scaling back of asset purchases and pointing toward rate rises. Inflation was contained in Switzerland, at 0.6% for the year, but climbed swiftly in the Eurozone, from 0.3% in 2020 to 2.6% in 2021. Meanwhile, prices in Japan declined 0.2% in 2021, having been flat in 2020. Financial markets, both equities and fixed income, were resilient in the face of continuing waves of COVID-19 infections. Global equities delivered total returns of 18.5% in 2021. The US outperformed: MSCI USA delivered total returns of 27%, outperforming the MSCI All Country World index by 8 percentage points and taking its share of the global index’s market capitalization to a record level of 48%. The Eurozone, Japanese, Swiss and UK equity markets all gained ground. China, however, was an underperformer: after reaching a record high in February 2021, MSCI China declined over the rest of the year, driven by increased regulation on the technology and property sectors, energy shortages, and a slowing economy. The index delivered negative returns of 22.4% in 2021, negatively impacting the performance of the MSCI Emerging Markets index overall, which decreased 2.5% in 2021. Government bond markets were also resilient, especially against a backdrop of historically high inflation. The yield on 10- year US Treasuries ended the year at 1.5%, only a modest increase from 0.9% at the start of the year. With inflation rising, but nominal yields staying low, US real yields traded as low as minus 1.2%, the lowest level since the inception of the Treasury inflation-protected securities (TIPS) market in 1997. The yield on 10-year German Bunds remained negative through 2021, ending the year at minus 0.18%. 32 33 33 Our strategy, business model and environment Our strategy, business model and environment | Our environment Industry trends Although our industry has been heavily affected by various regulatory developments over the past decade, technological transformation and changing client expectations are further emerging as key drivers of change today, increasingly affecting the competitive landscape, as well as our products, service models and operations. In parallel, our industry continues to be materially driven by changes in financial market and macroeconomic conditions. Client expectations As technology progresses, clients more rapidly redefine the way they live, work and interact with others. This is reshaping clients’ expectations toward financial services firms, as their reference points are increasingly influenced by experiences with companies outside our sector, where technology-supported and data-driven solutions are progressively enabling a more seamless and improved client experience. These services often focus on convenience and personalization, and drive toward holistically addressing clients’ needs and facilitating community building. Therefore our franchise needs to evolve, as clients measure us against new standards. Sustainability Markets around the world are undergoing a profound transformation as company business models evolve and investors factor in the transition to a low-carbon economy and other sustainable themes with regard to investment risk and return. Investors are adding sustainable Shifting societal values and greater regulation are supporting investing client demand. strategies to their portfolios, with the fastest growth around funds focused on climate. Industry inflows into sustainable funds have accelerated during the COVID-19 pandemic and the sustainable investing market share remains above pre-pandemic levels. Our view is that this trend plays to UBS’s strengths, as we have been at the forefront of sustainable finance for over two decades, making us well placed to continue developing the innovative products and solutions our institutional and private clients need. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about sustainability matters Digitalization Digitalization in the financial services industry is accelerating and has been given further momentum by the ongoing COVID-19 pandemic. Banks have demonstrated their ability to take on a vast increase in the number of clients switching to digital channels while ensuring operational resilience. As a result, clients increasingly trust digital solutions and are now demanding even more seamless, personalized digital products and services tailored to their needs. Regional and demographic differences in the acceptance and use of digital technologies are narrowing across all client segments, thus increasing the number of digital users. This trend requires financial institutions to focus even more on fully digital and digitally enhanced service models and digitally enabled ecosystems. restrictions on physical As governments reacted to the outbreak of the pandemic by imposing interactions, digital communication, with clients and employees alike, established new remote ways of working, which are expected to also be used by some companies in post-pandemic scenarios, enabling them to attract an even wider array of talent than before. The digitalization of the financial services industry has led to a structural shift in the workforce: more and better engineers are required to keep banks at the forefront of technology, thus setting them into direct competition with technology companies beyond the borders of the financial sector. Continuous investment in technology is driving automation and simplification of labor-intensive processes, improving banks’ operational efficiency and freeing up resources to focus on client needs. Decision making is becoming increasingly data-driven, with advanced analytics and artificial intelligence enabling banks to address client needs in an even more targeted manner. Nascent technologies, such as distributed ledger technology, are expected to mature over the coming years and are likely to reshape our industry. They provide opportunities to overcome existing financial system frictions, broaden access to underbanked communities and make previously unviable products or services available to the financial services industry. Consolidation Many regions and businesses in the financial services sector are still highly fragmented. We expect further consolidation, with the key drivers being ongoing margin pressure, a push for cost efficiencies and increasing scale advantages resulting from the fixed costs of technology, and regulatory requirements. Many banks currently seek increasing exposure and access to regions with attractive growth profiles, such as Asia and other emerging markets, through local acquisitions or partnerships. The increased focus on core capabilities and geographical footprint, as well as the ongoing simplification of business models to reduce operational and compliance risks, is likely to drive further disposals of non-core businesses and assets. The impact of the COVID-19 pandemic may further accelerate consolidation, as banks face increasing threats from digitalization, low interest rates and intensified competition. 34 34 Our strategy, business model and environment | Our environment Industry trends Although our industry has been heavily affected by various while ensuring operational resilience. As a result, clients regulatory developments over the past decade, technological increasingly trust digital solutions and are now demanding even transformation and changing client expectations are further more seamless, personalized digital products and services tailored emerging as key drivers of change today, increasingly affecting to their needs. Regional and demographic differences in the the competitive landscape, as well as our products, service models acceptance and use of digital technologies are narrowing across and operations. In parallel, our industry continues to be materially all client segments, thus increasing the number of digital users. driven by changes in financial market and macroeconomic This trend requires financial institutions to focus even more on conditions. Client expectations fully digital and digitally enhanced service models and digitally enabled ecosystems. As governments reacted to the outbreak of the pandemic by imposing restrictions on physical interactions, digital As technology progresses, clients more rapidly redefine the way communication, with clients and employees alike, established they live, work and interact with others. This is reshaping clients’ new remote ways of working, which are expected to also be used expectations toward financial services firms, as their reference by some companies in post-pandemic scenarios, enabling them to points are increasingly influenced by experiences with companies attract an even wider array of talent than before. The outside our sector, where technology-supported and data-driven digitalization of the financial services industry has led to a solutions are progressively enabling a more seamless and structural shift in the workforce: more and better engineers are improved client experience. These services often focus on required to keep banks at the forefront of technology, thus convenience and personalization, and drive toward holistically setting them into direct competition with technology companies addressing clients’ needs and facilitating community building. beyond the borders of the financial sector. Therefore our franchise needs to evolve, as clients measure us Continuous investment in technology is driving automation against new standards. Sustainability and simplification of labor-intensive processes, improving banks’ operational efficiency and freeing up resources to focus on client needs. Decision making is becoming increasingly data-driven, with advanced analytics and artificial intelligence enabling banks Markets around the world are undergoing a profound to address client needs in an even more targeted manner. transformation as company business models evolve and investors Nascent technologies, such as distributed ledger technology, factor in the transition to a low-carbon economy and other are expected to mature over the coming years and are likely to sustainable themes with regard to investment risk and return. reshape our industry. They provide opportunities to overcome Shifting societal values and greater regulation are supporting existing financial system frictions, broaden access to underbanked client demand. Investors are adding sustainable investing communities and make previously unviable products or services strategies to their portfolios, with the fastest growth around available to the financial services industry. funds focused on climate. Industry inflows into sustainable funds have accelerated during the COVID-19 pandemic and the Consolidation sustainable investing market share remains above pre-pandemic levels. Many regions and businesses in the financial services sector are Our view is that this trend plays to UBS’s strengths, as we have still highly fragmented. We expect further consolidation, with the been at the forefront of sustainable finance for over two decades, key drivers being ongoing margin pressure, a push for cost making us well placed to continue developing the innovative efficiencies and increasing scale advantages resulting from the products and solutions our institutional and private clients need. fixed costs of technology, and regulatory requirements. Many › Refer to the Sustainability Report 2021, available from 11 March banks currently seek increasing exposure and access to regions 2022 under “Annual reporting” at ubs.com/investors, for more with attractive growth profiles, such as Asia and other emerging information about sustainability matters Digitalization markets, through local acquisitions or partnerships. The increased focus on core capabilities and geographical footprint, as well as the ongoing simplification of business models to reduce operational and compliance risks, is likely to drive further disposals Digitalization in the financial services industry is accelerating and of non-core businesses and assets. The impact of the COVID-19 has been given further momentum by the ongoing COVID-19 pandemic may further accelerate consolidation, as banks face pandemic. Banks have demonstrated their ability to take on a vast increasing threats from digitalization, low interest rates and increase in the number of clients switching to digital channels intensified competition. New competitors Our competitive environment is evolving. In addition to traditional competitors in the asset-gathering businesses, new entrants are targeting selected parts of the value chain. However, we have not yet seen a fundamental unbundling of the value chain and client relationships, which might ultimately result in the further disintermediation of banks by new competitors. Over the long term, we believe large platform companies entering the financial services industry could pose a significant competitive threat, given their strong client franchises and access to client data, if they decide to broaden the scope of their services. Fintech firms are gaining momentum, which has been accelerated by the COVID-19 pandemic, causing increased use of remote solutions. However, such firms have not to date materially disrupted our asset-gathering businesses. The trend for forging partnerships between new entrants and incumbent banks is continuing, as technology and innovation help banks overcome new challenges. outsourcing arrangements, and putting an emerging policy focus on diversity and inclusion. Finally, central banks and regulators continue to learn the lessons from the COVID-19 pandemic. An important area of concern is understanding the effects of contagion in financial markets, particularly financial stability risks emanating from non- bank financial institutions. Many of these developments are taking place in an environment characterized by significant political uncertainties, including geopolitical tensions that could pose additional challenges to the provision of cross-border financial services and rapidly evolving societal expectations toward financial institutions. We believe the adaptations made to our business model and our proactive management of regulatory change put us in a strong position to absorb upcoming changes to the regulatory environment. › Refer to the “Regulatory and legal developments” and “Capital, liquidity and funding, and balance sheet” sections of this report Regulation Although the impact of the COVID-19 pandemic is still evident, regulators are re-focusing their attention toward policy areas that were already in motion before the pandemic started, including prudential regulation and anti-money laundering (AML), and to emerging policy topics, particularly in the areas of digital innovation and environmental, social and governance (ESG). Sustainable finance and climate risk were a key focus of policymakers in 2021, with the United Nations Climate Change Conference (COP26) acting as a catalyst for action. We expect further policy developments, including in the areas of climate- related disclosures, climate-related financial risks and ESG. The acceleration of the digital finance agenda, which in part resulted from the COVID-19 pandemic, continues to trigger action from regulators and this will likely further intensify. Among such action, we expect further progress on the regulation of cryptoassets and stablecoins, as well as on the ongoing work on central bank digital currencies and digital engagement practices. The national implementation of the Basel framework remains another important focus area, but there is a significant risk of divergence in the timing of implementation, as well as the content of the provisions. EU authorities have proposed a package of measures aimed at implementing the remaining Basel III elements by 2025, i.e., two years after the timeline envisaged by the Basel Committee on Banking Supervision, while the authorities in Switzerland and the UK are expected to consult on their approach in 2022. Implementation in Switzerland is expected in 2024 and in the UK no earlier than March 2023. Implementation in the US is still uncertain. In addition, regulatory authorities continue to refine existing regulations, including the finalization of the Swiss too-big-to-fail framework, with a current focus on additional liquidity requirements for systemically important banks. The regulators are also advancing the regulatory framework in key policy areas, including anti-money laundering, operational resilience and for more information Wealth creation1 Despite the economic tumult related to the pandemic, the global high net worth individual population and financial wealth increased in 2020 6.3% and 7.6%, respectively. The United States continued to lead, with high net worth individual wealth growth of 12.3%; in Asia Pacific, such wealth expanded 8.4% and in Europe 4.5%. In line with previous trends, the ultra high net worth individual segment led wealth growth, with an average of 9.1%. Today, 44% of global financial wealth is concentrated in North America, followed by Asia (26%) and Europe (21%).2 By segment, approximately a third of global high net worth individual wealth is held by individuals with wealth in excess of USD 30 million, 23% by individuals with wealth ranging from USD 5 million to USD 30 million and the remaining approximately 43% is within the wealth segment between USD 1 million and USD 5 million. Wealth is being created at a faster rate for a number of key client groups, including female clients and entrepreneurs. We also see significant wealth transition to the next generation over the coming decade. The outlook for wealth remains positive, with North America, Asia (excluding Japan) and Western Europe expected to account for 87% of new financial wealth growth worldwide between now and 2025.2 Wealth transfer Demographic and socioeconomic developments continue to generate shifts in wealth. Over the next 10 to 15 years, the “next gen,” composed of individuals currently between the ages of 20 and 50, will be an influential driver of future growth, as those people accumulate significant financial wealth from inheritance or liquidity events.2 11 All the figures are from the Capgemini World Wealth Report 2021 unless otherwise stated and refer to the 2020 financial year. The Capgemini World Wealth Report 2021 defines wealth segmentation as follows: those with wealth of greater than USD 30 million are classified as ultra high net worth individuals; USD 1–30 million for high net worth individuals. 22 Based on BCG Global Wealth Report 2021. Wealth concentration is based on financial assets by regions and excludes real assets and liabilities. 34 35 35 Our strategy, business model and environmentOur strategy, business model and environment | Our environment As a group, next gens have a longer investment horizon, a greater appetite for risk and often a desire to use wealth to create a positive societal impact alongside investment returns. As shown in the Wealth-X report “World Ultra Wealth Report 2021,” the proportion of ultra-wealthy women has also been on a gradual upward trend in recent years, reflecting changing cultural attitudes and growth in female entrepreneurship, as well as wealth transfers between generations. We are responding to the evolving wealth landscape with a framework that addresses all aspects of our clients’ financial lives, called UBS Wealth Way. It begins with discovery questions and a conversation with clients about what is most important to them. We help clients organize their financial life along three key strategies: Liquidity to help provide cash flow for short-term expenses; Longevity for long-term needs; and Legacy for needs that go beyond their own and help improve the lives of others, a key part of wealth transfer planning. Search for yield Since the beginning of the COVID-19 pandemic, investors have faced a very different investment landscape when compared with the last decade, with higher rates of economic growth in developed markets and most notably higher inflation. Nevertheless, we expect changes in monetary policies of the central banks of Switzerland and Europe, which have kept interest rates at historically low levels, to be gradual. The US Federal Reserve has quickly adjusted to a higher-rate path, but the overall expected rates remain low in a historical context. Therefore, while this will create new opportunities for investors in the bond and equity markets, the overall low-yield environment will continue. As a result, investors searching for sustainable high returns for the longer term continue to diversify into illiquid alternatives (e.g., private equity, property, hedge funds and infrastructure) that can deliver compelling risk-adjusted returns. At the same time, investors continue to look for low-cost, efficient passive strategies across liquid equity markets. We believe the breadth of Asset Management’s investment expertise enables us to find the right solutions for clients across asset classes and regions. 36 36 Our strategy, business model and environment | Our environment As a group, next gens have a longer investment horizon, a Search for yield greater appetite for risk and often a desire to use wealth to create a positive societal impact alongside investment returns. As shown Since the beginning of the COVID-19 pandemic, investors have in the Wealth-X report “World Ultra Wealth Report 2021,” the faced a very different investment landscape when compared with proportion of ultra-wealthy women has also been on a gradual the last decade, with higher rates of economic growth in upward trend in recent years, reflecting changing cultural developed markets and most notably higher inflation. attitudes and growth in female entrepreneurship, as well as Nevertheless, we expect changes in monetary policies of the wealth transfers between generations. central banks of Switzerland and Europe, which have kept interest We are responding to the evolving wealth landscape with a rates at historically low levels, to be gradual. The US Federal framework that addresses all aspects of our clients’ financial lives, Reserve has quickly adjusted to a higher-rate path, but the overall called UBS Wealth Way. It begins with discovery questions and a expected rates remain low in a historical context. Therefore, while conversation with clients about what is most important to them. this will create new opportunities for investors in the bond and We help clients organize their financial life along three key equity markets, the overall low-yield environment will continue. strategies: Liquidity to help provide cash flow for short-term As a result, investors searching for sustainable high returns for expenses; Longevity for long-term needs; and Legacy for needs the longer term continue to diversify into illiquid alternatives (e.g., that go beyond their own and help improve the lives of others, a private equity, property, hedge funds and infrastructure) that can key part of wealth transfer planning. deliver compelling risk-adjusted returns. At the same time, investors continue to look for low-cost, efficient passive strategies across liquid equity markets. We believe the breadth of Asset Management’s investment expertise enables us to find the right solutions for clients across asset classes and regions. Our response to COVID-19 In 2021, the COVID-19 pandemic, which had caused a globally unprecedented situation in 2020, continued to affect UBS and its employees and required our ongoing focus on safeguarding the well-being of our employees and their families, on serving our clients and ensuring operational continuity. The rebound in economic activity in 2021 and expectations of further economic recovery was accompanied by the spread of new variants that resulted in all-time high numbers of COVID-19 infections and associated disruption. Our support for clients and the economies in which we operate We continued to support our clients with advice needed to manage their assets and liabilities, along with actively developing investment solutions and global insights. The program established by the Swiss Federal Council in March 2020 to support small and medium-sized entities (SMEs) by guaranteeing loans granted by banks closed on 31 July 2020. Outstanding commitments of loans granted by UBS under the program amounted to CHF 2.2 billion on 31 December 2021, with a total amount drawn of CHF 1.6 billion, compared with the peak commitments of CHF 3.3 billion and the corresponding total amount drawn of CHF 1.7 billion as of 31 July 2020. No net economic profits have been made since the launch of the program in 2020. In the US, we continued to support the lending programs created under the CARES Act for small businesses. Working with a partner, we provided loans of USD 1.1 billion under the Paycheck Protection Program until the program expired in May 2021. We donated around USD 1 million of fees earned on such loans in 2021 to COVID-19 relief efforts and around USD 2 million in 2020. Our support for communities Following earlier donations to various COVID-19-related aid projects that support communities across regions in which we operate, and recognizing the critical importance of ensuring access to COVID-19 vaccines globally, in 2021 UBS partnered with Gavi, the global vaccine alliance, to raise funds for its COVID-19 Vaccines Global Access facility. UBS Optimus (COVAX) Foundation raised USD 2 million from clients for the Gavi COVAX facility, which, with matching funds from UBS and the Bill & Melinda Gates Foundation, will support COVID-19 vaccinations for more than 800,000 people in low- and middle-income countries. More recently, we have committed to a range of relief programs in India through the UBS Optimus Foundation COVID- 19 Response Fund. Following the first tranche in the second quarter of 2021, which focused on the delivery of oxygen and other medical supplies to those most in need, the current tranche centers around building healthcare worker capacity across underserved and remote locations, as well as supporting the mental health of children and young people to help them cope with the effects of the COVID-19 pandemic. Our support for employees Throughout 2021, we continued to prioritize the health and safety of our employees and clients and to adapt our processes related to office work and in-person meetings in line with country- and location-specific developments. Due to the ongoing pressure placed on employees by closed workplaces and schools, restricted activities and varying degrees of lockdown, we continued with a range of supportive measures throughout 2021. The offer to our employees included a variety of tools and resources to support employees’ physical, mental, financial and social well-being, as well as continuing flexibility to manage various work / life demands. Effects of the COVID-19 pandemic on our financial and capital position The negative effects of the COVID-19 crisis on our financial and in 2021, despite the limited capital positions remained uncertainties caused by the pandemic. We maintained a strong capital and liquidity position in the face of the COVID-19 pandemic. 36 37 37 Our strategy, business model and environment Our strategy, business model and environment | How we create value for our stakeholders How we create value for our stakeholders SSttaakkeehhoollddeerr ggrroouupp SSttaakkeehhoollddeerr nneeeeddss:: wwhhaatt oouurr ssttaakkeehhoollddeerrss eexxppeecctt ffrroomm uuss VVaalluuee pprrooppoossiittiioonn:: hhooww wwee ccrreeaattee vvaalluuee ffoorr oouurr ssttaakkeehhoollddeerrss KKeeyy ttooppiiccss ddiissccuusssseedd:: wwhhaatt wwaass iimmppoorrttaanntt ttoo oouurr ssttaakkeehhoollddeerrss iinn 22002211 SSttaakkeehhoollddeerr eennggaaggeemmeenntt:: hhooww wwee eennggaaggee wwiitthh oouurr ssttaakkeehhoollddeerrss CClliieennttss Advice on a broad range of products and services from trusted advisors A mix of personal interaction with our advisors in combination with digital service anywhere and anytime (convenient, seamless digital banking is the expectation) Top-quality solutions and the highest standards in terms of asset safety, data and information security, confidentiality, and privacy A combination of global reach and local capabilities targeting positive investment outcomes Competitively priced products and services, risk management, and liquidity Delivering tailored advice and customized solutions, using our intellectual capital and digital platforms Building long-term personalized relationships with our clients Developing new products, solutions and strategic partnerships in response to clients’ evolving needs, including in the digital age Providing access to global capital markets and bespoke financing solutions Meeting increasing sustainable investment and private markets demand from clients Investment performance in light of the continued low-interest-rate environment coupled with the threat of rising inflation Holistic goal-based financial planning Sustainable finance and investing opportunities Individualized client meetings Requests for regular client feedback, feedback monitoring and complaint handling Primarily virtual client events and conferences, including information on key developments and opportunities Data privacy and security Client satisfaction surveys Products and services, including those around digital banking Increasing levels of digital interaction with clients The need for even more personal advice following the start of the COVID-19 pandemic IInnvveessttoorrss Disciplined execution of our strategy leading to attractive capital returns through dividends and share repurchases Executing our strategy with discipline and agility as the external environment evolves, while aiming to deliver cost- and capital-efficient growth Providing transparent, timely and reliable public disclosures Comprehensive and clear disclosures on quantitative and qualitative data necessary to make informed investment decisions Recognizing and proactively addressing strategic opportunities and challenges EEmmppllooyyeeeess A global, world-class employer, with the expertise and breadth of opportunity to empower people to develop successful careers A collaborative, engaging, supportive and inclusive workplace culture An environment that provides a sense of belonging and the opportunities to positively impact clients, shareholders and society Skill and career development opportunities, including future-skills development, and rewards for performance and impact Hiring great talent and investing in development, now and for the future Effective, fair people management and compensation policies and practices A strong workplace culture that aligns with our purpose and values, enabling employees to develop their careers and unlock their full potential Holistic support, including health and well-being initiatives, that empowers employees and fosters resilience Comprehensive workforce data analytics enable making better and faster decisions to meet business needs Strategic plans and updated targets following the change of CEO in late 2020 Structural growth in and return potential of our businesses Cost efficiency and ability to generate positive operating leverage Ability to protect or even grow revenues in a low-for-longer interest rate environment Incorporation of ESG factors into the business model, compensation and risk management Our corporate culture, aligned to purpose and enabled by our three keys to success A clear commitment to fair pay A performance management process that supports our strategic priorities Hybrid working options for employees Strategic focus on diversity, equity and inclusion A more agile future; accelerating new ways of working Financial reports, investor and analyst conference calls, and webcasts, as well as media updates on our performance or other disclosures General meetings of shareholders Investor and analyst meetings Digital interactions with investors as a result of COVID-19 pandemic restrictions, with limited impact on pre- pandemic meeting schedules and participation, given reliable virtual solutions; the 2021 Annual General Meeting was held virtually Regular CEO and GEB communications and events, along with senior leadership, regional and functional sessions with employees Employee surveys and other virtual employee engagement activities Group Franchise Awards and the Kudos peer-to-peer recognition program Health and well-being offerings, employee volunteering and network opportunities, flexible and hybrid- working arrangements SSoocciieettyy Facilitation of economic development that is sustainable for the planet and humankind Promoting significant and lasting improvements to the well-being of communities in which we operate Sustainable finance Our climate strategy Maximization of our positive effects and minimization of any negative effects on society and the environment Taking an active role in the transition of our economy toward environmentally and socially sustainable solutions Proactive management of the environmental and societal impacts of our businesses Advising clients to align their business models with ESG parameters and the UN Sustainable Development Goals Our client and corporate philanthropy efforts Reducing inequalities in our local communities Community investments and partnerships with social institutions Interaction with NGOs Participation in forums and round tables, as well as industry-, sector- and topic-specific debates Dialogues with regulators and governments Support of COVID-19-related aid projects across our communities 38 38 Our strategy, business model and environment | How we create value for our stakeholders How we create value for our stakeholders Clients SSttaakkeehhoollddeerr SSttaakkeehhoollddeerr nneeeeddss:: VVaalluuee pprrooppoossiittiioonn:: ggrroouupp wwhhaatt oouurr ssttaakkeehhoollddeerrss eexxppeecctt ffrroomm uuss hhooww wwee ccrreeaattee vvaalluuee ffoorr oouurr ssttaakkeehhoollddeerrss KKeeyy ttooppiiccss ddiissccuusssseedd:: wwhhaatt wwaass iimmppoorrttaanntt ttoo oouurr ssttaakkeehhoollddeerrss iinn 22002211 SSttaakkeehhoollddeerr eennggaaggeemmeenntt:: hhooww wwee eennggaaggee wwiitthh oouurr ssttaakkeehhoollddeerrss CClliieennttss Advice on a broad range of products Delivering tailored advice and Investment performance in light of the Individualized client meetings and services from trusted advisors customized solutions, using our continued low-interest-rate A mix of personal interaction with our advisors in combination with digital Building long-term personalized rising inflation intellectual capital and digital platforms environment coupled with the threat of service anywhere and anytime relationships with our clients Holistic goal-based financial planning Requests for regular client feedback, feedback monitoring and complaint handling Primarily virtual client events and (convenient, seamless digital banking is the expectation) Developing new products, solutions Sustainable finance and investing conferences, including information on and strategic partnerships in response opportunities key developments and opportunities Top-quality solutions and the highest to clients’ evolving needs, including in standards in terms of asset safety, data the digital age Data privacy and security Client satisfaction surveys and information security, confidentiality, and privacy Providing access to global capital markets and bespoke financing Products and services, including those Increasing levels of digital interaction around digital banking with clients A combination of global reach and local solutions capabilities targeting positive investment outcomes Competitively priced products and demand from clients services, risk management, and liquidity Meeting increasing sustainable investment and private markets pandemic The need for even more personal advice following the start of the COVID-19 IInnvveessttoorrss Disciplined execution of our strategy Executing our strategy with discipline Strategic plans and updated targets Financial reports, investor and analyst leading to attractive capital returns and agility as the external environment following the change of CEO in late conference calls, and webcasts, as well through dividends and share evolves, while aiming to deliver cost- 2020 repurchases and capital-efficient growth as media updates on our performance or other disclosures Structural growth in and return Comprehensive and clear disclosures on Providing transparent, timely and potential of our businesses General meetings of shareholders quantitative and qualitative data reliable public disclosures necessary to make informed investment decisions Recognizing and proactively addressing strategic opportunities and challenges Cost efficiency and ability to generate Investor and analyst meetings positive operating leverage Ability to protect or even grow revenues in a low-for-longer interest rate environment Incorporation of ESG factors into the Digital interactions with investors as a result of COVID-19 pandemic restrictions, with limited impact on pre- pandemic meeting schedules and participation, given reliable virtual solutions; the 2021 Annual General business model, compensation and risk Meeting was held virtually management EEmmppllooyyeeeess A global, world-class employer, with Hiring great talent and investing in Our corporate culture, aligned to Regular CEO and GEB communications development, now and for the future purpose and enabled by our three keys and events, along with senior the expertise and breadth of opportunity to empower people to develop successful careers A collaborative, engaging, supportive and inclusive workplace culture Effective, fair people management and to success compensation policies and practices A clear commitment to fair pay A strong workplace culture that aligns A performance management process with our purpose and values, enabling that supports our strategic priorities An environment that provides a sense employees to develop their careers and of belonging and the opportunities to unlock their full potential positively impact clients, shareholders and society Skill and career development opportunities, including future-skills development, and rewards for performance and impact Holistic support, including health and well-being initiatives, that empowers employees and fosters resilience Comprehensive workforce data analytics enable making better and faster decisions to meet business needs Hybrid working options for employees Strategic focus on diversity, equity and inclusion A more agile future; accelerating new ways of working SSoocciieettyy Facilitation of economic development Promoting significant and lasting Sustainable finance that is sustainable for the planet and improvements to the well-being of humankind communities in which we operate Our climate strategy Maximization of our positive effects Taking an active role in the transition of and minimization of any negative our economy toward environmentally efforts effects on society and the environment and socially sustainable solutions Proactive management of the Advising clients to align their business environmental and societal impacts of models with ESG parameters and the our businesses UN Sustainable Development Goals Our client and corporate philanthropy Reducing inequalities in our local communities leadership, regional and functional sessions with employees Employee surveys and other virtual employee engagement activities Group Franchise Awards and the Kudos peer-to-peer recognition program Health and well-being offerings, employee volunteering and network opportunities, flexible and hybrid- working arrangements Community investments and partnerships with social institutions Interaction with NGOs Participation in forums and round tables, as well as industry-, sector- and topic-specific debates Dialogues with regulators and governments Support of COVID-19-related aid projects across our communities Our clients are the heart of our business. We are committed to building and sustaining long-term relationships based on mutual respect, trust and integrity. Understanding our clients’ needs and expectations enables us to best serve their interests and to create value for them. Our clients and what matters most to them There is no typical UBS client. Our clients have varying needs, but each of them expects outstanding advice and service, a wide range of choices, and an excellent client experience. Global Wealth Management focuses on serving the unique and sophisticated needs of high net worth and ultra high net worth individuals, families and family offices worldwide, as well as affluent clients in selected markets. We give them access to outstanding advice, service and investment opportunities from around the globe, delivered by experts they can trust and based on the expertise and insights of our Chief Investment Office (the CIO). Using a holistic, goals-based approach to financial planning, we deliver a personalized wealth management experience and work side by side with clients to help them realize their ambitions. Our client-facing advisors and the global teams supporting them focus on developing long-term client relationships, which often span generations. Clients look to us for expertise in helping them to grow, protect and transfer their wealth, as well as helping them make some of the most important decisions in their lives. From significant liquidity events to professional milestones and personal turning points, we aim to give clients the confidence to move forward and achieve their goals. Through extensive research into clients’ preferences and goals, and broader analysis of investor sentiment globally, we constantly evolve our offerings to meet the shifting priorities of today’s wealthy clients. This includes investing in digital capabilities and developing products to help clients fund their lifestyles and manage their cash flow, as well as offering guidance on how they can create a lasting and positive impact for their communities and the causes they care about most. We are the leading global wealth manager for clients interested in investing,1 with a commitment to developing sustainable solutions that enable clients to align their financial goals and their personal values. › Refer to “Global Wealth Management” in the “Our businesses” section of this report for more information about sustainable investment offerings Personal & Corporate Banking serves a total of approximately 2.6 million individual clients and over 100,000 corporate clients, companies ranging from start-ups to multi-nationals, including specialized entities, such as pension funds and insurers, real estate companies, commodity traders and banks. Our clients include more than 30% of Swiss households, more than 90% of the largest 250 Swiss corporations and more than 50% of midsize to large pension funds in Switzerland. They look for financial advice based on their needs at each stage of their individual or corporate journey. We aim to deliver outstanding advice to all via a multi- channel approach. Clients have access to digital banking, a wide network of branches and remote advice. These channels are designed to deliver a superior, convenient client experience with 24/7 availability, security and value for money, resulting in high levels of client satisfaction. Clients are also offered a broad range of products and services in all relevant areas: basic banking, investing, financing (including mortgages), retirement planning, cash management, trade and export finance, global custody, and company succession, among others. Additionally, they have full access to the solutions of the Investment Bank, Asset Management and Global Wealth Management. institutions. By building In Asset Management, we deliver investment products and services directly to approximately 2,800 clients around the world, including sovereign institutions, central banks, supranational corporations, pension funds and insurers, as well as to Global Wealth Management and its clients, wholesale intermediaries and long-term, personalized financial relationships with our clients and partners, underpinned by disciplined execution, we aim to achieve a deep understanding of their needs and to earn their trust. We combine our global scale with the independent thinking of our distinct investment teams to utilize innovative ideas, drawing on the breadth and depth of our investment capabilities, across traditional and alternative, active and indexed, to deliver the solutions that clients need. The Investment Bank provides corporate, institutional and wealth management clients with expert advice, financial solutions, execution and access to the world’s capital markets. Our business model is specifically built around our clients and their needs. Corporate clients can access advisory services, debt and equity capital market solutions, and bespoke financing through our reshaped Global Banking business. Our Global Markets business focuses on helping institutional clients engage with local markets around the world, offering equities and equity-linked products, and foreign exchange, rates and credit products and services. Our equities and differentiated content offering is underpinned by Investment Bank Research. The differentiated nature of our research provides access to insight-ready data sets for thousands of companies, and aims to give clients an informational edge. In 2021, approximately 45,000 research reports were produced, with more than six million reads. 11 Euromoney Private Banking and Wealth Management Survey 2021: Overall Global Results. 38 39 39 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders We know the security and confidentiality of our clients’ data is of utmost importance to them, as it is for UBS. That is why we put the highest priority on having comprehensive measures in place that are designed to ensure that client data confidentiality and integrity are maintained. We continually assess and improve our control environment to mitigate emerging cyber threats and meet expanding legal and regulatory expectations. Investments in our IT platforms preserve and improve our IT security standards, with a focus on giving clients secure access to their data via our digital channels and protecting that data from unauthorized access. Although the level of sophistication and the impact and volume of cyberattacks continue to grow worldwide, we are ever vigilant, maintaining a strong and agile cybersecurity and information security program to mitigate and manage cyber risk by providing robust, consistent, secure and resilient business processes. Enhancing the client experience through innovation and digitalization We streamline and simplify interactions with clients through front-to-back digitalization and innovations. In Global Wealth Management, we develop and deploy digital tools that enhance the value of human relationships, a factor that differentiates UBS. Clients expect the convenience and speed that technology offers but, simultaneously, they feel that a personal experience with advisors is more important than ever. Our advisors use state-of-the-art digital tools to spend more time with clients and better evaluate the full scope of their financial lives. Our clients appreciate digital tools that improve their experience, for example, easy ways to view their portfolios or access research that is tailored to their needs. They also want multiple ways in which to interact with their advisors. The COVID-19 pandemic, and the associated need for physical distancing, has led clients to embrace the use of digital and mobile tools more than ever before. We continue to introduce new and better tools to meet and exceed clients’ expectations. For example, our UBS Manage Advanced [My Way] app offers clients in selected markets an at- a-glance comprehensive view of their investment portfolio. With access to more than 60 professionally managed investment modules (building blocks), it is underpinned by continuous portfolio monitoring and risk management. The app is interactive; clients can work with their advisors on a tablet to design their own portfolio, easily including elements such as sustainable investing and themes to reflect their individual preferences and priorities. Based on the strong momentum, client demand and inflows, we intend to scale up and further develop UBS Manage Advanced [My Way]. In 2021, the Direct Investment Insights digital investment service was introduced in Asia and rolled out in Europe and Switzerland. This service provides timely, relevant and actionable investment insights and ideas from the CIO directly to clients’ mobile and desktop devices, linking insights with execution in our e-banking and mobile app. In the US, we announced the development of a digital-led, scalable advice model for affluent clients. As a trusted brand with premium content, we see opportunities to deliver our expertise to a broader set of clients, combining digital experience with human advice. In Switzerland, our UBS Mobile Banking app has been enhanced so clients can now see relevant investment views and access our real- time quote capabilities before logging in. At a broader level, progress continues on our multi-year strategy to serve clients from two platforms: the Wealth Management Americas Platform in the US and the Wealth Management Platform outside the US. 40 40 Personal & Corporate Banking continued to develop simple, smart, secure and sustainable solutions in 2021, reflecting our digital transformation progress. In May 2021, we launched a new Remote Sales & Advice (RSA) unit to offer Personal Banking clients more flexibility in the way they bank through extended service times and the option to receive professional advice remotely. The new RSA approach was also successfully piloted for Corporate & Institutional clients. Following the excellent results of the 2020 pilot, we initiated a Switzerland-wide rollout of UBS Multibanking for corporate clients, an offering that integrates third-party banks for full transparency across accounts and convenient payment execution via a single platform. To assist clients throughout the onboarding phase, we established a virtual support team for the multi-banking solution. Moreover, in response to the growing number of client-support requests via UBS channels, email and telephone, we introduced the UBS Conversational Platform, an end-to-end platform enabling clients to get the right answers for their issues quickly without a lot of interaction with call agents or client advisors. To accelerate innovation in the payment business, we announced our UBS Virtual Credit Cards, a new generation of purely digitally available cards that can be used in online shops and receive deposits from TWINT, Apple Pay, Samsung Pay and Google Pay. Since its introduction, more than 30,000 virtual cards have been issued. For banking packages, we have launched UBS me to replace the previous pre-defined banking bundles. Clients can now put together their individual package based on their own needs and preferences, and are only charged for solutions they actually need. Our UBS Atrium mortgage platform for investment properties has been integrated into the key4 brand, creating a true multi-channel and multi-product offering. As a result of the integration, clients can benefit from digital offering capabilities of the innovative mortgage platform for owner-occupied residential property. In addition, the Green Mortgage for income-producing properties is available via key4 and offers a financial advantage on financing to borrowers who hold recognized sustainability certificates. To give clients access to market-leading solutions beyond banking, we have expanded our network of partnerships. We have joined forces with a Swiss fintech start-up to provide corporate clients with extensive cash management functionalities, from automated generation of expense reports to validation of supplier invoices. To make progress in our journey toward being more agile, we set up a new virtual organization as a collaboration between Personal & Corporate Banking, Global Wealth Management and the Chief Digital and Information Office: the Agile Delivery Organization. With more than 26 agile end-to-end delivery crews focused on our clients’ needs, we are empowering teams, removing silos and evolving toward an integrated setup to deliver responsive, adaptable and innovative products. With sustainability being a top strategic priority for our business and our client proposition, we have continuously expanded our sustainability agenda. Our platform for volunteer work, UBS Helpetica, has so far received 286 project ideas and published more than 180 projects with over 70 non-profit partners across its focus topics: the environment, social issues, education and entrepreneurship. An example of further progress in our sustainability journey came when the UBS Strategy Funds were repositioned toward UBS Strategy Funds Sustainable in 2021, which led to the transfer of a significant amount of existing custody assets to sustainable solutions. Our strategy, business model and environment | How we create value for our stakeholders We know the security and confidentiality of our clients’ data is Personal & Corporate Banking continued to develop simple, of utmost importance to them, as it is for UBS. That is why we put smart, secure and sustainable solutions in 2021, reflecting our the highest priority on having comprehensive measures in place digital transformation progress. In May 2021, we launched a new that are designed to ensure that client data confidentiality and Remote Sales & Advice (RSA) unit to offer Personal Banking clients integrity are maintained. We continually assess and improve our more flexibility in the way they bank through extended service control environment to mitigate emerging cyber threats and meet times and the option to receive professional advice remotely. The expanding legal and regulatory expectations. Investments in our new RSA approach was also successfully piloted for Corporate & IT platforms preserve and improve our IT security standards, with Institutional clients. Following the excellent results of the 2020 a focus on giving clients secure access to their data via our digital pilot, we initiated a Switzerland-wide rollout of UBS Multibanking channels and protecting that data from unauthorized access. for corporate clients, an offering that integrates third-party banks Although the level of sophistication and the impact and volume for full transparency across accounts and convenient payment of cyberattacks continue to grow worldwide, we are ever vigilant, execution via a single platform. To assist clients throughout the maintaining a strong and agile cybersecurity and information onboarding phase, we established a virtual support team for the security program to mitigate and manage cyber risk by providing multi-banking solution. Moreover, in response to the growing robust, consistent, secure and resilient business processes. number of client-support requests via UBS channels, email and Enhancing the client experience through innovation and end-to-end platform enabling clients to get the right answers for telephone, we introduced the UBS Conversational Platform, an digitalization their issues quickly without a lot of interaction with call agents or client advisors. To accelerate innovation in the payment business, We streamline and simplify interactions with clients through we announced our UBS Virtual Credit Cards, a new generation of front-to-back digitalization and innovations. purely digitally available cards that can be used in online shops In Global Wealth Management, we develop and deploy digital and receive deposits from TWINT, Apple Pay, Samsung Pay and tools that enhance the value of human relationships, a factor that Google Pay. Since its introduction, more than 30,000 virtual cards differentiates UBS. Clients expect the convenience and speed that have been issued. For banking packages, we have launched technology offers but, simultaneously, they feel that a personal UBS me to replace the previous pre-defined banking bundles. experience with advisors is more important than ever. Our Clients can now put together their individual package based on advisors use state-of-the-art digital tools to spend more time with their own needs and preferences, and are only charged for clients and better evaluate the full scope of their financial lives. solutions they actually need. Our UBS Atrium mortgage platform Our clients appreciate digital tools that improve their experience, for investment properties has been integrated into the key4 for example, easy ways to view their portfolios or access research brand, creating a true multi-channel and multi-product offering. that is tailored to their needs. They also want multiple ways in As a result of the integration, clients can benefit from digital which to interact with their advisors. The COVID-19 pandemic, offering capabilities of the innovative mortgage platform for and the associated need for physical distancing, has led clients to owner-occupied residential property. In addition, the Green embrace the use of digital and mobile tools more than ever Mortgage for income-producing properties is available via key4 before. We continue to introduce new and better tools to meet and offers a financial advantage on financing to borrowers who and exceed clients’ expectations. For example, our UBS Manage hold recognized sustainability certificates. To give clients access to Advanced [My Way] app offers clients in selected markets an at- market-leading solutions beyond banking, we have expanded our a-glance comprehensive view of their investment portfolio. With network of partnerships. We have joined forces with a Swiss access to more than 60 professionally managed investment fintech start-up to provide corporate clients with extensive cash modules (building blocks), it is underpinned by continuous management functionalities, from automated generation of portfolio monitoring and risk management. The app is interactive; expense reports to validation of supplier invoices. To make clients can work with their advisors on a tablet to design their own progress in our journey toward being more agile, we set up a new portfolio, easily including elements such as sustainable investing virtual organization as a collaboration between Personal & and themes to reflect their individual preferences and priorities. Corporate Banking, Global Wealth Management and the Chief Based on the strong momentum, client demand and inflows, we Digital and Information Office: the Agile Delivery Organization. intend to scale up and further develop UBS Manage Advanced With more than 26 agile end-to-end delivery crews focused on [My Way]. In 2021, the Direct Investment Insights digital our clients’ needs, we are empowering teams, removing silos and investment service was introduced in Asia and rolled out in Europe evolving toward an integrated setup to deliver responsive, and Switzerland. This service provides timely, relevant and adaptable and innovative products. With sustainability being a top actionable investment insights and ideas from the CIO directly to strategic priority for our business and our client proposition, we clients’ mobile and desktop devices, linking insights with have continuously expanded our sustainability agenda. Our execution in our e-banking and mobile app. In the US, we platform for volunteer work, UBS Helpetica, has so far received announced the development of a digital-led, scalable advice 286 project ideas and published more than 180 projects with over model for affluent clients. As a trusted brand with premium 70 non-profit partners across its focus topics: the environment, content, we see opportunities to deliver our expertise to a broader social issues, education and entrepreneurship. An example of set of clients, combining digital experience with human advice. In further progress in our sustainability journey came when the Switzerland, our UBS Mobile Banking app has been enhanced so UBS Strategy Funds were repositioned toward UBS Strategy Funds clients can now see relevant investment views and access our real- Sustainable in 2021, which led to the transfer of a significant time quote capabilities before logging in. At a broader level, amount of existing custody assets to sustainable solutions. progress continues on our multi-year strategy to serve clients from two platforms: the Wealth Management Americas Platform in the US and the Wealth Management Platform outside the US. 40 In Asset Management, we are accelerating our investment in digitalization. We have extended our digital client relationship management pilot tools, technologies and data capabilities to enhance the experience of, and service for, our clients, to foster innovation and to support alpha generation. For example, we will soon launch a scalable platform to enable more efficient development and management of theme-based investment products to meet growing client demand. We continue to expand the suite of tools used by our Quantitative Evidence & Data Science team, who utilize alternative and traditional data combined with statistical modeling to enhance and augment our fundamental and systematic investment processes. To simplify and enhance our client servicing, we are introducing improvements in client and data analytics. through experimentation, The Investment Bank strives to be the digital investment bank of the future, with innovation-led businesses driving efficiencies and solutions. In February 2021, we announced the creation of a Digital Platforms function within the Investment Bank across Global Markets and Global Banking, to work on exponential transformation innovation, and external partnerships. The Digital Platforms function is critical to delivering on our client promise. In Global Markets, our Technology-Enhanced Sales (TES) teams work in close partnership with our Data Intelligence, Group Technology, and Client Coverage teams to embed our data and technology capabilities across all client teams and enhance our client service. TES allows clients to choose where and how we deliver content and uses data modeling to customize the content they receive. UBS Neo, our award-winning multi-channel platform and enterprise ecosystem for digital clients, lets our professional and institutional clients access a comprehensive suite of products and services covering the full investment life cycle. Historically, most clients used only one or two of the capabilities available to them via UBS Neo. We have now transformed the client experience through a new personalized version of the platform, including the launch of an app store. Investment Bank DigiOps, our Operations team working in collaboration with Group Technology on digital innovation projects, is enhancing the client experience through a digital platform that continues to make progress on simplifying Operation’s technology infrastructure, increasing front-to-back efficiency and enhancing our decision making and relevance to clients. New non-bank competitors have secured a foothold in our markets, while fintech firms have carved out and dominated entirely new segments. In response, we created a team focused on strategic investments and fundamentally new market infrastructure. By utilizing distributed ledger technology, Global Markets is transforming the business models of products where the Investment Bank has been strong historically. One example is UBS Gold, our global physical gold transaction network of retail investors, gold merchants, institutional investors and vault providers that enables clients to buy and sell at interbank prices. A tokenized representation of underlying physical gold provides fractional ownership with low-friction transactional capability. Our vision is to accelerate the tokenization of financial products traded by UBS clients. In November 2021, the Investment Bank helped SIX Group to launch the first ever Swiss franc- denominated digital bond offering, which is listed, traded and settled on the newly established SIX Digital Exchange. Global Banking has also prioritized the client experience. Global Banking Data & Analytics Lab uses data science, predictive analytics and quantitative models to develop solutions for our businesses. UBS- GUARD applies data science and predictive analytics to Global Banking business users, predicting the risk of companies becoming the targets of activists, identifying deal opportunities and helping navigate client pitches. Our SPAC database is a fully automated database of in-market special purpose acquisition companies (SPACs) created to match SPACs with potential acquisition targets and help increase efficiency and collaboration across sectors and regions. Engaging with our clients We use a variety of channels to engage with clients, including regular client relationship and service meetings, as well as various corporate roadshows and dedicated events. Digital interaction with clients increased as the pandemic continued. Global Wealth Management interacted with clients via various settings in 2021, from personalized private briefings with subject matter experts to segment-specific virtual events and large-scale initiatives. We utilize marketing campaigns, events, advertising, publications and digital-only solutions to help drive greater awareness of UBS among prospective clients and reinforce trust- based relationships between advisors and clients. Personal & Corporate Banking holds regular client events (mostly webcasts and virtual or hybrid events since the onset of the COVID-19 pandemic), covering a wide range of topics. In 2021, we increasingly engaged with clients via online channels, such as social media, online displays and search engines, and further decreased our use of traditional out-of-home channels. In Asset Management, we have a consistent program of client events and engagement activities throughout the year. This includes our flagship conferences, such as the annual UBS Reserve Management Seminar, and we held our inaugural Alternatives Conference in 2021. Alongside this, our teams continued the high level of interaction with clients globally in 2021, facilitated by new digital tools, and our publication of macro insights and thought leadership to provide timely insights into rapidly evolving markets. We also hosted a broad range of virtual events, including our Nobel Perspectives webinar series, to help our clients better understand market challenges and investment opportunities, and we continued to engage with clients through our social media and online channels. 41 41 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders The Investment Bank hosted over 170 investor conferences and educational seminars globally in 2021, covering a broad range of macro, sector, regional and regulatory topics. Almost all of those conferences were held virtually. More than 40,000 clients took part in such events in 2021, providing insight and access to our own opinion leaders, policymakers and leading industry experts. We leverage our intellectual capital and relationships and use our execution capabilities, differentiated research content, bespoke solutions, client franchise model and global platform to expand coverage across a broad set of clients. UBS Neo Question Bank is the largest global database of market-related questions asked by professional investors, while UBS Live Desk, built within the UBS Neo platform, provides clients with a stream of fast-paced commentary from UBS traders. How we measure client satisfaction We use multiple techniques to regularly assess our achievements and the satisfaction of our clients. Global Wealth Management is increasingly using technology and analytics capabilities to collect and respond to client feedback. Our digital client feedback tool lets clients submit, via mobile and the web, input about overall satisfaction with advisors and UBS, and share key topics they wish to discuss with their advisors. Advisors and their teams have seamless, real-time access to client feedback, enabling them to be highly responsive. The tool is available in the US and Asia Pacific, as well as most EMEA countries. Personal & Corporate Banking has conducted annual surveys of clients in Switzerland since 2008, consistently covering all private and corporate client segments annually since 2015. Clients provide feedback on their satisfaction with regard to various topics (e.g., UBS overall, branches, client advisors, products and services) and indicate further product or advisory needs. Survey responses are distributed to client advisors, who follow up with each respondent individually. In 2021, we had an all-time high client satisfaction and net promoter score (NPS), and achieved a 77% follow-up rate with survey participants. The Quality Feedback system in Global Wealth Management and Personal & Corporate Banking provides a comprehensive and systematic platform to receive and process client feedback and suggestions. We receive feedback in various forms and through different channels, including in writing, electronically, orally to client advisors and staff in our branches and other client touch points, via social media channels, and via the Swiss Banking Ombudsman. Client including complaints and suggestions, is vitally important, as it shows direct and unfiltered client needs, supports the development and introduction of new products and services and hence fosters the optimization of our offering in a client-focused manner. By addressing client feedback, we aim to strengthen client relationships, improve feedback, client satisfaction and make tangible improvements to our services. By sharing their views, clients contribute to quality improvements at all levels. We aim to respond to each individual who provides feedback. In 2021, key topics and enhancements centered mostly around digital banking functionalities, digital client onboarding and the reorganization of UBS’s branches and services. In Asset Management, we have an integrated process to record and manage client feedback through our client relationship management tool. We also conduct regular surveys, covering our wholesale and institutional clients globally, inviting them to assess their satisfaction with our client service, products and solutions, as well as other factors relevant to their investments. The results are analyzed to identify focus areas for improvement and our client relationship managers follow up with respondents to address specific feedback where required. The Investment Bank closely monitors client satisfaction via individual product coverage points. Direct client feedback is actively captured and tracked in our systems. Internal regional forums serve as a platform for senior management to discuss client relationships, possibilities for improvement, potential opportunities and specific client issues. Other processes are in place to enable consolidated findings to be shared within UBS as appropriate. The Investment Bank also closely monitors external surveys, which provide feedback across a range of investment banking services. We continue to make progress in simplifying our technology infrastructure, focusing on increasing front-to-back efficiency and enhancing our decision making and relevance to clients. In November 2021, we launched the first Annual Global Markets Client Survey to gauge our clients’ experience of UBS and the products and services that are important to them, measuring client satisfaction and loyalty. In 2021, over 49% of Global Markets clients surveyed expected to increase their market share with UBS in the next six months. When ranking the most important factor in choosing a market partner, relationship management coverage and connectivity were a priority, further underlining the importance of our people. When asked about future capabilities, our clients ranked highly the need for profiled personalization of products and services, underlining the importance of our Digital Platforms and our TES initiative. We thoroughly evaluate the feedback we receive, including complaints from clients, and take measures to address key themes identified. For example, in 2021, Personal & Corporate Banking clients expressed an increasing need for security and trust. The ongoing optimization and digitalization of products has been well received by clients across all segments. However, in light of ongoing branch closures, clients would like further digitalization. Furthermore, feedback indicated that clients developed high levels of acceptance for telephone or video advice and were increasingly satisfied with the service received via Global Banking. 42 42 Our strategy, business model and environment | How we create value for our stakeholders The Investment Bank hosted over 170 investor conferences and client satisfaction and make tangible improvements to our educational seminars globally in 2021, covering a broad range of services. By sharing their views, clients contribute to quality macro, sector, regional and regulatory topics. Almost all of those improvements at all levels. We aim to respond to each individual conferences were held virtually. More than 40,000 clients took who provides feedback. In 2021, key topics and enhancements part in such events in 2021, providing insight and access to our centered mostly around digital banking functionalities, digital own opinion leaders, policymakers and leading industry experts. client onboarding and the reorganization of UBS’s branches and We leverage our intellectual capital and relationships and use our services. execution capabilities, differentiated research content, bespoke In Asset Management, we have an integrated process to record solutions, client franchise model and global platform to expand and manage client feedback through our client relationship coverage across a broad set of clients. UBS Neo Question Bank is management tool. We also conduct regular surveys, covering our the largest global database of market-related questions asked by wholesale and institutional clients globally, inviting them to assess professional investors, while UBS Live Desk, built within the their satisfaction with our client service, products and solutions, UBS Neo platform, provides clients with a stream of fast-paced as well as other factors relevant to their investments. The results commentary from UBS traders. are analyzed to identify focus areas for improvement and our client relationship managers follow up with respondents to How we measure client satisfaction address specific feedback where required. We use multiple techniques to regularly assess our achievements individual product coverage points. Direct client feedback is and the satisfaction of our clients. actively captured and tracked in our systems. Internal regional Global Wealth Management is increasingly using technology forums serve as a platform for senior management to discuss and analytics capabilities to collect and respond to client client relationships, possibilities for improvement, potential feedback. Our digital client feedback tool lets clients submit, via opportunities and specific client issues. Other processes are in mobile and the web, input about overall satisfaction with advisors place to enable consolidated findings to be shared within UBS as and UBS, and share key topics they wish to discuss with their appropriate. The Investment Bank also closely monitors external advisors. Advisors and their teams have seamless, real-time access surveys, which provide feedback across a range of investment to client feedback, enabling them to be highly responsive. The banking services. We continue to make progress in simplifying our tool is available in the US and Asia Pacific, as well as most EMEA technology infrastructure, focusing on increasing front-to-back countries. efficiency and enhancing our decision making and relevance to Personal & Corporate Banking has conducted annual surveys clients. In November 2021, we launched the first Annual Global of clients in Switzerland since 2008, consistently covering all Markets Client Survey to gauge our clients’ experience of UBS and private and corporate client segments annually since 2015. Clients the products and services that are important to them, measuring provide feedback on their satisfaction with regard to various client satisfaction and loyalty. In 2021, over 49% of Global topics (e.g., UBS overall, branches, client advisors, products and Markets clients surveyed expected to increase their market share services) and indicate further product or advisory needs. Survey with UBS in the next six months. When ranking the most responses are distributed to client advisors, who follow up with important factor in choosing a market partner, relationship each respondent individually. In 2021, we had an all-time high management coverage and connectivity were a priority, further client satisfaction and net promoter score (NPS), and achieved a underlining the importance of our people. When asked about 77% follow-up rate with survey participants. future capabilities, our clients ranked highly the need for profiled The Quality Feedback system in Global Wealth Management personalization of products and services, underlining the and Personal & Corporate Banking provides a comprehensive and importance of our Digital Platforms and our TES initiative. systematic platform to receive and process client feedback and We thoroughly evaluate the feedback we receive, including suggestions. We receive feedback in various forms and through complaints from clients, and take measures to address key themes different channels, including in writing, electronically, orally to identified. For example, in 2021, Personal & Corporate Banking client advisors and staff in our branches and other client touch clients expressed an increasing need for security and trust. The points, via social media channels, and via the Swiss Banking ongoing optimization and digitalization of products has been well Ombudsman. Client feedback, including complaints and received by clients across all segments. However, in light of suggestions, is vitally important, as it shows direct and unfiltered ongoing branch closures, clients would like further digitalization. client needs, supports the development and introduction of new Furthermore, feedback indicated that clients developed high products and services and hence fosters the optimization of our levels of acceptance for telephone or video advice and were offering in a client-focused manner. By addressing client increasingly satisfied with the service received via Global Banking. feedback, we aim to strengthen client relationships, improve Investors We aim to create sustainable, long-term value for our investors by executing our strategy with discipline, maintain risk and cost discipline, and deliver attractive shareholder returns. Active capital management to enable growth and deliver attractive shareholder returns Investor base Our investor base is well diversified. A substantial proportion of our institutional shareholders are based in the US, the UK and Switzerland. › Refer to the “Corporate governance” section of this report for more information about disclosed shareholdings The Investment Bank closely monitors client satisfaction via Alignment of interests We aim to align the interests of our employees with those of our equity and debt investors, and this approach is reflected in our compensation philosophy and practices. › Refer to “Our compensation philosophy” in the “Compensation” section of this report for more information Driving growth while maintaining risk and cost discipline We are focusing on growth, as we expand into new client segments and accelerate our strategic technology investments. Across the firm, we intend to maintain our risk and cost discipline to support our growth plans, with continual enhancement of day- to-day efforts. We are aiming to create sustainable value through the cycle. To accomplish this, we have outlined selected commercial and environmental, social and governance (ESG) aspirations, which should support our financial targets. Our primary measurement of performance for the Group is return on common equity tier 1 (CET1), as regulatory capital is our binding constraint and drives our ability to return capital to shareholders. › Refer to the “Targets, aspirations and capital guidance” section of this report for more information Our first priority is ensuring that we can maintain a strong balance sheet. This includes our strong capitalization, in line with our capital guidance of maintaining a CET1 capital ratio of around 13% and a CET1 capital leverage ratio of greater than 3.7%. As a second priority, we consider opportunities for investment in growth. Our third priority is returning capital to shareholders in the form of dividends, and we intend to pay progressive cash dividends. For 2021, the Board of Directors intends to propose a dividend to UBS Group AG shareholders of USD 0.50 per share. After these three priorities have been met, we intend to distribute excess capital to shareholders via share buybacks. In 2021, we bought back USD 2.6 billion of our shares. Looking ahead, we intend to buy back up to USD 5 billion of shares by the end of 2022. › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information Communications Our Investor Relations (IR) function is the primary point of contact between UBS and our shareholders. Our senior management and IR regularly interact with institutional investors, financial analysts and other market participants, such as credit rating agencies. Clear, transparent and relevant disclosures, and regular direct interactions with existing and prospective shareholders, form the basis for our communications. The IR team relays the views of and feedback on UBS from institutional investors and other market participants to our senior management. IR and our Corporate Responsibility function work together and interact with any investors interested in sustainability topics relevant to UBS and wider society. › Refer to the first nine pages of the “Corporate governance” section of this report and “Information policy” in that same section for more information › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information 42 43 43 Our strategy, business model and environment Our strategy, business model and environment | How we create value for our stakeholders Employees At UBS, we know the meaning of long-term commitment; to our clients, investors, employees, communities and society. With our employees, this commitment is personal. We are dedicated to being a world-class employer where our employees can leverage and continually enhance their skills, partnering with clients and colleagues on solutions that make a real difference. Our people leadership approach aligns with our strategy and our purpose, as both rely on engaged and empowered individuals to drive them forward. Our employees are the key to realizing our ambitions. Reimagining the power of people and making connections are at the heart of what we do. Every day, our global team connects people with innovative ideas and opportunities that lead to better results for UBS and for our clients, as well as to progress in society. Our purpose drives our strategy and culture Our purpose articulates why we do what we do and why it matters. Our culture affects how we do things and is firmly grounded in our three keys to success: our Pillars, Principles and Behaviors. To help ensure that our culture advances our strategic goals, we updated our three keys to success in 2021 to reflect our purpose, client promise and strategic imperatives. For the past decade, these keys have defined how we work together and what we stand for, as a firm and as individuals. They continue to drive daily business decisions and are integrated into our people management processes. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about our Pillars, Principles and Behaviors We promote culture-building behavior through a number of global, regional and divisional initiatives. Notably, since 2016, our Group Franchise Awards (GFA) program has rewarded employees for promoting cross-divisional collaboration and innovation. A related idea-sharing site enables employees to cooperate on solutions for operational, client service, sustainability and technology challenges. Nearly 6,000 ideas have been submitted since its launch, with approximately 450 ideas implemented or supported for future implementation. A peer-to-peer recognition program instituted in late 2020 encourages employees to recognize colleagues’ exemplary behavior. Called Kudos, this initiative serves to bring teams together and increase motivation, engagement and employee satisfaction, with a total of around 420,000 messages of recognition given since the program was launched. Our workforce at a glance¹ 71,385 employees (FTE) 72,779 employees (headcount) Women Men 40% 28,888 60% 43,891 50 countries 145 nationalities 162 languages spoken 8 years of service, on average Age age < 30 age 30–50 age > 50 Region 29% 30% 21% 20% 18% 60% 22% Switzerland Americas Asia Paciﬁc EMEA 1 Calculated as of 31 December 2021 on a headcount basis of 72,779 internal employees only. 44 44 Our strategy, business model and environment | How we create value for our stakeholders Employees At UBS, we know the meaning of long-term commitment; to our decade, these keys have defined how we work together and what clients, investors, employees, communities and society. With our we stand for, as a firm and as individuals. They continue to drive employees, this commitment is personal. We are dedicated to daily business decisions and are integrated into our people being a world-class employer where our employees can leverage management processes. and continually enhance their skills, partnering with clients and colleagues on solutions that make a real difference. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more Our people leadership approach aligns with our strategy and information about our Pillars, Principles and Behaviors our purpose, as both rely on engaged and empowered individuals to drive them forward. Our employees are the key to realizing our We promote culture-building behavior through a number of ambitions. Reimagining the power of people and making global, regional and divisional initiatives. Notably, since 2016, our connections are at the heart of what we do. Every day, our global Group Franchise Awards (GFA) program has rewarded employees team connects people with innovative ideas and opportunities for promoting cross-divisional collaboration and innovation. A that lead to better results for UBS and for our clients, as well as to related idea-sharing site enables employees to cooperate on progress in society. Our purpose drives our strategy and culture solutions for operational, client service, sustainability and technology challenges. Nearly 6,000 ideas have been submitted since its launch, with approximately 450 ideas implemented or supported for future implementation. Our purpose articulates why we do what we do and why it A peer-to-peer recognition program instituted in late 2020 matters. Our culture affects how we do things and is firmly encourages employees to recognize colleagues’ exemplary grounded in our three keys to success: our Pillars, Principles and behavior. Called Kudos, this initiative serves to bring teams Behaviors. To help ensure that our culture advances our strategic together and increase motivation, engagement and employee goals, we updated our three keys to success in 2021 to reflect our satisfaction, with a total of around 420,000 messages of purpose, client promise and strategic imperatives. For the past recognition given since the program was launched. Our workforce at a glance¹ 71,385 employees (FTE) 72,779 employees (headcount) Women Men 40% 28,888 60% 43,891 50 145 162 8 countries nationalities languages years of service, spoken on average Age age < 30 age 30–50 age > 50 Region 29% 30% 21% 20% 18% 60% 22% Switzerland Americas Asia Paciﬁc EMEA 1 Calculated as of 31 December 2021 on a headcount basis of 72,779 internal employees only. 44 Leadership, engagement and culture Connecting people with transformative ideas and becoming a more agile organization starts with our leaders. In 2021, we updated our House View on Leadership to reflect the behavior that we expect every leader to demonstrate toward employees, clients and business activities. Leaders at all levels are also expected and simplification, to empowerment accountability to support our ongoing transformation. foster in teams their Key to maintaining a strong culture are listening to employees and acting on their feedback. Launched in mid-2021, our new employee-listening strategy uses Group-wide surveys conducted by an external provider to measure indicators such as line manager effectiveness, and in-depth research to solve specific business issues. As an example, an Organizational Health Index assesses firm-wide alignment with strategic goals, working practices and adaptability. Employee responses in 2021 directly the development of our purpose, our new influenced performance management approach and our increased focus on innovation, sustainability and impact. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about our management practices, and to the foldout page of this report for more information about our purpose Toward a more agile future Driven by our strategic imperatives and in response to evolving client needs, we are accelerating the adoption of new ways of working together. In particular, agile working practices, and agile teams where they make sense, will enable us to be more responsive, adaptive and innovative in everything we do. Multi- disciplinary teams working across the firm will create better outcomes for clients and improve our employees’ work experience. In 2021, we launched a first wave of the Agile@UBS program ahead of a broader implementation in 2022. Currently, we have 10,000 employees transitioning to the new Agile@UBS ways of working by the end of the first quarter of 2022 and we are on track to have over 20,000 employees working in Agile@UBS by the end of 2022. Participants’ experiences, along with coaching and specialized training delivered through the Agile Academy within our UBS University, will enable us to systematically roll out Agile@UBS to more business areas going forward. Personnel by region Full-time equivalents Americas of which: USA Asia Pacific Europe, Middle East and Africa (excluding Switzerland) of which: UK of which: rest of Europe (excluding Switzerland) of which: Middle East and Africa Switzerland TToottaall Our commitment to diversity, equity and inclusion (DE&I) In our experience, diverse teams better understand and relate to our equally diverse clients and their needs. Furthermore, employees with different backgrounds and experiences drive innovation and better decision making. Our aim, therefore, is to shape a diverse and inclusive organization that is innovative, provides outstanding service to our clients and offers equitable opportunities so that all employees may thrive. Our broad approach encompasses a range of aspects, including inclusive leadership, gender, ethnicity, LGBTQ+ and disability. Along with a concerted focus on building inclusive leadership skills, increasing gender and ethnic diversity, and ensuring equitable policies and practices were priorities in 2021. Regarding gender, we aspire to have 30% of Director and above roles held by women by 2025. At the end of 2021, that figure stood at 26.7%, up from 26.0% in 2020. Similarly, our 2025 aspiration is to achieve a 26% representation of ethnic minorities at Director level and above in the UK and the US. As of the end of 2021, this figure was 20.1% in the US and 21.3% in the UK. Initially launched in Switzerland in 2016, our global UBS Career Comeback program continues to help us increase our pipeline of female leaders. To date, the program has helped 196 women and 19 men relaunch their careers. In addition to strategic initiatives, each year we sponsor numerous activities to promote inclusivity and a culture of belonging. Chief among them are activities provided by our 48 employee networks across the firm. Employee volunteers regularly host educational events and initiatives focused on gender, culture, ethnicity, LGBTQ+ / Pride, disability, veterans, parenting, elder care and other topics. Our employee networks also raise the visibility of employees’ needs and help shape our DE&I program, local benefits offerings, and more. Disability is a key focus area: as such, the firm became a member of The Valuable 500 in 2021, committing to make disability inclusion part of the firm’s business leadership agenda. › Refer to ubs.com/diversity for more information about our DE&I priorities, commitments and progress As of % change from 3311..1122..2211 31.12.20 31.12.19 31.12.20 2211,,331177 2200,,553377 1155,,661188 1144,,009911 66,,005511 77,,882266 221155 2200,,335599 7711,,338855 21,394 20,528 15,353 13,899 6,069 7,652 178 20,904 71,551 21,036 20,232 13,956 12,918 5,704 7,048 166 20,691 68,601 0 0 2 1 0 2 21 (3) 0 45 45 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders Practices that help us remain an employer of choice Compensating employees fairly and consistently is key to ensuring equal opportunities. We pay for performance, and we take pay equity seriously. A strong commitment to both is embedded in our compensation policies, and we conduct both internal reviews and independent external audits as quality checks. If we uncover gaps that cannot be explained by business factors or appropriate personal factors – such as experience, role, responsibility, performance or location – we explore the root causes of those gaps and address them. Additionally, our regular monitoring and review processes also allow us to maintain our certification status with the EQUALSALARY Foundation for our equal pay practices in Switzerland, the US, the UK, Hong Kong SAR and Singapore. The firm also successfully completed an equal pay analysis in Switzerland in 2020, as required by the Swiss Federal Act on Gender Equality. The results of the analysis confirmed that we are fully compliant with Swiss equal pay standards. These holistic certifications are a testament to our well-established equal opportunity environment and the strength of our human resources practices, including performance and reward. In 2021, we continued to monitor pay fairness and addressed any unexplained gaps to ensure that all employees are paid fairly. All employees have access to competitive benefits, including insurance, retirement and personal leave. › Refer to the “Compensation” section of this report for more information about compensation-related topics Meeting employees’ needs while improving services for clients Working both from home and from the office became the norm for many employees in 2021, with surveys indicating strong support for continued flexibility. Following a global analysis that considered factors such as regulation, risk and productivity, we determined that approximately 75% of our employees could be eligible to work in a hybrid setup. In addition to fostering better work / life balance, a hybrid model makes us a more attractive employer to a wider pool of applicants, such as early-career talent, working parents and those in continuing education. The emphasis on technology and virtual collaboration also sparks innovative thinking that will make us more agile and further improve client service. We are implementing hybrid working on a country-by- country basis, along with wide-ranging support to ensure that employees, teams and our culture all continue to thrive. Health and well-being Supporting employee health and well-being remained a priority in 2021. We are committed to helping employees thrive in their current roles and deliver sustainable performance over time. Regular “pulse” surveys gauged employees’ views on remote work, stress, communication and other aspects. Resources to help employees support holistic well-being featured a bespoke eLearning curriculum, physical and mental health initiatives, volunteering opportunities, increased benefits offerings in certain locations, and financial education. Employee representation We maintain an open dialogue with our formal employee representation groups, all of which are in Europe, as part of our commitment to being a responsible employer. These groups represent 17 countries and consider issues that may affect our performance, operations and prospects. Collectively, these groups represent approximately 49% of our global workforce. Attracting, developing and retaining the best talent Fostering an agile and connected workforce is a priority for the near term. We therefore need to have processes in place that are designed to ensure that we have the best people, in the right roles, at the right time, to achieve our strategic goals. Comprehensive workforce data dashboards help us analyze all aspects of the employee life cycle, including recruitment, performance management, training, internal mobility and attrition, along with demographic and diversity aspects, such as gender and ethnicity. This helps us identify trends quickly and make fact-based decisions grounded in human resources data. Throughout 2021, we hired new talent where necessary to launch or expand businesses and to fill gaps in our workforce. We recruit for potential and cultural fit, hiring beyond immediately relevant skills to include the person’s experience, competencies and digital aptitude. We hired a total of 9,363 external candidates in 2021, adding more than 1,700 graduates and other trainees, apprentices and interns through our various junior talent programs. We invest in young talent in every region, supporting national apprenticeship programs in Switzerland and the UK and summer internship programs in many locations. In Singapore, UBS worked with the government to set up a program to support ongoing employability during the pandemic and to increase the resilience of regional banking infrastructure. Our approach has garnered numerous external accolades in 2021, including a top- 50 ranking in the World’s Most Attractive Employers from employer-branding experts Universum, for the 13th consecutive year. › Refer to ubs.com/employerawards for more information about our most recent employer rewards Focusing on performance and development Resetting the firm’s strategic course sparked a comprehensive review of our performance management practices in 2021. As a result, we introduced a new approach called MyImpact that aims to better support our strategic priorities and reinforce our culture, as well as making our year-end review, objective setting and employee feedback processes simpler and more transparent. Key to our talent management strategy is offering employees opportunities to build interesting careers. Our innovative digital Career Navigator platform, which now features short-term rotation opportunities, promotes internal mobility across teams, functions and business divisions. Employees can explore career paths, search for jobs and connect with colleagues while allowing our recruiters to more easily source internal talent. The tool also identifies potential competency gaps and automatically recommends appropriate training. Since inception, Career Navigator has helped 47,600 employees search for short-term job opportunities or find internal experts, discover possible career paths and match themselves to open roles. More than 160,000 skills were added to our employee skills-sharing platform in 2021. Our in-house UBS University plays a central role in fostering diversity of thought within the firm, and in building employees’ skills for use now along with capabilities for the future. Our offering includes line manager and leadership development, advisory and sales training, and industry-leading certification for client advisors, as well as data literacy, agile working and health and well-being topics. Altogether in 2021, our permanent employees completed more than 1,425,000 learning activities, including mandatory training on compliance, business and other topics, resulting in an average of more than two training days per employee. 46 46 Our strategy, business model and environment | How we create value for our stakeholders Practices that help us remain an employer of choice Attracting, developing and retaining the best talent Fostering an agile and connected workforce is a priority for the Compensating employees fairly and consistently is key to ensuring near term. We therefore need to have processes in place that are equal opportunities. We pay for performance, and we take pay designed to ensure that we have the best people, in the right equity seriously. A strong commitment to both is embedded in roles, at the right time, to achieve our strategic goals. our compensation policies, and we conduct both internal reviews Comprehensive workforce data dashboards help us analyze all and independent external audits as quality checks. If we uncover aspects of the employee life cycle, including recruitment, gaps that cannot be explained by business factors or appropriate performance management, training, internal mobility and personal factors – such as experience, role, responsibility, attrition, along with demographic and diversity aspects, such as performance or location – we explore the root causes of those gender and ethnicity. This helps us identify trends quickly and gaps and address them. Additionally, our regular monitoring and make fact-based decisions grounded in human resources data. review processes also allow us to maintain our certification status Throughout 2021, we hired new talent where necessary to with the EQUALSALARY Foundation for our equal pay practices in launch or expand businesses and to fill gaps in our workforce. We Switzerland, the US, the UK, Hong Kong SAR and Singapore. The recruit for potential and cultural fit, hiring beyond immediately firm also successfully completed an equal pay analysis in relevant skills to include the person’s experience, competencies Switzerland in 2020, as required by the Swiss Federal Act on and digital aptitude. We hired a total of 9,363 external candidates Gender Equality. The results of the analysis confirmed that we are in 2021, adding more than 1,700 graduates and other trainees, fully compliant with Swiss equal pay standards. These holistic apprentices and interns through our various junior talent certifications are a testament to our well-established equal programs. We invest in young talent in every region, supporting opportunity environment and the strength of our human national apprenticeship programs in Switzerland and the UK and resources practices, including performance and reward. In 2021, summer internship programs in many locations. In Singapore, UBS we continued to monitor pay fairness and addressed any worked with the government to set up a program to support unexplained gaps to ensure that all employees are paid fairly. All ongoing employability during the pandemic and to increase the employees have access to competitive benefits, including resilience of regional banking infrastructure. Our approach has insurance, retirement and personal leave. › Refer to the “Compensation” section of this report for more information about compensation-related topics garnered numerous external accolades in 2021, including a top- 50 ranking in the World’s Most Attractive Employers from employer-branding experts Universum, for the 13th consecutive Meeting employees’ needs while improving services for clients Working both from home and from the office became the norm for many employees in 2021, with surveys indicating strong year. › Refer to ubs.com/employerawards for more information about our most recent employer rewards support for continued flexibility. Following a global analysis that Focusing on performance and development considered factors such as regulation, risk and productivity, we Resetting the firm’s strategic course sparked a comprehensive determined that approximately 75% of our employees could be review of our performance management practices in 2021. As a eligible to work in a hybrid setup. In addition to fostering better result, we introduced a new approach called MyImpact that aims work / life balance, a hybrid model makes us a more attractive to better support our strategic priorities and reinforce our culture, employer to a wider pool of applicants, such as early-career talent, as well as making our year-end review, objective setting and working parents and those in continuing education. The emphasis employee feedback processes simpler and more transparent. on technology and virtual collaboration also sparks innovative Key to our talent management strategy is offering employees thinking that will make us more agile and further improve client opportunities to build interesting careers. Our innovative digital service. We are implementing hybrid working on a country-by- Career Navigator platform, which now features short-term country basis, along with wide-ranging support to ensure that rotation opportunities, promotes internal mobility across teams, employees, teams and our culture all continue to thrive. functions and business divisions. Employees can explore career Health and well-being paths, search for jobs and connect with colleagues while allowing our recruiters to more easily source internal talent. The tool also Supporting employee health and well-being remained a priority in identifies potential competency gaps and automatically 2021. We are committed to helping employees thrive in their recommends appropriate training. Since inception, Career current roles and deliver sustainable performance over time. Navigator has helped 47,600 employees search for short-term job Regular “pulse” surveys gauged employees’ views on remote opportunities or find internal experts, discover possible career work, stress, communication and other aspects. Resources to help paths and match themselves to open roles. More than 160,000 employees support holistic well-being featured a bespoke skills were added to our employee skills-sharing platform in 2021. eLearning curriculum, physical and mental health initiatives, Our in-house UBS University plays a central role in fostering volunteering opportunities, increased benefits offerings in certain diversity of thought within the firm, and in building employees’ locations, and financial education. Employee representation skills for use now along with capabilities for the future. Our offering includes line manager and leadership development, advisory and sales training, and industry-leading certification for We maintain an open dialogue with our formal employee client advisors, as well as data literacy, agile working and health representation groups, all of which are in Europe, as part of our and well-being topics. Altogether in 2021, our permanent commitment to being a responsible employer. These groups employees completed more than 1,425,000 learning activities, represent 17 countries and consider issues that may affect our including mandatory training on compliance, business and other performance, operations and prospects. Collectively, these groups topics, resulting in an average of more than two training days per represent approximately 49% of our global workforce. employee. Society The world’s social and environmental problems are too big and complex to tackle alone. Lasting change can only be achieved when philanthropists and public and private organizations work collectively to maximize positive impact for people and the planet. Our clients can maximize the positive effect of their giving through our diverse social impact offering: UBS Philanthropy Services and the grant-making UBS Optimus Foundation, as well as UBS Global Visionaries and UBS Community Impact. Reimagining client philanthropy With nearly 70 philanthropy experts around the globe, we help clients to maximize their impact locally, nationally and globally. We have partnered for more than two decades with clients and their families by using an investment-based approach and connecting them to an international network of expertise and support. To best serve our clients, we base our approach on three pillars: Advice, Insights and Execution. Advice – consulting with clients who are considering setting up their first charitable fund and guiding them on tax-efficient giving, thus maximizing the value of charitable giving. Insights – connecting our clients to a global network of experts, both within and outside UBS (e.g., through insight trips, publications, events with fellow philanthropists, thought leaders and social entrepreneurs, such as UBS Global Visionaries). Execution – providing clients with flexible options for managing their philanthropic giving, including structures such as our donor-advised funds (DAFs) and our new UBS Collectives, and supporting curated programs via UBS Optimus Foundation. Donor-advised funds A DAF offers clients an easy, flexible and efficient alternative to setting up their own foundation. UBS has offered DAF services in the US for some time, and in 2014 we established a DAF in the UK, which has since had over GBP 450 million in donations. The UBS Philanthropy Foundation was launched in Switzerland in 2020: it has raised more than USD 10 million in donations and in its first year of operations launched its first thematic fund, which is dedicated to the environment. UBS Optimus Foundation With a track record of over two decades, UBS Optimus Foundation is recognized globally as both a philanthropic thought leader and a pioneer in the social finance space, through which we leverage solutions to mobilize private capital in new and more efficient ways. The foundation uses an evidence-based approach and focuses on programs that have the potential to be transformative, scalable and sustainable. It conducts extensive due diligence and only recommends what it considers to be the most innovative programs that have the capacity to achieve long- term, measurable impact. UBS also makes matching contributions to the foundation, to help our clients’ donations go even further. The UBS Collectives also utilize an evidence-based approach and bring together philanthropists to pool their funds, share their expertise and achieve a longer-term impact. The Collectives are a three-year learning journey during which philanthropists follow a curriculum, network with peers and engage in programs with the goals of preventing family separation, mitigating climate change and funding programs linked to measurable results. In 2021, USD 21 million in funding was raised for this long-term systems- level change approach. UBS Global Visionaries The private sector has a crucial role to play in supporting innovative, sustainable solutions to some of the world’s most pressing problems. This is why we launched the UBS Global Visionaries program in 2016 with two main goals: (i) to create opportunities for our clients and prospective clients to connect in person (or virtually) with leading social entrepreneurs; and (ii) to help our UBS Global Visionaries scale their positive change by expanding their global network, building capacity and raising awareness about their work. Since the program started, we have supported 63 entrepreneurs across the globe, who all work toward achieving a variety of the UN Sustainable Development Goals. At the end of 2021, 20 of those entrepreneurs were engaged in the program as active Global Visionaries, more than 60 prospective clients and clients had been directly connected with them, and 80 events hosted by UBS at which they were featured speakers. Over 29,000 stakeholders (such as prospective clients, clients and employees) participated in these events. Feedback from our clients shows this gives them new ways to engage in their passions and learn about new topics or technologies. In return, our UBS Global Visionaries benefit from clients sharing their skills, experience and contacts. UBS Community Impact We are committed to supporting the communities in which we work. Our employees, clients and shareholders expect us to play our part in addressing social issues – and we believe it is the right thing to do. Direct cash contributions, including support through our Community Impact program, UBS’s affiliated foundations in Switzerland, the UBS Foundation of Economics in Society at the University of Zurich and contributions to UBS Optimus Foundation, amounted to a total of USD 59 million in 2021. During 2021, we focused on addressing social and wealth inequality in our local communities through education and skill building. Given the ongoing impact of the pandemic in 2021, we continued to provide some COVID-19 relief to support the most vulnerable, as well as supporting recovery and rebuilding efforts through our community partners. Following the announcement of UBS’s purpose in April 2021, we undertook a review of our global Community Impact strategy in light of UBS’s new sustainability commitment. We will increase our focus on education and skills with the implementation of our revised strategy in 2022. UBS’s overall charitable contributions are measured using the industry-leading Business Impact Investment framework (B4SI). This includes cash, employee time, and in-kind support. for Societal › Refer to “UBS’s charitable contributions” in the “What” section of the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information 46 47 47 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders Our focus on sustainability and climate Our commitment to sustainability starts with our purpose. We know finance has a powerful influence on the world. At UBS, we reimagine the power of people and investment, to help create a better world for everyone: a fairer society, a more prosperous economy and a healthier environment. That is why we partner with our clients to help them mobilize their capital toward a more sustainable world and why we have put sustainability at the heart of our own business. We are guided by the goal of being the financial provider of choice for clients that want to mobilize capital toward the achievement of the 17 Sustainable Development Goals (the SDGs) of the United Nations (the UN) and the orderly transition to a low- carbon economy. We are advancing toward 2030, the designated deadline to achieve the SDGs. The SDGs focus on issues such as climate change, equality and healthcare – major challenges for our world now and over the coming years. To help us maximize our impact and direct capital to where it is needed most, we are focusing on three key areas to drive the sustainability transition: planet, people, partnerships. – Planet: Climate is a clear focus for us as we shift toward a lower-carbon future. We have committed to achieving net- zero greenhouse gas emissions resulting from all aspects of our business by 2050. – People: We believe in a diverse, equitable and inclusive society. We are taking action to get there, within our own workplace and beyond. – Partnerships: By working in partnership with other thought leaders and standard setters, our goal is to achieve impact on a truly global scale. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about how UBS is advancing sustainability in the financial sector and beyond fairer, more prosperous society, championing a healthier environment and addressing inequalities at their root. This ethos underpins our purpose and is in line with our external commitments, such as our pledge to help making progress toward the SDGs. In 2021, we revised the Code in line with our focus on simplification, making it shorter, sharper and better aligned to our strategic imperatives. › Refer to the Code of Conduct and Ethics of UBS, available at ubs.com/code, for more information Board of Directors and Group Executive Board The BoD is responsible for setting UBS’s values and standards to ensure the Group’s obligations to stakeholders are met. Both the Chairman of the BoD and the Group CEO play a key role in safeguarding our reputation and ensuring we communicate effectively with all of our stakeholders. The BoD’s Corporate Culture and Responsibility Committee (the CCRC) is the UBS body primarily responsible for corporate culture, responsibility and sustainability. The CCRC oversees our sustainability and impact strategy and activities and approves Group-wide sustainability and impact objectives. The Group CEO has delegated to the GEB lead for sustainability and impact, Suni Harford, the responsibility for setting the firm’s sustainability and impact strategy, in agreement with fellow GEB members. The GEB sets the overall risk appetite for the firm and resolves overarching matters relating to sustainability and climate risks, including risk management framework, policies, and disclosure. Group Risk Control is responsible for the development and implementation of principles and an appropriate independent control framework for sustainability and climate risks within UBS, and the integration of the principles and the framework into the firm’s overall risk management and risk appetite frameworks. Our sustainability and impact governance including sustainable Sustainability activities, finance, are overseen at the highest level of UBS, by the Board of Directors (the BoD) and the Group Executive Board (the GEB), and are grounded in our Code of Conduct and Ethics (the Code). Code of Conduct and Ethics In our Code of Conduct and Ethics, the BoD and the GEB set out the principles and practices that define our ethical standards and the way we do business, which apply to all aspects of our business. All employees must affirm annually that they have read and will adhere to the Code and other key policies, supporting a culture where ethical and responsible behavior is part of our everyday operations. In our Code we make a commitment to acting with the long term in mind and creating value for clients, employees and shareholders. We aspire to do our part to create a Group Sustainability and Impact The Group Sustainability and Impact (GSI) organization was created in 2021 to support the GEB lead for sustainability and impact with carrying out her responsibilities. GSI comprises the Chief Sustainability and Social Impact offices, headed by the Chief Sustainability Officer (the CSO) and the Head Social Impact. The CSO is responsible for driving the implementation of the Group- wide sustainability and impact strategy, including reporting on our progress toward net zero, and the execution thereof by the business divisions and Group Functions. The Head Social Impact is responsible for driving and implementing our social impact strategy, including UBS Community Impact, UBS Philanthropy Services and UBS Global Visionaries. Progress toward the firm’s sustainability and impact strategy, including climate strategy, and associated targets is reviewed at least annually by the GEB and the CCRC. 48 48 Our strategy, business model and environment | How we create value for our stakeholders Our focus on sustainability and climate Our commitment to sustainability starts with our purpose. We fairer, more prosperous society, championing a healthier know finance has a powerful influence on the world. At UBS, we environment and addressing inequalities at their root. This ethos reimagine the power of people and investment, to help create a underpins our purpose and is in line with our external better world for everyone: a fairer society, a more prosperous commitments, such as our pledge to help making progress economy and a healthier environment. That is why we partner toward the SDGs. with our clients to help them mobilize their capital toward a more In 2021, we revised the Code in line with our focus on sustainable world and why we have put sustainability at the heart simplification, making it shorter, sharper and better aligned to our of our own business. strategic imperatives. We are guided by the goal of being the financial provider of › Refer to the Code of Conduct and Ethics of UBS, available at choice for clients that want to mobilize capital toward the ubs.com/code, for more information achievement of the 17 Sustainable Development Goals (the SDGs) of the United Nations (the UN) and the orderly transition to a low- Board of Directors and Group Executive Board carbon economy. We are advancing toward 2030, the designated The BoD is responsible for setting UBS’s values and standards to deadline to achieve the SDGs. The SDGs focus on issues such as ensure the Group’s obligations to stakeholders are met. Both the climate change, equality and healthcare – major challenges for Chairman of the BoD and the Group CEO play a key role in our world now and over the coming years. safeguarding our reputation and ensuring we communicate To help us maximize our impact and direct capital to where it effectively with all of our stakeholders. is needed most, we are focusing on three key areas to drive the The BoD’s Corporate Culture and Responsibility Committee sustainability transition: planet, people, partnerships. (the CCRC) is the UBS body primarily responsible for corporate – Planet: Climate is a clear focus for us as we shift toward a culture, responsibility and sustainability. The CCRC oversees our lower-carbon future. We have committed to achieving net- sustainability and impact strategy and activities and approves zero greenhouse gas emissions resulting from all aspects of our Group-wide sustainability and impact objectives. The Group CEO business by 2050. has delegated to the GEB lead for sustainability and impact, Suni – People: We believe in a diverse, equitable and inclusive society. Harford, the responsibility for setting the firm’s sustainability and We are taking action to get there, within our own workplace impact strategy, in agreement with fellow GEB members. and beyond. The GEB sets the overall risk appetite for the firm and resolves – Partnerships: By working in partnership with other thought overarching matters relating to sustainability and climate risks, leaders and standard setters, our goal is to achieve impact on including risk management framework, policies, and disclosure. a truly global scale. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about how UBS is advancing sustainability in the financial sector and beyond Group Risk Control is responsible for the development and implementation of principles and an appropriate independent control framework for sustainability and climate risks within UBS, and the integration of the principles and the framework into the firm’s overall risk management and risk appetite frameworks. Our sustainability and impact governance Group Sustainability and Impact Sustainability activities, including sustainable finance, are created in 2021 to support the GEB lead for sustainability and overseen at the highest level of UBS, by the Board of Directors impact with carrying out her responsibilities. GSI comprises the (the BoD) and the Group Executive Board (the GEB), and are Chief Sustainability and Social Impact offices, headed by the Chief grounded in our Code of Conduct and Ethics (the Code). Sustainability Officer (the CSO) and the Head Social Impact. The The Group Sustainability and Impact (GSI) organization was Code of Conduct and Ethics CSO is responsible for driving the implementation of the Group- wide sustainability and impact strategy, including reporting on In our Code of Conduct and Ethics, the BoD and the GEB set out our progress toward net zero, and the execution thereof by the the principles and practices that define our ethical standards and business divisions and Group Functions. The Head Social Impact is the way we do business, which apply to all aspects of our responsible for driving and implementing our social impact business. All employees must affirm annually that they have read strategy, including UBS Community Impact, UBS Philanthropy and will adhere to the Code and other key policies, supporting a Services and UBS Global Visionaries. Progress toward the firm’s culture where ethical and responsible behavior is part of our sustainability and impact strategy, including climate strategy, and everyday operations. In our Code we make a commitment to associated targets is reviewed at least annually by the GEB and acting with the long term in mind and creating value for clients, the CCRC. employees and shareholders. We aspire to do our part to create a Sustainability Risk, Finance, Compliance and Legal functions The Chief Risk Officer for Sustainability oversees sustainability activities relating to risk, including the climate risk program, and supports the GEB by providing leadership on sustainability in cooperation with the business divisions and Group Functions. The Sustainability Chief Financial Officer, a member of the Group Finance function, ensures that sustainability considerations are embedded into the firm’s financial decision-making processes, supports the expanding external sustainability disclosures arising requirements and voluntary from both new commitments made by our firm, and oversees the continued development of the firm’s financial control environment that underpins our disclosures. regulatory in 2021 due to the strategic The Sustainability Expert Group within the GCRG function was established importance of sustainability to UBS, the rapidly evolving nature of the regulatory and policy agenda in this area, and GCRG’s desire to ensure the firm is able to interact effectively and proactively with policy- makers, the regulatory supervisors of the Group and other relevant stakeholders. The global environmental, social and governance (ESG) legal team within the Group General Counsel function advises the business on sustainability-related risks across UBS’s operations. It plays an important role in advising the business teams on existing and emerging rules and regulations governing sustainable investing and sustainable lending. › Refer to “Board of Directors” in the “Corporate governance” section of this report for more information about the CCRC › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about our governance of sustainability and impact generate more revenue, 57% believe it could improve client relationships and 55% believe it could do the same for relationships with employees. A global survey published in 2021 titled “Resetting the agenda How ESG is shaping our future”3 found that three-quarters of institutional investors agree that the COVID-19 pandemic will accelerate the general interest in ESG and capital inflows into sustainable investments over the next three to five years. Of those surveyed, 65% plan to integrate ESG into at least 25% of their assets under management for the next 12 months. Importantly, almost three-quarters of survey respondents agreed that investments integrating ESG factors performed better financially than equivalent traditional investments in the three years prior to 2020. We are committed to serving our clients’ growing sustainable finance needs and expectations. More fundamentally, we believe sustainable finance is the future of finance. Recognition of impact on financial performance, regulatory developments, evolving societal norms, investor demand and consumer preference are factors that contribute to drive the continued evolution of mainstream investing toward more holistic long-term-oriented approaches. We are looking to create more scalable sustainable and impact investing solutions that deliver competitive financial returns, and to advise our corporate clients on risks to their business models, while driving positive outcomes. Fundamentally, for the benefit of our clients, we are helping to shape the landscape of sustainable finance by using thought leadership, innovation and partnerships to support them in their sustainability efforts. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about our sustainability and impact strategy and Our approach to sustainable finance activities The UN estimates the gap in funding needed to achieve the SDGs by 2030 at USD 2.5 trillion to USD 3 trillion annually,1 with some experts putting the number even higher. We recognize this as both a challenge for society and an opportunity for our clients. As a global financial institution, we have a role in reaching the SDGs, by directing capital to where it is needed the most. Our clients turn to us for advice on how they can help to finance the transition to a low-carbon economy, support sustainable finance, align their investments with their personal values, and better risk manage their portfolios and businesses. They want to take advantage of these opportunities, while also managing the risks associated with this transformational challenge. Our clients’ growing interest in sustainable finance is clearly shown in a number of key surveys. According to a global UBS Investor Sentiment survey,2 66% of investors see sustainable investing as highly important to their portfolio strategy. When it comes to business owners, 61% believe sustainability could › Refer to the sub-section below for more information about our climate governance, strategy, risk management, and metrics and targets and to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for the full UBS climate disclosures Defining sustainable finance Sustainable finance refers broadly to any form of financial service that aims to achieve positive sustainability outcomes, including through the integration of ESG criteria into business or investment decisions. This encompasses sustainable investing and sustainable financing solutions. Sustainable finance has long been a topic firm-wide and there is now a sharpened understanding in the market of its importance, accelerated by factors such as the COVID-19 pandemic and a changing climate. Our aim is to continue to help our clients meet their investment and financing objectives through sustainable finance. 11 un.org/sustainabledevelopment/sg-finance-strategy 22 About the survey: UBS surveyed 3,004 investors and 1,202 business owners with at least USD 1 million in investable assets (for investors) or at least USD 1 million in annual revenue and at least one employee other than themselves (for business owners), between 28 September and 18 October 2021. The global sample was split across 15 locations: Argentina, Brazil, Mainland China, France, Germany, Hong Kong SAR, Italy, Japan, Mexico, Russia, Singapore, Switzerland, the UAE, the UK and the US. 33 The survey was conducted by the Economist Intelligence Unit, commissioned by UBS, and surveyed 450 institutional investors working in asset and wealth management firms, corporate pension funds, endowment funds, family offices, government agencies, hedge funds, insurance companies, pension funds, sovereign wealth funds and reinsurers in North America, Europe and Asia Pacific. 48 49 49 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders Sustainable investment Sustainable investment (SI) focuses on investment decisions that seek to make a difference, while generating competitive financial returns. SI strategies aim to better risk manage portfolios in line with 21st-century challenges and / or to align investments with investors’ sustainability values, while also targeting improved portfolio risk and return characteristics. We have long recognized that clients and other stakeholders need transparency about the sustainability objectives of our various investment products. During 2021, the European Union’s Sustainable Finance Disclosure Regulation (the SFDR) provided the first formal, comprehensive legislative framework establishing an important marker for the industry’s efforts in this area. Consequently, we have further evolved our own definitions of SI, which now include the following two categories. – Sustainability focus: strategies that have explicit sustainable intentions or objectives that drive the strategy. Underlying investments may contribute to positive sustainability outcomes through products / services / use of proceeds. – Impact investing: investment strategies that have an explicit intention of generating measurable, verifiable, positive sustainability outcomes. Impact generated is attributable to investor action and / or contribution. ESG integration and exclusion We also identify two approaches that consider ESG factors in the investment process to varying degrees, but which on their own are not considered sustainable investment. – ESG integration: considers ESG factors alongside traditional financial metrics to assess the risk-return profile in the investment process. This approach is rapidly becoming an industry standard, as the inclusion of such factors has been shown to benefit overall investment risk-return considerations. – Exclusion: when individual companies or entire industries are excluded from portfolios because their activities do not meet certain ESG criteria and / or do not align with the values of clients and / or UBS. Sustainable financing We offer products and solutions, including access to capital markets, to clients looking to finance assets that demonstrate sustainability characteristics and / or support the transition to a low-carbon economy. Financing activities can be on-balance sheet (such as loans and mortgages) or off-balance sheet (such as access to debt and equity markets). We also provide advice on ESG factors (both financial and non-financial), such as integrated disclosure requirements. We use regulatory and market standards where these are available; for example, in the debt capital markets business, we refer to the International Capital Market Association (ICMA) Green, Social or Sustainability-Linked Bond Principles. Where such guidelines or standards are not available, we aim to align with market best practice. This is the case, for example, with equity capital markets activities. Our established sustainability and climate risk (SCR, previously known at UBS as environmental and social risk, or ESR) framework is used to analyze potential transactions and client relationships in order to limit any negative impact on the environment and society. Moreover, as one of the world’s largest asset gathering businesses, we are in a privileged position to leverage the framework, experience gained established in 2019 by our Asset Management business, to the benefit of our financing clients. from our Climate Aware › Refer to the “Key achievements in 2021” chart in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors In 2021, we noted continued strong momentum in our sustainable finance activities. SI assets grew to USD 251 billion, compared with USD 141 billion in 2020, and assets subject to ESG integration and to exclusions grew to USD 813 billion in 2021, compared with USD 645 billion in 2020. Jointly, SI assets and assets subject to ESG integration and to exclusions reached over 23% of client invested assets, up from 18.8% in 2020. In addition to generally supportive markets, the growth was driven by client demand, our focus on advancing sustainable solutions, and converting traditional funds to sustainable ones. Investment approaches “Traditional” investing – No explicit sustainability objectives – Manage sustainability and all risks related to investment performance – May use ESG tools, but these do not drive the strategy UBS’s deﬁ nition of sustainable investments Sustainability focus – Target market-rate investment Impact investing – Target market-rate investment returns returns – Have explicit sustainable intentions or objectives that drive the strategy – Underlying investments may contribute to positive sustainability outcomes through products, services and / or proceeds – Have explicit intentions to generate measurable, veriﬁ able, positive sustainability outcomes – Impact attributable to investor action and / or contribution 50 50 Our strategy, business model and environment | How we create value for our stakeholders Sustainable investment Sustainable financing UBS total invested assets1,2 Sustainable investment (SI) focuses on investment decisions that We offer products and solutions, including access to capital seek to make a difference, while generating competitive financial markets, to clients looking to finance assets that demonstrate returns. SI strategies aim to better risk manage portfolios in line sustainability characteristics and / or support the transition to a with 21st-century challenges and / or to align investments with low-carbon economy. Financing activities can be on-balance sheet investors’ sustainability values, while also targeting improved (such as loans and mortgages) or off-balance sheet (such as access portfolio risk and return characteristics. to debt and equity markets). We also provide advice on ESG USD billion, except where indicated SSuussttaaiinnaabbllee iinnvveessttmmeennttss Sustainability focus3 Impact investing4 TToottaall ssuussttaaiinnaabbllee iinnvveessttmmeennttss5 We have long recognized that clients and other stakeholders factors (both financial and non-financial), such as integrated SSII pprrooppoorrttiioonn ooff ttoottaall iinnvveesstteedd aasssseettss ((%%)) need transparency about the sustainability objectives of our disclosure requirements. various investment products. During 2021, the European Union’s We use regulatory and market standards where these are ESG integration6 Exclusion7 Sustainable Finance Disclosure Regulation (the SFDR) provided the available; for example, in the debt capital markets business, we TToottaall EESSGG iinntteeggrraattiioonn aanndd eexxcclluussiioonn first formal, comprehensive legislative framework establishing an refer to the International Capital Market Association (ICMA) EESSGG iinntteeggrraattiioonn aanndd eexxcclluussiioonn pprrooppoorrttiioonn ooff ttoottaall iinnvveesstteedd aasssseettss ((%%)) GRI FS11 FS11 FS11 FS11 FS11 FS11 3311..1122..22002211 For the year ended 31.12.20 31.12.19 % change from 31.12.20 222222..77 2288..55 225511..22 55..55 555588..00 225555..11 881133..22 1177..77 127.7 13.1 140.8 3.4 512.8 132.2 645.0 15.4 46.4 9.1 55.5 1.5 372.3 52.2 424.5 11.8 74.4 117.1 78.4 8.8 93.0 26.1 3,606.6 4,187.2 44,,559966..22 9.8 UBS total invested assets 11 We are refocusing our sustainable investment reporting on those investment strategies exhibiting an explicit sustainability intention. ESG integration and exclusion approaches, although considering ESG aspects in the investment process, are in and of themselves not considered sustainable investment strategies. 22 FS represents the performance indicators defined in the Financial Services Sector Supplement of the Global Reporting Initiative (GRI) reporting framework. 33 Strategies that have explicit sustainable intentions or objectives that drive the strategy. Underlying investments may contribute to positive sustainability outcomes through products / services / use of proceeds. Examples include Global Wealth Management’s Discretionary Manage SI mandate solution and Asset Management’s strategies such as its Global Sustainable Equities product. 44 Strategies that have explicit intentions of generating measurable, verifiable and positive sustainability outcomes. Impact generated is attributable to investor action and / or contributions. Examples include Global Wealth Management’s Oncology Impact funds and Asset Management’s Global Engage for Impact Equity funds. 55 In 2021, UBS converted funds to the sustainability focus and impact investment categories, in line with corresponding changes to the funds’ underlying investment policies. The main impact was on sustainability focus and impact strategies in Asset Management of USD 38 billion and sustainability focus fund conversions in Global Wealth Management. 66 Strategies that integrate ESG factors into the fundamental financial analysis to improve risk / return. 77 Strategies that avoid investments in companies that do not meet certain ESG criteria and / or do not align with the values of clients and / or UBS. The enhancement of the UBS ESG exclusion policy to include a broader set of exclusions in the third quarter of 2021 was the main driver (>50%) of the increase in exclusion assets in 2021. important marker for the industry’s efforts in this area. Green, Social or Sustainability-Linked Bond Principles. Where such Consequently, we have further evolved our own definitions of SI, guidelines or standards are not available, we aim to align with which now include the following two categories. market best practice. This is the case, for example, with equity – Sustainability focus: strategies that have explicit sustainable capital markets activities. intentions or objectives that drive the strategy. Underlying Our established sustainability and climate risk (SCR, previously investments may contribute to positive sustainability outcomes known at UBS as environmental and social risk, or ESR) framework through products / services / use of proceeds. is used to analyze potential transactions and client relationships in – Impact investing: investment strategies that have an explicit order to limit any negative impact on the environment and intention of generating measurable, verifiable, positive society. Moreover, as one of the world’s largest asset gathering sustainability outcomes. Impact generated is attributable to businesses, we are in a privileged position to leverage the investor action and / or contribution. experience gained from our Climate Aware framework, established in 2019 by our Asset Management business, to the ESG integration and exclusion benefit of our financing clients. We also identify two approaches that consider ESG factors in the investment process to varying degrees, but which on their own › Refer to the “Key achievements in 2021” chart in the Sustainability Report 2021, available from 11 March 2022 under are not considered sustainable investment. – ESG integration: considers ESG factors alongside traditional “Annual reporting” at ubs.com/investors financial metrics to assess the risk-return profile in the In 2021, we noted continued strong momentum in our investment process. This approach is rapidly becoming an sustainable finance activities. SI assets grew to USD 251 billion, industry standard, as the inclusion of such factors has been compared with USD 141 billion in 2020, and assets subject to ESG shown to benefit overall investment risk-return considerations. integration and to exclusions grew to USD 813 billion in 2021, – Exclusion: when individual companies or entire industries are compared with USD 645 billion in 2020. Jointly, SI assets and excluded from portfolios because their activities do not meet assets subject to ESG integration and to exclusions reached over certain ESG criteria and / or do not align with the values of 23% of client invested assets, up from 18.8% in 2020. In addition to generally supportive markets, the growth was driven by client demand, our focus on advancing sustainable solutions, and converting traditional funds to sustainable ones. clients and / or UBS. Investment approaches UBS’s deﬁ nition of sustainable investments “Traditional” investing Sustainability focus Impact investing – No explicit sustainability objectives – Target market-rate investment – Target market-rate investment – Manage sustainability and all risks returns returns related to investment performance – Have explicit sustainable intentions – Have explicit intentions to generate – May use ESG tools, but these do not drive the strategy or objectives that drive the strategy measurable, veriﬁ able, positive – Underlying investments may sustainability outcomes contribute to positive sustainability – Impact attributable to investor action and / or contribution outcomes through products, services and / or proceeds Our offering to clients Our private clients benefit from fully diversified sustainable portfolios, as well as advisory options. In 2020, we made sustainable investments the preferred solution for private clients investing globally. In July 2021, we expanded our sustainable investing offering with a new advisory solution that enables clients to tailor their sustainable investments to their personal preferences. In 2021, our flagship SI mandates, based on our sustainable investing strategic asset allocation (SI SAA), exceeded USD 30 billion under management. Our institutional clients benefit from the holistic integration of ESG factors into the investment decision-making process across the entire suite of investment funds and strategies. Underpinning our ESG integration activities is a robust stewardship program, including engagement and proxy voting. We have continued to build on our position as a leading provider of sustainable exchange-traded funds (ETFs), launching 17 new sustainable ETFs in 2021, including a full suite of benchmarks aligned with the Paris Agreement. We remain firmly positioned as Europe’s second- largest sustainable ETF-provider, with an SI asset base of USD 40 billion as of 31 December 2021. Our retail clients in Switzerland have access to appropriate and relevant SI products. Interest in SI solutions continued to be strong in 2021. UBS ManageTM SI, a Global Wealth Management product, represented almost 70% of Personal Banking’s mandate sales. In addition, 47% of total custody assets in Personal Banking are composed of sustainable investments. For our Swiss corporate and institutional clients, supplier and producer transactions in commodity trade finance are monitored according to our SCR standards. Furthermore, our sustainable finance advice extends to strategic positioning of business models, disclosure practices and benchmarking. Our corporate clients benefit from a range of financing and advisory solutions at all stages on their sustainability journey. In 2021, Global Banking, within our Investment Bank, set up an ESG Advisory team to assist established corporate clients with the integration of ESG risks and opportunities into their decisions related to strategy, operations and financing, thereby supporting their positioning in the financial markets. They also help young ESG-driven companies with the raising of private and / or public financing. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about our sustainable investing and financing offering, including financing solutions, advisory and research and insights Managing sustainability and climate risks At UBS, SCR is defined as the risk that UBS is negatively impacted by or negatively impacts climate change, loss of biodiversity, human rights infringements, and other environmental, social and governance matters. We apply an SCR policy framework with the aim of identifying and managing potential adverse impacts on the environment and / or to human rights, as well as the associated environmental and social risks to which our clients’ and our own assets are exposed. › Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report for more information 50 51 51 Our strategy, business model and environmentOur strategy, business model and environment | How we create value for our stakeholders Partnerships – Establish UBS as a leading facilitator of discussion, debate and idea generation. – Drive standards, research and development, and product development through partnerships across the financial ecosystem. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about UBS’s sustainability achievements in 2021 and our progress on key targets Taking climate action1 Our climate governance As part of its annual approval of our sustainability and impact objectives, the CCRC also oversees UBS’s climate strategy, as set by the GEB. During its six meetings throughout the course of the year, the CCRC reviews the GEB’s activities in executing our climate strategy and, jointly with the BoD’s Risk Committee, evaluates the progress of our climate risk program. The committee also reviews the alignment of our climate disclosures with the recommendations of the Task Force on Climate-related Financial Disclosures (the TCFD). We manage these annual plans and goals through our ISO 14001-certified environmental management system (the EMS), with management accountabilities across our firm. The EMS helps us reduce environmental risks, seize market opportunities, and continually improve our environmental, climate and resource- efficiency performance. In May 2021, we established a net-zero task force to help progress toward our ambition of reaching net zero by 2050. The GEB lead for sustainability and impact chairs the task force. Senior representatives from across our firm, including from the business, risk and finance, attend the task force’s monthly meetings. › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for UBS’s full climate disclosures Our sustainability targets and progress We work with a long-term focus on providing appropriate returns to all of our stakeholders in a responsible manner. To underline our commitment, we provide transparent targets and report on progress made against them wherever possible. In 2021, we included new targets, in particular pertaining to our commitment to becoming a net-zero bank. Our targets, as set out below, can therefore only partly be compared with what we set out in previous years. Our key targets Planet, people, partnerships – USD 400 billion invested assets in sustainable investments by 2025. Planet – Set decarbonization targets for 2030 for financing of the fossil fuel, power generation and real estate sectors (from 2020 levels): – reduce absolute financed emissions associated with UBS loans to fossil fuel companies by 71%; – reduce emissions intensity associated with UBS loans to power generation companies by 49%; – reduce emissions intensity of UBS’s commercial real estate lending portfolio by 44%; and – reduce emissions intensity of UBS’s residential real estate lending portfolio by 42%. – Align USD 235 billion of invested assets to net zero by 2030 (Asset Management). – Achieve net-zero emissions across discretionary client portfolios by 2050. – Achieve net-zero emissions resulting from our own operations (scopes 1 and 2) by 2025; cut energy consumption by 15% by 2025 (compared with 2020). – Offset historical emissions back to the year 2000 by sourcing carbon offsets (achieved by the end of 2021) and by offsetting credit delivery and full retirement in registry (by the end of 2025). – Engage with our key vendors on targeting net zero by 2035. People – 30% global female representation at Director level and above by 2025. – 26% US ethnic minority representation at Director level and above by 2025. – 26% UK ethnic minority representation at Director level and above by 2025. – Raise USD 1 billion in donations to our client philanthropy foundations and funds and reach 25 million beneficiaries by 2025 (cumulative for 2021–2025). – Support one million beneficiaries through our community impact activities by 2025 (cumulative for 2020–2024). 11 This sub-section provides key information from the UBS Climate Report 2021, which contains our full climate disclosures and follows the recommendations provided by the TCFD. The Climate Report is available from 11 March 2022 under “Annual reporting” at ubs.com/investors, integrated in the UBS Sustainability Report 2021 or as a standalone document. 52 52 Our strategy, business model and environment | How we create value for our stakeholders previous years. Our key targets Planet, people, partnerships 2025. Planet levels): Our sustainability targets and progress Partnerships – Establish UBS as a leading facilitator of discussion, debate and We work with a long-term focus on providing appropriate returns idea generation. to all of our stakeholders in a responsible manner. To underline – Drive standards, research and development, and product our commitment, we provide transparent targets and report on development through partnerships across the financial progress made against them wherever possible. In 2021, we ecosystem. included new targets, in particular pertaining to our commitment to becoming a net-zero bank. Our targets, as set out below, can therefore only partly be compared with what we set out in › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information about UBS’s sustainability achievements in 2021 and our progress on key targets Taking climate action1 As part of its annual approval of our sustainability and impact objectives, the CCRC also oversees UBS’s climate strategy, as set by the GEB. During its six meetings throughout the course of the – Set decarbonization targets for 2030 for financing of the fossil year, the CCRC reviews the GEB’s activities in executing our fuel, power generation and real estate sectors (from 2020 climate strategy and, jointly with the BoD’s Risk Committee, evaluates the progress of our climate risk program. The committee – reduce absolute financed emissions associated with UBS also reviews the alignment of our climate disclosures with the loans to fossil fuel companies by 71%; recommendations of the Task Force on Climate-related Financial – reduce emissions intensity associated with UBS loans to Disclosures (the TCFD). power generation companies by 49%; We manage these annual plans and goals through our ISO – reduce emissions intensity of UBS’s commercial real estate 14001-certified environmental management system (the EMS), lending portfolio by 44%; and with management accountabilities across our firm. The EMS helps – reduce emissions intensity of UBS’s residential real estate us reduce environmental risks, seize market opportunities, and lending portfolio by 42%. continually improve our environmental, climate and resource- – Align USD 235 billion of invested assets to net zero by 2030 efficiency performance. (Asset Management). portfolios by 2050. – Achieve net-zero emissions across discretionary client progress toward our ambition of reaching net zero by 2050. The GEB lead for sustainability and impact chairs the task force. Senior – Achieve net-zero emissions resulting from our own operations representatives from across our firm, including from the business, (scopes 1 and 2) by 2025; cut energy consumption by 15% by risk and finance, attend the task force’s monthly meetings. 2025 (compared with 2020). – Offset historical emissions back to the year 2000 by sourcing › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for UBS’s In May 2021, we established a net-zero task force to help carbon offsets (achieved by the end of 2021) and by offsetting full climate disclosures credit delivery and full retirement in registry (by the end of – Engage with our key vendors on targeting net zero by 2035. 2025). People by 2025. above by 2025. above by 2025. – 30% global female representation at Director level and above – 26% US ethnic minority representation at Director level and – 26% UK ethnic minority representation at Director level and – Raise USD 1 billion in donations to our client philanthropy foundations and funds and reach 25 million beneficiaries by 2025 (cumulative for 2021–2025). – Support one million beneficiaries through our community impact activities by 2025 (cumulative for 2020–2024). 11 This sub-section provides key information from the UBS Climate Report 2021, which contains our full climate disclosures and follows the recommendations provided by the TCFD. The Climate Report is available from 11 March 2022 under “Annual reporting” at ubs.com/investors, integrated in the UBS Sustainability Report 2021 or as a standalone document. 52 – USD 400 billion invested assets in sustainable investments by Our climate governance Managing climate-related ﬁ nancial risks Acting on a low-carbon future Our climate strategy In April 2021, we committed to achieving net-zero greenhouse Our climate strategy gas emissions resulting from all aspects of our business by 2050 In April 2021, we committed to achieving net-zero greenhouse (scope 1, 2 and 3 emissions). We are publishing our journey gas emissions resulting from all aspects of our business by 2050 toward this ambition in our climate roadmap. (scope 1, 2 and 3 emissions). We are publishing our journey toward this ambition in our climate roadmap. Our climate strategy covers two main areas: managing climate- related financial risks and acting for a low-carbon future. Our climate strategy covers two main areas: managing climate- Underpinning these two areas are four strategic pillars. related financial risks and acting for a low-carbon future. Underpinning these two areas are four strategic pillars. Governance Strategy Protecting our clients’ assets – managing climate- related risks and opportunities through our innovative products and services in investment, ﬁ nancing and research Protecting our own assets – limiting our risk appetite for carbon-related assets – estimating our ﬁ rm’s vulnerability to climate risks Reducing our climate impact – sourcing 100% of our electricity consumption from renewable sources – responsible supply chain management Mobilizing capital – from private and institutional clients – toward the orderly transition to a low-carbon economy Risks and opportunities Metrics and targets 1. Protecting our clients’ assets As a global financial institution, it is our responsibility to help 1. Protecting our clients’ assets clients navigate through the challenges of the transition to a low- As a global financial institution, it is our responsibility to help carbon economy. We help our clients assess, manage and protect clients navigate through the challenges of the transition to a low- their assets from climate-related risks by offering innovative carbon economy. We help our clients assess, manage and protect products and services in investment, financing and research. We their assets from climate-related risks by offering innovative work collaboratively across our industry and with our clients, products and services in investment, financing and research. We ensuring they have access to best practice, robust science-based work collaboratively across our industry and with our clients, approaches, standardized methodologies, and quality data for ensuring they have access to best practice, robust science-based measuring and mitigating climate risks. Our activities include approaches, standardized methodologies, and quality data for engaging on climate topics with the companies we invest in. For measuring and mitigating climate risks. Our activities include example, our Asset Management business division has engaging on climate topics with the companies we invest in. For implemented an engagement program with 46 companies from example, our Asset Management business division has the oil and gas, electric and other utilities, metals and mining, implemented an engagement program with 46 companies from construction materials, chemicals, and automotive sectors. During the oil and gas, electric and other utilities, metals and mining, 2021, we also supported 70 climate-related resolutions. construction materials, chemicals, and automotive sectors. During 2021, we also supported 70 climate-related resolutions. 2. Protecting our own assets We seek to protect our assets by limiting our risk appetite for 2. Protecting our own assets carbon-related assets. We use scenario-based stress-testing We seek to protect our assets by limiting our risk appetite for approaches and other forward-looking portfolio analyses to carbon-related assets. We use scenario-based stress-testing estimate our vulnerability to climate-related risks. As of approaches and other forward-looking portfolio analyses to 31 December 2021, we had reduced our lending exposure to estimate our vulnerability to climate-related risks. As of carbon-related assets to 9.9% (USD 45.6 billion) of our total 31 December 2021, we had reduced our lending exposure to customer lending exposure. This was down from 10.4% at the carbon-related assets to 9.9% (USD 45.6 billion) of our total end of 2020 and 10.7% at the end of 2019. customer lending exposure. This was down from 10.4% at the end of 2020 and 10.7% at the end of 2019. 3. Reducing our climate impact We are committed to achieving net-zero emissions in our own 3. Reducing our climate impact operations (scopes 1 and 2) by 2025 by replacing fossil fuel We are committed to achieving net-zero emissions in our own heating systems, maintaining our 100%-renewable electricity operations (scopes 1 and 2) by 2025 by replacing fossil fuel heating systems, maintaining our 100%-renewable electricity coverage and investing in credible carbon removal projects (including negative emissions technology). We will also coverage and investing in credible carbon removal projects compensate for our historical scope 1 and 2 emissions back to the technology). We will also (including negative emissions year 2000 by using credible and clear carbon offsets and compensate for our historical scope 1 and 2 emissions back to the investments in nature-based solutions. Furthermore, we are year 2000 by using credible and clear carbon offsets and currently working to understand and quantify the scope 3 investments in nature-based solutions. Furthermore, we are emissions in our supply chain. We are engaging with our key currently working to understand and quantify the scope 3 vendors on targeting net zero by 2035. emissions in our supply chain. We are engaging with our key vendors on targeting net zero by 2035. 4. Mobilizing capital We mobilize private and institutional capital through investments 4. Mobilizing capital that help the world mitigate and adapt to climate change. We We mobilize private and institutional capital through investments were the first major global financial institution to have made that help the world mitigate and adapt to climate change. We sustainable investments the preferred solution for our private were the first major global financial institution to have made clients wishing to invest globally. We also support our goal of sustainable investments the preferred solution for our private mobilizing capital as a lender and corporate advisor. For corporate clients wishing to invest globally. We also support our goal of clients, we support the issuance of green, social, sustainability and mobilizing capital as a lender and corporate advisor. For corporate sustainability-linked bonds – and the raising of capital in clients, we support the issuance of green, social, sustainability and international capital markets – in line with recognized market sustainability-linked bonds – and the raising of capital in guidelines, such as the ICMA Green Bond Principles. We also international capital markets – in line with recognized market extend green and sustainable loans in line with the Loan Market guidelines, such as the ICMA Green Bond Principles. We also Association. In 2021, we began offering borrowers Green extend green and sustainable loans in line with the Loan Market Mortgages via the key4 platform, the first Swiss real estate Association. In 2021, we began offering borrowers Green platform for investment properties that promotes sustainable Mortgages via the key4 platform, the first Swiss real estate mortgages. platform for investment properties that promotes sustainable › Refer to the UBS Climate Report 2021, available from 11 March mortgages. 2022 under “Annual reporting” at ubs.com/investors, for a full › Refer to the UBS Climate Report 2021, available from 11 March description of UBS’s climate strategy 2022 under “Annual reporting” at ubs.com/investors, for a full description of UBS’s climate strategy 53 53 53 Our strategy, business model and environment Our strategy, business model and environment | How we create value for our stakeholders Our management of climate risks Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). The physical and transition risks from a changing climate contribute to a structural change across economies and, consequently, can affect banks and the financial sector through financial and non-financial impacts. In March 2020, Group Risk Control established our firm’s climate risk program to further integrate climate risk in the firm’s risk management framework and standard processes. The program follows a multi-year roadmap to address regulatory expectations and is engaging with stakeholders and experts both internally and externally to further develop climate risk methodologies, to deliver on ongoing climate stress testing exercises and to build capacity to respond to climate risk management expectations. We currently identify and manage climate risks in our own operations, our balance sheet, client assets and the supply chain. To protect our clients’ and our own assets from climate-related risks, in 2021, we continued to drive the integration of climate- related risk into our standard risk management framework. Our climate-related metrics and targets For many years, we have been developing methodologies that enable us to disclose climate-related metrics more robustly and transparently. Most recently, regulators and standard setters have provided more guidance on metrics. We firmly aim to keep pace with these new developments and requirements and further evolve our climate-related metrics. This commitment remains, as does our determination to continue leading the way in efforts to mitigate climate change. UBS supports the goals of the Paris Agreement, which includes aligning our own operations and business activities with a pathway of a five-step net-zero plan to: (i) measure carbon emissions; (ii) define a roadmap and set targets; (iii) reduce climate impact; (iv) finance climate action and support the transition of our clients; and (v) communicate and engage. › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for a full description of UBS’s net-zero targets, including baselines and pathways We further integrated climate risk in: (i) risk identification and setting; measurement; (iii) management and control; and (iv) reporting processes across the organization. (ii) monitoring and risk appetite › Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for a full description of UBS’s management of climate risks 54 54 Our strategy, business model and environment | How we create value for our stakeholders Our management of climate risks Our climate-related metrics and targets Climate risks can arise from either changing climate conditions For many years, we have been developing methodologies that (physical risks) or from efforts to mitigate climate change enable us to disclose climate-related metrics more robustly and (transition risks). The physical and transition risks from a changing transparently. Most recently, regulators and standard setters have climate contribute to a structural change across economies and, provided more guidance on metrics. We firmly aim to keep pace consequently, can affect banks and the financial sector through with these new developments and requirements and further financial and non-financial impacts. evolve our climate-related metrics. This commitment remains, as In March 2020, Group Risk Control established our firm’s does our determination to continue leading the way in efforts to climate risk program to further integrate climate risk in the firm’s mitigate climate change. risk management framework and standard processes. The UBS supports the goals of the Paris Agreement, which includes program follows a multi-year roadmap to address regulatory aligning our own operations and business activities with a expectations and is engaging with stakeholders and experts both pathway of a five-step net-zero plan to: (i) measure carbon internally and externally to further develop climate risk emissions; (ii) define a roadmap and set targets; (iii) reduce methodologies, to deliver on ongoing climate stress testing climate impact; (iv) finance climate action and support the exercises and to build capacity to respond to climate risk transition of our clients; and (v) communicate and engage. management expectations. We currently identify and manage climate risks in our own operations, our balance sheet, client assets and the supply chain. › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for a full description of UBS’s net-zero targets, including baselines and To protect our clients’ and our own assets from climate-related pathways risks, in 2021, we continued to drive the integration of climate- related risk into our standard risk management framework. We further integrated climate risk in: (i) risk identification and measurement; (ii) monitoring and risk appetite setting; (iii) management and control; and (iv) reporting processes across the organization. › Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report › Refer to the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for a full description of UBS’s management of climate risks Climate-related metrics 2021 Risk management Carbon-related assets (USD billion)1,2 of which: UBS AG (standalone) 3 of which: UBS Switzerland AG (standalone) 3 Proportion of total customer lending exposure, gross (%) Total exposure to climate-sensitive sectors, transition risk (USD billion)2,4 of which: UBS AG (standalone) 3 of which: UBS Switzerland AG (standalone) 3 Proportion of total customer lending exposure, gross (%) Total exposure to climate-sensitive sectors, physical risk (USD billion)2,4 of which: UBS AG (standalone) 3 of which: UBS Switzerland AG (standalone) 3 Proportion of total customer lending exposure, gross (%) Identified significant climate-related financial risk on balance sheet5 Opportunities Number of green, sustainability, and sustainability-linked bond deals6 Total deal value of green, sustainability, and sustainability-linked bond deals (USD billion)6 UBS apportioned deal value of above (USD billion) Stewardship – voting Number of climate-related resolutions voted upon7 Proportion of supported climate-related resolutions (%) Own operations (reporting period: July to June) Net GHG footprint (1,000 metric tons CO2e)8 Change from baseline 2004 (%) For the year ended % change from 3311..1122..2211 31.12.20 31.12.19 31.12.20 4455..66 77..00 3377..99 99..99 3377..55 44..66 3322..88 88..22 2255..55 1100..88 1133..66 55..66 NNoonnee 9988 6633..33 1133..22 8899 7788..66 45.4 7.6 37.1 10.4 37.5 5.4 31.7 8.6 26.2 11.5 13.5 6.0 None 29 19.3 5.7 50 88.0 40.1 7.5 31.9 10.7 33.4 5.8 27.3 9.0 25.6 13.1 11.7 6.9 None 26 15.6 3.4 44 81.8 3300 75 ((9922..00)) (79.0) 104 (71.2) 0.4 (8.7) 2.4 0.0 (15.9) 3.4 (2.8) (6.1) 1.4 237.9 78.0 (60.0) Share of renewable electricity (%) 11 The carbon-related assets metric has been updated to cover the four non-financial groups as defined by the TCFD, i.e., energy, transportation, materials and buildings, and agriculture, food and forest products. 22 Includes total loans and advances to customers and guarantees as well as irrevocable loan commitments (within the scope of expected credit loss). 33 Based on standalone IFRS numbers. 44 Climate-sensitive sectors are defined as those business activities that are rated as having high, moderately high or moderate vulnerability to transition risks and physical risks. For more details, refer to the “UBS lending to climate-sensitive sectors” table under “Sustainability and climate risk” in the “Risk management and control” section of this report and “Climate scenario analysis” in the “What” section of the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors. Physical risk number includes USD 4 billion of loans backed by real estate in regions with elevated physical climate risks. Global Wealth Management corporate lending to customers represents 1.1% of all on- and off-balance sheet loans and advances to customers, and is excluded from the climate-sensitive sectors analysis in 2021. 55 Methodologies for assessing climate-related financial risk are emerging and may change over time, as described in the UBS Climate Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors. 66 Such as, but not limited to, ICMA Green Bond Principles, Sustainability Bond Principles, and Sustainability-linked Bond Principles. 77 This excludes proposals related to Japanese companies that included changes to the companies’ articles of association. 2021 numbers include shareholder and management proposals, 2020 and 2019 numbers shareholder proposals only. This reflects the increasingly common market practice of climate-related proposals being presented by management. 88 Net greenhouse gas (GHG) footprint equals gross GHG emissions minus GHG reductions from renewable electricity and CO2e offsets (gross GHG emissions include: direct GHG emissions by UBS; indirect GHG emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam; and other indirect GHG emissions associated with business travel, paper consumption and waste disposal). A breakdown of our GHG emissions (scopes 1, 2 and 3) is provided in appendix 4 to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors. 110000 72 85 Reporting to our stakeholders on our sustainability strategy and activities Information about all our sustainability efforts and commitments is provided in our Sustainability Report 2021, available under “Annual reporting” at ubs.com/investors. The content of the Sustainability Report 2021 has been prepared in accordance with Global Reporting Initiative (GRI) Standards (the “comprehensive” option) and with the German rules implementing the EU Directive information on disclosure of non-financial and diversity (2014/95/EU). Our reporting on sustainability has been reviewed on a limited assurance basis by Ernst & Young Ltd against the GRI Standards. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for an overview of non-financial disclosures in accordance with the German rules implementing EU Directive 2014/95 and for information on UBS AG and UBS Europe SE disclosures pursuant to EU Taxonomy Art. 8 54 55 55 Our strategy, business model and environmentOur strategy, business model and environment | Regulation and supervision Regulation and supervision As a financial services provider based in Switzerland, UBS is subject to consolidated supervision by the Swiss Financial Market Supervisory Authority (FINMA). Our entities are also regulated and supervised by authorities in each country where they conduct business. Through UBS AG and UBS Switzerland AG, both licensed as banks in Switzerland, UBS may engage in a full range of financial services activities in Switzerland and abroad, including personal banking, commercial banking, investment banking and asset management. As a global systemically important bank (a G-SIB), as designated by the Financial Stability Board, and a systemically relevant bank (an SRB) in Switzerland, we are subject to stricter regulatory requirements and supervision than most other Swiss banks. › Refer to the “Our evolution” section of this report for more information › Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information Regulation and supervision in Switzerland Supervision UBS Group AG and its subsidiaries are subject to consolidated supervision by FINMA under the Swiss Banking Act and related ordinances, which impose standards for matters such as minimum capital, liquidity, risk concentration and internal organization standards. FINMA meets its statutory supervisory responsibilities through licensing, regulation, supervision, and enforcement. It is responsible for prudential supervision and mandates audit firms to perform regulatory audits and other supervisory tasks on its behalf. Capital adequacy and liquidity regulation As an internationally active Swiss SRB, we are subject to capital and total loss-absorbing capacity requirements that are based on both RWA and LRD and are among the most stringent in the world. We are also subject to short-term liquidity coverage ratio rules and to long-term minimum funding requirements. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the Swiss SRB framework and the Swiss too-big-to-fail requirements › Refer to “Liquidity coverage ratio” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about liquidity coverage ratio requirements › Refer to the “Regulatory and legal developments” section of this report for more information about the introduction of the net stable funding ratio › Refer to “Industry trends” in the “Our environment” section of this report for more information about revisions of the Swiss too-big-to-fail liquidity framework Regulation and supervision outside Switzerland Regulation and supervision in the US In the US, UBS is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) under a number of laws. UBS Group AG and UBS AG are both subject to the Bank Holding Company Act, pursuant to which the Federal Reserve Board has supervisory authority over the US operations of both UBS Group AG and UBS AG. In addition to being a financial holding company under the Bank Holding Company Act, UBS AG has US branches, which are authorized and supervised by the Office of the Comptroller of the Currency. UBS AG is registered as a swap dealer with the Commodity Futures Trading Commission (the CFTC) and as a securities-based swap dealer with the Securities and Exchange Commission (the SEC). UBS Americas Holding LLC, the intermediate holding company for our operations in the US outside of the UBS AG branch network, as required under the Dodd–Frank Act, is subject to requirements established by the Federal Reserve Board related to risk-based capital, liquidity, the Comprehensive Capital Analysis and Review stress testing and capital planning process, and resolution planning and governance. UBS Bank USA, a Federal Deposit Insurance Corporation- insured depository institution subsidiary, is licensed and regulated by state regulators in Utah. UBS Financial Services Inc., UBS Securities LLC and several other US subsidiaries of UBS are subject to regulation by a number of different government agencies and self-regulatory organizations, including the SEC, the Financial Industry Regulatory Authority, the CFTC, the Municipal Securities Rulemaking Board and national securities exchanges, depending on the nature of their business. Regulation and supervision in the UK Our regulated UK operations are mainly subject to the authority of the Prudential Regulation Authority (the PRA), which is part of the Bank of England, and the Financial Conduct Authority (the FCA). We are also subject to the rules of the London Stock Exchange and other securities and commodities exchanges of which UBS AG is a member. UBS AG has a UK-registered branch in London, which serves as a global booking center for our Investment Bank. Our regulated subsidiaries in the UK that provide asset management services are authorized and regulated mainly by the FCA, with one entity also subject to the authority of the PRA. Regulation and supervision in Germany / the EU UBS Europe SE is subject to the direct supervision of the European Central Bank, as well as to continued conduct, consumer protection and anti-money laundering-related supervision by the German Federal Financial Supervisory Authority (the BaFin) and supervisory support by the German Bundesbank. The entity is subject to EU and German laws and regulations. UBS Europe SE maintains branches in Denmark, France, Italy, Luxembourg, the Netherlands, Poland, Spain, Sweden and Switzerland, and is subject to conduct supervision by authorities in all those countries. 56 56 Our strategy, business model and environment | Regulation and supervision Regulation and supervision As a financial services provider based in Switzerland, UBS is subject Regulation and supervision outside Switzerland to consolidated supervision by the Swiss Financial Market Supervisory Authority (FINMA). Our entities are also regulated and Regulation and supervision in the US supervised by authorities in each country where they conduct In the US, UBS is subject to regulation and supervision by the Board business. Through UBS AG and UBS Switzerland AG, both licensed of Governors of the Federal Reserve System (the Federal Reserve as banks in Switzerland, UBS may engage in a full range of financial Board) under a number of laws. UBS Group AG and UBS AG are services activities in Switzerland and abroad, including personal both subject to the Bank Holding Company Act, pursuant to which banking, commercial banking, investment banking and asset the Federal Reserve Board has supervisory authority over the US management. operations of both UBS Group AG and UBS AG. As a global systemically important bank (a G-SIB), as In addition to being a financial holding company under the designated by the Financial Stability Board, and a systemically Bank Holding Company Act, UBS AG has US branches, which are relevant bank (an SRB) in Switzerland, we are subject to stricter authorized and supervised by the Office of the Comptroller of the regulatory requirements and supervision than most other Swiss Currency. UBS AG is registered as a swap dealer with the banks. information › Refer to the “Our evolution” section of this report for more › Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information Regulation and supervision in Switzerland Supervision Commodity Futures Trading Commission (the CFTC) and as a securities-based swap dealer with the Securities and Exchange Commission (the SEC). UBS Americas Holding LLC, the intermediate holding company for our operations in the US outside of the UBS AG branch network, as required under the Dodd–Frank Act, is subject to requirements established by the Federal Reserve Board related to risk-based capital, liquidity, the Comprehensive Capital Analysis and Review stress testing and capital planning process, and UBS Group AG and its subsidiaries are subject to consolidated resolution planning and governance. supervision by FINMA under the Swiss Banking Act and related UBS Bank USA, a Federal Deposit Insurance Corporation- ordinances, which impose standards for matters such as minimum insured depository institution subsidiary, is licensed and regulated capital, liquidity, risk concentration and internal organization by state regulators in Utah. standards. FINMA meets its statutory supervisory responsibilities UBS Financial Services Inc., UBS Securities LLC and several other through licensing, regulation, supervision, and enforcement. It is US subsidiaries of UBS are subject to regulation by a number of responsible for prudential supervision and mandates audit firms to different government agencies and self-regulatory organizations, perform regulatory audits and other supervisory tasks on its behalf. including the SEC, the Financial Industry Regulatory Authority, the Capital adequacy and liquidity regulation As an internationally active Swiss SRB, we are subject to capital and CFTC, the Municipal Securities Rulemaking Board and national securities exchanges, depending on the nature of their business. total loss-absorbing capacity requirements that are based on both Regulation and supervision in the UK RWA and LRD and are among the most stringent in the world. We Our regulated UK operations are mainly subject to the authority are also subject to short-term liquidity coverage ratio rules and to of the Prudential Regulation Authority (the PRA), which is part of long-term minimum funding requirements. › Refer to the “Capital, liquidity and funding, and balance sheet” the Bank of England, and the Financial Conduct Authority (the FCA). We are also subject to the rules of the London Stock section of this report for more information about the Swiss SRB Exchange and other securities and commodities exchanges of framework and the Swiss too-big-to-fail requirements › Refer to “Liquidity coverage ratio” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about liquidity coverage ratio requirements › Refer to the “Regulatory and legal developments” section of this which UBS AG is a member. UBS AG has a UK-registered branch in London, which serves as a global booking center for our Investment Bank. Our regulated subsidiaries in the UK that provide asset management services are authorized and regulated mainly by the FCA, with one entity also report for more information about the introduction of the net subject to the authority of the PRA. stable funding ratio › Refer to “Industry trends” in the “Our environment” section of this report for more information about revisions of the Swiss too-big-to-fail liquidity framework Regulation and supervision in Germany / the EU UBS Europe SE is subject to the direct supervision of the European Central Bank, as well as to continued conduct, consumer protection and anti-money laundering-related supervision by the German Federal Financial Supervisory Authority (the BaFin) and supervisory support by the German Bundesbank. The entity is subject to EU and German laws and regulations. UBS Europe SE maintains branches in Denmark, France, Italy, Luxembourg, the Netherlands, Poland, Spain, Sweden and Switzerland, and is subject to conduct supervision by authorities in all those countries. Regulation and supervision in Asia Pacific We operate in 13 locations in Asia Pacific and are subject to the regulation and supervision by local financial regulators. Our regional hubs are Singapore and Hong Kong SAR. In Singapore, we conduct our operations primarily through UBS AG Singapore Branch and UBS Securities Pte. Ltd., which are supervised by the Monetary Authority of Singapore and the Singapore Exchange. UBS AG Hong Kong Branch is primarily supervised by the Hong Kong Monetary Authority. UBS Securities Hong Kong Limited, UBS Securities Asia Limited and UBS Asset Management (Hong Kong) Limited are primarily supervised by the Hong Kong Securities and Futures Commission. In addition, UBS Securities Hong Kong Limited is supervised by the Hong Kong Stock Exchange and the Hong Kong Futures Exchange. In Mainland China, UBS has multiple licenses to operate its core business lines, and the various UBS entities are subject to regulation by a number of different government agencies. The People’s Bank of China oversees the macro capital markets policies and ensures coordinated supervisory approaches by the China Banking and Insurance Commission, the China Securities and Regulatory Commission, and the exchanges. Financial crime prevention Combating money laundering and terrorist financing has been a major focus of many governments in recent years. Laws and regulations, including the US Bank Secrecy Act, require effective policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, and the verification of client identities. Failure to introduce and maintain adequate programs to prevent money laundering and terrorist financing can result in significant legal and reputation risk and fines. We are also subject to laws and regulations prohibiting corrupt or illegal payments to government officials and other persons, including the US Foreign Corrupt Practices Act and the UK Bribery Act. We maintain policies, procedures and internal controls intended to comply with those regulations. › Refer to “Non-financial risk” in the “Risk management and control” section of this report for more information Data protection We are subject to regulations concerning the use and protection of customer, employee, and other personal and confidential information. This includes provisions under Swiss law, the EU General Data Protection Regulation (the GDPR) and laws of other jurisdictions. › Refer to the “Risk factors” section of this report for more information about regulatory change Recovery and resolution Swiss too-big-to-fail (TBTF) legislation requires each Swiss SRB to establish an emergency plan to maintain systemic functions in case of impending insolvency. In response to these Swiss requirements, and similar ones in other jurisdictions, UBS has developed recovery plans and resolution strategies, as well as plans for restructuring or winding down businesses if the firm could not be stabilized otherwise. In 2013, FINMA stated its preference for a single point of entry (SPE) strategy for globally active SRBs, such as UBS, with a bail-in at the group holding-company level. UBS has made structural, financial and operational changes to facilitate an SPE strategy and is confident that a resolution of the bank is operationally executable and legally enforceable. FINMA published its most recent assessment of Swiss SRBs’ emergency and recovery and resolution plans in March 2021, which confirmed that our Swiss emergency plan is effective, subject to further reduction of joint and several liabilities. Since the previous assessment, UBS has reduced its joint and several liabilities to the requested level. FINMA acknowledged progress made in UBS’s overall resolvability, by building up the necessary capabilities or removing obstacles to the implementation of the resolution strategy. UBS’s crisis management framework Our crisis management framework includes three key governance bodies (see chart on the following page), which take responsibility and action depending on the nature of the stress incident and the scale of the response needed. – For incident, risk and crisis management, the Group Crisis Management Committee works with incident management teams that provide monitoring and early-warning indicators at local / regional level, without needing to activate protocols at the Group level. If a local response is insufficient, global task forces and crisis management teams provide decision-making guidance and coordination, including crisis management plans, protocols and playbooks, and contingency funding plans. – The Group Executive Board and the Board of Directors would evaluate and decide upon the need to activate the Global Recovery Plan (the GRP) if a stress event reached a severity requiring that, based on the GRP’s risk indicators. – FINMA has the authority to determine whether the point of non-viability (PONV) as defined by Swiss law (referred to as “impending insolvency” in the Banking Act) has been reached and, in such cases, as part of the resolution strategy, has the power to order the bail-in of creditors to recapitalize and stabilize the Group, limit payments of dividends and interest, alter our legal structure, take actions to reduce business risk, and order a restructuring of the bank. 56 57 57 Our strategy, business model and environmentOur strategy, business model and environment | Regulation and supervision (cid:55)(cid:36)(cid:53)(cid:2)(cid:69)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) (cid:43)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:68)(cid:81)(cid:70)(cid:91) (cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:81)(cid:70)(cid:91) (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71) (cid:41)(cid:39)(cid:36)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:36)(cid:81)(cid:38) (cid:43)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:71)(cid:67)(cid:79)(cid:85)(cid:2) (cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:86)(cid:67)(cid:85)(cid:77)(cid:2)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:85) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:86)(cid:67)(cid:85)(cid:77)(cid:2)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:85) (cid:53)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:17)(cid:2)(cid:75)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71) (cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:87)(cid:85)(cid:87)(cid:67)(cid:78) (cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:71)(cid:67)(cid:79)(cid:85) (cid:50)(cid:78)(cid:67)(cid:80)(cid:85) (cid:47)(cid:81)(cid:80)(cid:75)(cid:86)(cid:81)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:78)(cid:91)(cid:15) (cid:89)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85) (cid:37)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:82)(cid:84)(cid:81)(cid:86)(cid:81)(cid:69)(cid:81)(cid:78)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:78)(cid:67)(cid:91)(cid:68)(cid:81)(cid:81)(cid:77)(cid:85) (cid:37)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:71)(cid:80)(cid:69)(cid:91) (cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:85) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:82)(cid:78)(cid:67)(cid:80)(cid:85) (cid:52)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:71)(cid:85) (cid:85) (cid:85) (cid:71) (cid:84) (cid:86) (cid:85) (cid:2) (cid:72) (cid:81) (cid:2) (cid:78) (cid:71) (cid:88) (cid:71) (cid:46) (cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2) (cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91) (cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:53)(cid:69)(cid:67)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:71)(cid:2)(cid:80)(cid:71)(cid:71)(cid:70)(cid:71)(cid:70) (cid:50)(cid:81)(cid:75)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:88)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:52)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) Global Recovery Plan The GRP gives senior management a tool to restore financial strength if UBS comes under severe capital and liquidity stress. Quantitative and qualitative triggers are monitored daily and subject to predefined governance and escalation processes. Recovery options are linked to owners and checklists with the objectives being capital preservation, capital raising and raising funding, and disposal or wind-down of businesses. Global Resolution Strategy FINMA is responsible for developing the resolution strategy for UBS. The planning includes measures that FINMA can take to resolve UBS in an orderly manner if the Group enters into resolution. FINMA has the ultimate authority and responsibility to execute the resolution, in cooperation with the Swiss National Bank, the Swiss Federal Department of Finance and other key authorities. The SPE bail-in strategy would involve writing down the Group’s remaining equity and additional tier 1 and tier 2 instruments, as well as bail-in of total loss-absorbing (TLAC)-eligible senior unsecured bonds at the UBS Group AG level. An internal recapitalization of undercapitalized subsidiaries would be made simultaneously with losses transmitted to UBS AG and, ultimately, UBS Group AG. Post-resolution restructuring measures could include disposal and winding down of businesses and assets. FINMA noted that we have already taken key preparatory steps and made good progress regarding global resolvability. Local recovery and resolution plans The Swiss emergency plan demonstrates how UBS’s systemically important functions and critical operations in Switzerland can continue if the UBS Group cannot be restructured. This is achieved mainly by maintaining UBS Switzerland AG as a separate legal entity. FINMA has confirmed that the Swiss emergency plan is effective, subject to further reduction of joint and several liabilities. The US resolution plan sets out the steps that could be taken to resolve the UBS Americas Holding LLC group if it suffered material financial distress and the UBS Group was unable or unwilling to provide financial support. As required by US regulations, our US plan contemplates that UBS Americas Holding LLC will commence US bankruptcy proceedings. Prior to commencement thereof, the plan envisages UBS Americas Holding LLC down-streaming financial resources to subsidiaries to facilitate orderly wind-down or disposal of businesses. Following the cross-border merger of UBS Limited into UBS Europe SE, the enlarged European operating subsidiary has developed resolution plans based on Single Resolution Board requirements. Given the relatively small size of UBS Europe SE compared with the overall Group, emphasis is placed on the recovery plan and the resolution strategy for the UBS Group to provide the tools necessary to recapitalize and restructure the entity in case of material financial distress. Other local recovery and resolution plans exist for various Group entities and jurisdictions. 58 58 Our strategy, business model and environment | Regulation and supervision (cid:55)(cid:36)(cid:53)(cid:2)(cid:69)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) (cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:68)(cid:81)(cid:70)(cid:91) (cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:81)(cid:70)(cid:91) (cid:53)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:17)(cid:2)(cid:75)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71) (cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:87)(cid:85)(cid:87)(cid:67)(cid:78) (cid:43)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:71)(cid:67)(cid:79)(cid:85)(cid:2) (cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:86)(cid:67)(cid:85)(cid:77)(cid:2)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:85) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:86)(cid:67)(cid:85)(cid:77)(cid:2)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:85) (cid:50)(cid:78)(cid:67)(cid:80)(cid:85) (cid:47)(cid:81)(cid:80)(cid:75)(cid:86)(cid:81)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:78)(cid:91)(cid:15) (cid:89)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85) (cid:37)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:37)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:71)(cid:80)(cid:69)(cid:91) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:82)(cid:84)(cid:81)(cid:86)(cid:81)(cid:69)(cid:81)(cid:78)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:78)(cid:67)(cid:91)(cid:68)(cid:81)(cid:81)(cid:77)(cid:85) (cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:85) (cid:82)(cid:78)(cid:67)(cid:80)(cid:85) (cid:52)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:71)(cid:85) (cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:71)(cid:67)(cid:79)(cid:85) (cid:50)(cid:81)(cid:75)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:88)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91) (cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2) (cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:52)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91) (cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91) (cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:85) (cid:53)(cid:69)(cid:67)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:71)(cid:2)(cid:80)(cid:71)(cid:71)(cid:70)(cid:71)(cid:70) Global Recovery Plan Local recovery and resolution plans The GRP gives senior management a tool to restore financial The Swiss emergency plan demonstrates how UBS’s systemically strength if UBS comes under severe capital and liquidity stress. important functions and critical operations in Switzerland can Quantitative and qualitative triggers are monitored daily and continue if the UBS Group cannot be restructured. This is achieved subject to predefined governance and escalation processes. mainly by maintaining UBS Switzerland AG as a separate legal Recovery options are linked to owners and checklists with the entity. FINMA has confirmed that the Swiss emergency plan is objectives being capital preservation, capital raising and raising effective, subject to further reduction of joint and several funding, and disposal or wind-down of businesses. liabilities. Global Resolution Strategy The US resolution plan sets out the steps that could be taken to resolve the UBS Americas Holding LLC group if it suffered FINMA is responsible for developing the resolution strategy for UBS. material financial distress and the UBS Group was unable or The planning includes measures that FINMA can take to resolve UBS unwilling to provide financial support. As required by US in an orderly manner if the Group enters into resolution. FINMA has regulations, our US plan contemplates that UBS Americas Holding the ultimate authority and responsibility to execute the resolution, LLC will commence US bankruptcy proceedings. Prior to in cooperation with the Swiss National Bank, the Swiss Federal commencement thereof, the plan envisages UBS Americas Department of Finance and other key authorities. The SPE bail-in Holding LLC down-streaming financial resources to subsidiaries to strategy would involve writing down the Group’s remaining equity facilitate orderly wind-down or disposal of businesses. and additional tier 1 and tier 2 instruments, as well as bail-in of total Following the cross-border merger of UBS Limited into loss-absorbing (TLAC)-eligible senior unsecured bonds at the UBS UBS Europe SE, the enlarged European operating subsidiary has Group AG level. An internal recapitalization of undercapitalized developed resolution plans based on Single Resolution Board subsidiaries would be made simultaneously with losses transmitted requirements. Given the relatively small size of UBS Europe SE to UBS AG and, ultimately, UBS Group AG. Post-resolution compared with the overall Group, emphasis is placed on the restructuring measures could include disposal and winding down of recovery plan and the resolution strategy for the UBS Group to businesses and assets. FINMA noted that we have already taken key provide the tools necessary to recapitalize and restructure the preparatory steps and made good progress regarding global entity in case of material financial distress. resolvability. Other local recovery and resolution plans exist for various Group entities and jurisdictions. (cid:85) (cid:85) (cid:71) (cid:84) (cid:86) (cid:85) (cid:2) (cid:72) (cid:81) (cid:2) (cid:78) (cid:71) (cid:88) (cid:71) (cid:46) 58 (cid:43)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86) (cid:52)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) Regulatory and legal developments (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:84)(cid:75)(cid:85)(cid:75)(cid:85)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71) (cid:41)(cid:39)(cid:36)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:36)(cid:81)(cid:38) Developments regarding Sanctions and Export Controls International developments regarding capital regulation As a result of the Russian invasion of Ukraine on 24 February 2022, Switzerland, the US, the EU, the UK and others have announced unprecedented levels of sanctions and other measures against Russia and certain Russian entities and nationals. UBS’s policy is to comply with all applicable laws, including sanctions and export controls, in the jurisdictions in which it operates. At present, numerous complex regimes are developing rapidly in response to the escalating conflict and UBS is working carefully and assiduously to comply with all relevant requirements and to address their potential consequences. Developments regarding the too-big-to-fail regulation In March 2021, the Swiss Financial Market Supervisory Authority (FINMA) published its annual assessment of the recovery and resolution plans of systemically important financial institutions in Switzerland. The report shows that FINMA approved UBS’s group recovery plan and assessed its Swiss Emergency Plan as effective. It also highlighted that UBS made further progress in improving its global resolvability by building up the necessary capabilities and removing obstacles to the implementation of the resolution strategy, while pointing out areas for further improvement. review of the Swiss In June 2021, the Swiss Federal Council issued the results of its bi-annual regulatory framework. The Swiss Federal Council concluded that no fundamental changes to the framework are needed. Potential areas for adjustment identified include further tightening of the liquidity requirements for systemically important banks and the alignment of incentive systems to support a bank’s resolvability. too-big-to-fail In September 2021, the Swiss Federal Department of Finance launched a consultation on proposed revisions to the Swiss Liquidity Ordinance, with the aim of strengthening the resilience of systemically important banks in Switzerland. As proposed, the revisions would increase the regulatory minimum liquidity requirements for systemically important banks, including UBS. The final rule is expected to be published later this year. In March 2021, US banking regulators, including the Federal Reserve Board (the FRB), the OCC and the Federal Deposit Insurance Corporation (the FDIC) decided not to extend the temporary exclusion of central bank deposits and US Treasury securities from the leverage exposure calculation for the supplementary leverage ratio beyond March 2021. The temporary exemption was applicable to UBS Americas Holding LLC (UBSAH) with respect to US regulatory capital requirements. In addition, the Federal Reserve announced that the limits on capital distributions imposed during the COVID-19 pandemic would be removed after 30 June 2021. As a result, capital distributions by UBSAH will generally be permitted for as long as it meets regulatory capital requirements, including the incremental stress capital buffer set by the FRB as part of its Comprehensive Capital Analysis and Review stress test (CCAR). Following the completion of the annual Dodd–Frank Act Stress Tests (DFAST) and CCAR, UBSAH was assigned a stress capital buffer (an SCB) of 7.1% (previously 6.7%) under the SCB rule as of 1 October 2021. In July 2021, the European Central Bank announced its decision to remove COVID-19-related restrictions on capital distributions and share buybacks by banks with effect from 1 October 2021. In October 2021, the European Commission (the EC) published a legislative proposal to amend the EU’s prudential rules for banks to implement the remaining elements of Basel III and revised rules on resolution. Once finalized, the EC envisages that these requirements are likely to take effect beginning in 2025 and UBS Europe SE will be subject to these final provisions. In addition, the proposal, which may be adjusted in the political process and is expected to be finalized by the end of 2023, includes a requirement that certain banking and investment services must be provided through a branch in the EU. UBS Group entities currently provide such services in the EU on a cross-border basis. UBS will assess the final requirements to determine whether changes are required ahead of the new framework entering into force. Reactivation of the Swiss countercyclical buffer Swiss stamp duty and withholding tax In January 2022, the Swiss Federal Council decided, at the request of the SNB, to reactivate the countercyclical capital buffer, at a maximum level of 2.5% on risk-weighted positions that are directly or in Switzerland. This is expected to increase our common equity tier 1 (CET1) minimum capital requirement by approximately 30 basis points. The reactivated countercyclical capital buffer will become effective on 30 September 2022. indirectly backed by residential properties In June 2021, the Swiss Parliament approved an extension of the current withholding tax exemption for total loss-absorbing capacity instruments, including additional tier 1, from 2021 until the end of 2026. In December 2021, the Swiss Parliament also adopted a legislation that will abolish the withholding tax on bond interest payments (for bonds issued from the beginning of 2023 onward) and will eliminate the securities transfer stamp tax on domestic bonds. However, the withholding tax on interest paid on bank deposits of natural persons with tax domicile in Switzerland is maintained. The reform intends to strengthen the debt capital market in Switzerland, and is expected to take effect in 2023, subject to an optional referendum. 59 59 Our strategy, business model and environmentOur strategy, business model and environment | Regulatory and legal developments OECD corporate tax reform In October 2021, the G20 endorsed the final political agreement on the two-pillar solution reached by the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The two- pillar solution consists of Pillar 1, which provides taxing rights to the market jurisdiction from where the profits are derived, and Pillar 2, which introduces a minimum corporate tax rate of 15%. The G20 called for all the rules to enter into force at a global level by 2024, with some to be implemented in 2023. At the time of publication in October 2021, 137 of the 141 members of the Framework had agreed to the reform and planned to incorporate the new rules into their respective national legislation, including Switzerland. As financial services are expected to be out of scope of Pillar 1, UBS will primarily be affected by Pillar 2. The impact of the reform on UBS will depend on implementation by the adhering countries of the reform. In January 2022, the Swiss Federal Council presented the key aspects of the implementation in Switzerland. The relevant changes will require a constitutional amendment, which triggers a mandatory referendum. The government aims to implement the minimum tax rate as of 1 January 2024. Revision of the Swiss Anti-Money-Laundering Act In March 2021, the Swiss Parliament granted final approval for the revision of the Swiss Anti-Money-Laundering (AML) Act, which incorporates several but not all, of the recommendations from the enhanced follow-up process of the Financial Action Task Force on Money Laundering (the FATF). The revision will introduce into Swiss law further specifications of the obligation to file suspicious activity reports and increase the frequency of client data reviews. It will also improve transparency by incorporating additional legal requirements for associations with elevated risks of terrorist financing. However, the FATF’s recommendation to extend the scope of the Swiss AML Act to advisors (e.g., attorneys, fiduciaries, and tax advisors) was not adopted by the Swiss Parliament. On 1 October 2021, the Federal Council issued a draft revision of the Anti-Money-Laundering Ordinance (AMLO) to detail the implementation of the changes. The consultation on the AMLO ended on 17 January 2022, and the revisions are expected to enter into force by mid-2022. UBS is in the process of adjusting its AML processes to reflect the new requirements. Developments regarding environmental, social and governance matters 2021 saw a significant number of sustainability-related policy developments, with a particular focus on disclosure requirements, across various jurisdictions. In March 2021, the EU Sustainable Finance Disclosures Regulation (the SFDR) came into effect. The regulation defines standards regarding, among other matters, how investors should be informed about sustainability risks and how the impact of investments on the environment and society should be disclosed. This regulation concerns any prospectus of UBS’s EU-domiciled and EU-marketed funds. In April 2021, the EC published a legislative proposal for a revised Non-Financial Reporting Directive (NFRD) requiring firms to publish enhanced information about their activities with regard to environmental, social and governance (ESG)-related matters. 60 60 In July 2021, the EC adopted regulations prescribing the content, methodology and presentation of climate-related disclosures that are required under Art. 8 of the EU Taxonomy Regulation. As part of their non-financial reporting, credit institutions will be required to disclose a green asset ratio covering the banking book and certain trading portfolios, as well as other key performance indicators (KPIs), including the proportion of green taxonomy-aligned off-balance sheet exposures and fees and commission income. Starting with the annual reporting for 2021, taxonomy-eligible assets are required to be disclosed; the remaining set of KPIs is to be fully phased in for our annual reporting for 2025. These disclosure requirements will apply to UBS AG and UBS Europe SE. In August 2021, the Swiss Federal Council decided to introduce mandatory reporting requirements for large Swiss companies based on the recommendations of the Financial Stability Board (the FSB) Task Force on Climate-related Financial Disclosures (the TCFD). A consultation on the draft proposal is planned in mid- 2022, with mandatory requirements expected to apply to the 2023 annual reporting. Our disclosures are already largely aligned with the 2017 TCFD recommendations and we expect to fully implement those by the end of 2022. In November 2021, the Swiss Federal Council published several recommendations to increase transparency regarding climate- related information and reporting in the Swiss financial center, including that: i) financial market participants use comparable and meaningful climate compatibility indicators to create transparency for all financial products and client portfolios; and ii) the financial sector joins international net-zero alliances. UBS has joined the Glasgow Financial Alliance for Net Zero (GFANZ) and is participating in an industry-wide working group led by the Swiss Federal Department of Finance (the FDF) to develop climate compatibility indicators. The Swiss Federal Council has also instructed the FDF to work with the Department of the Environment, Transport, Energy and Communications (DETEC) and FINMA to jointly assess, by the end of 2022, whether any changes to financial market rules may help avoid greenwashing, and, if necessary, to propose binding guidelines. regarding: In November 2021, FINMA issued guidance on preventing and combating greenwashing in the context of sustainability-related collective investment schemes. The guidance sets out FINMA’s expectations sustainability the characteristics in fund documents of respective Swiss collective investment schemes; appropriate organizational structures of institutions that manage sustainability-related Swiss or foreign collective investment schemes; and the integration of ESG considerations into the process of advising clients. advertised In November 2021, the Swiss Environmental Commission of the Council of States agreed to start work on an indirect counterproposal to the “Glacier Initiative.” Both the original initiative and the counterproposal aim to embed in national law a net-zero target to be achieved by 2050. The Environmental Commission of the National Council will formulate a draft in early 2022, but the public vote will not take place before 2023. In November 2021, the Basel Committee on Banking Supervision (the BCBS) issued a consultation on Principles for the effective management and supervision of climate-related financial risks. The consultation paper proposes 18 principles to improve climate-related financial risk management by banks and supervisors. The proposal states that banks should incorporate climate risks into their capital and liquidity adequacy assessments. Our strategy, business model and environment | Regulatory and legal developments OECD corporate tax reform In July 2021, the EC adopted regulations prescribing the content, methodology and presentation of climate-related In October 2021, the G20 endorsed the final political agreement disclosures that are required under Art. 8 of the EU Taxonomy on the two-pillar solution reached by the OECD / G20 Inclusive Regulation. As part of their non-financial reporting, credit Framework on Base Erosion and Profit Shifting (BEPS). The two- institutions will be required to disclose a green asset ratio covering pillar solution consists of Pillar 1, which provides taxing rights to the banking book and certain trading portfolios, as well as other the market jurisdiction from where the profits are derived, and key performance indicators (KPIs), including the proportion of Pillar 2, which introduces a minimum corporate tax rate of 15%. green taxonomy-aligned off-balance sheet exposures and fees The G20 called for all the rules to enter into force at a global level and commission income. Starting with the annual reporting for by 2024, with some to be implemented in 2023. At the time of 2021, taxonomy-eligible assets are required to be disclosed; the publication in October 2021, 137 of the 141 members of the remaining set of KPIs is to be fully phased in for our annual Framework had agreed to the reform and planned to incorporate reporting for 2025. These disclosure requirements will apply to the new rules into their respective national legislation, including UBS AG and UBS Europe SE. Switzerland. As financial services are expected to be out of scope In August 2021, the Swiss Federal Council decided to introduce of Pillar 1, UBS will primarily be affected by Pillar 2. The impact of mandatory reporting requirements for large Swiss companies the reform on UBS will depend on implementation by the based on the recommendations of the Financial Stability Board adhering countries of the reform. (the FSB) Task Force on Climate-related Financial Disclosures (the In January 2022, the Swiss Federal Council presented the key TCFD). A consultation on the draft proposal is planned in mid- aspects of the implementation in Switzerland. The relevant 2022, with mandatory requirements expected to apply to the changes will require a constitutional amendment, which triggers 2023 annual reporting. Our disclosures are already largely aligned a mandatory referendum. The government aims to implement the with the 2017 TCFD recommendations and we expect to fully minimum tax rate as of 1 January 2024. implement those by the end of 2022. Revision of the Swiss Anti-Money-Laundering Act In November 2021, the Swiss Federal Council published several recommendations to increase transparency regarding climate- related information and reporting in the Swiss financial center, In March 2021, the Swiss Parliament granted final approval for including that: i) financial market participants use comparable and the revision of the Swiss Anti-Money-Laundering (AML) Act, meaningful climate compatibility indicators to create transparency which incorporates several but not all, of the recommendations for all financial products and client portfolios; and ii) the financial from the enhanced follow-up process of the Financial Action Task sector joins international net-zero alliances. UBS has joined the Force on Money Laundering (the FATF). The revision will introduce Glasgow Financial Alliance for Net Zero (GFANZ) and is into Swiss law further specifications of the obligation to file participating in an industry-wide working group led by the Swiss suspicious activity reports and increase the frequency of client Federal Department of Finance (the FDF) to develop climate data reviews. It will also improve transparency by incorporating compatibility indicators. The Swiss Federal Council has also additional legal requirements for associations with elevated risks instructed the FDF to work with the Department of the of terrorist financing. However, the FATF’s recommendation to Environment, Transport, Energy and Communications (DETEC) extend the scope of the Swiss AML Act to advisors (e.g., attorneys, and FINMA to jointly assess, by the end of 2022, whether any fiduciaries, and tax advisors) was not adopted by the Swiss changes to financial market rules may help avoid greenwashing, Parliament. and, if necessary, to propose binding guidelines. On 1 October 2021, the Federal Council issued a draft revision In November 2021, FINMA issued guidance on preventing and of the Anti-Money-Laundering Ordinance (AMLO) to detail the combating greenwashing in the context of sustainability-related implementation of the changes. The consultation on the AMLO collective investment schemes. The guidance sets out FINMA’s ended on 17 January 2022, and the revisions are expected to expectations regarding: the advertised sustainability enter into force by mid-2022. UBS is in the process of adjusting characteristics in fund documents of respective Swiss collective its AML processes to reflect the new requirements. Developments regarding environmental, social and governance matters 2021 saw a significant number of sustainability-related policy developments, with a particular focus on disclosure requirements, across various jurisdictions. In March 2021, the EU Sustainable Finance Disclosures Regulation (the SFDR) came into effect. The regulation defines be informed about sustainability risks and how the impact of investments on the environment and society should be disclosed. This regulation concerns any prospectus of UBS’s EU-domiciled and EU-marketed funds. In April 2021, the EC published a legislative proposal for a revised Non-Financial Reporting Directive (NFRD) requiring firms to publish enhanced information about their activities with regard to environmental, social and governance (ESG)-related matters. investment schemes; appropriate organizational structures of institutions that manage sustainability-related Swiss or foreign collective investment schemes; and the integration of ESG considerations into the process of advising clients. In November 2021, the Swiss Environmental Commission of the Council of States agreed to start work on an indirect counterproposal to the “Glacier Initiative.” Both the original initiative and the counterproposal aim to embed in national law a net-zero target to be achieved by 2050. The Environmental Commission of the National Council will formulate a draft in early In November 2021, the Basel Committee on Banking Supervision (the BCBS) issued a consultation on Principles for the effective management and supervision of climate-related financial risks. The consultation paper proposes 18 principles to improve climate-related financial risk management by banks and supervisors. The proposal states that banks should incorporate climate risks into their capital and liquidity adequacy assessments. standards regarding, among other matters, how investors should 2022, but the public vote will not take place before 2023. In November 2021, the International Financial Reporting Standards (IFRS) Foundation Trustees announced the creation of a new standard-setting board, the International Sustainability Standards Board (ISSB), which will be tasked with developing a comprehensive global baseline for sustainability-related disclosure standards that will provide investors and other capital market participants with information about companies’ sustainability- related risks and opportunities in order to help them make informed decisions. In December 2021, the Swiss Federal Council opened the consultation on the revised CO2 Act following its rejection in a public vote earlier in 2021. The new proposal contains measures to reduce carbon emissions for the period from 2025 to 2030 and mandates FINMA and the Swiss National Bank to report on climate-related financial risks. In December 2021, the Federal Council specified new due diligence requirements to implement the counterproposal to the Responsible Business Initiative. The changes to the Code of Obligations require large Swiss companies to report on risks of their business activities in the areas of the environment, social issues, employee concerns, human rights, and the fight against corruption, as well as on the measures taken to mitigate these risks. Companies active in sensitive areas with a risk of child labor and conflict minerals must comply with additional due diligence and reporting obligations. The details of these requirements are outlined in a separate ordinance. The new provisions entered into force on 1 January 2022. The law grants companies one year to adapt to the new obligations. These will therefore be applied for the first time in the 2023 financial year. In December 2021, the US Office of the Comptroller of the Currency (the OCC) issued a consultation on supervisory guidance regarding firms’ climate risk management practices. While the proposal broadly aligns with that issued by the BCBS in November, it also represents the first step of US banking regulators regarding expectations of supervised firms in their capacity to measure and control exposures to potential climate change issues. Starting with our 2021 annual reporting, we comply with the revised FINMA Circular 2016/1 “Disclosure – banks,” which includes climate risk-related disclosure requirements. We provide information required by Art. 8 of the EU Taxonomy Regulation, starting with the disclosure of taxonomy-eligible assets of UBS AG and UBS Europe SE on a standalone basis for year-end 2021. Developments regarding digitalization and innovation in finance Regulatory discussions on various aspects of digital innovation in finance and, in particular, virtual assets have increased and continued to evolve. However, national regulatory approaches on the subject still differ widely. In June 2021, the BCBS consulted on an approach to the prudential treatment of virtual assets as part of a multi-year process to develop internationally aligned prudential rules. In October 2021, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (IOSCO) consulted on guidance proposing that the Principles for Financial Market Infrastructures should also apply to systemically important stablecoin arrangements. In October 2021, the FATF updated its 2019 Guidance for a risk-based approach to virtual assets and virtual asset service providers (VASPs), who are subject to the same relevant FATF measures that apply to financial institutions. The guidance aims to help countries and VASPs understand their obligations regarding anti-money laundering and terrorist financing and effectively implement the FATF’s requirements. In November 2021, EU legislators made further progress toward agreement on the Markets in Crypto-Assets Regulation, which aims to establish a comprehensive EU-wide regulatory framework for the issuance of, and provision of services related to, various types of virtual assets. The legislation is expected to be finalized by mid-2022. In November 2021, the US President’s Working Group on Financial Markets released a paper on stablecoins recommending that US Congress enact legislation to restrict issuers of stablecoins to supervised, deposit-taking banks. In the absence of legislation, the US Financial Stability Oversight Council could designate the activity as systemically important and place them under the authority of the Federal Reserve. In 2021, several central banks continued their efforts to actively explore central bank digital currencies (CBDC), including with each other, with the BIS Innovation Hub network and with commercial banks. For example, UBS participated in SNB- and Swiss Infrastructure and Exchange (SIX)-led CBDC projects named Helvetia and Jura. The introduction of CBDC could potentially have a significant impact on the financial sector, though the implications are not yet fully understood. In January 2022, the Federal Reserve released its discussion paper on CBDC, seeking public input on the advantages and disadvantages of these products and the preservation of monetary and financial stability while complementing existing means of payment. In February 2022, the Swiss Federal Council published its report on framework conditions for digital finance in Switzerland, which includes measures linked to 12 prioritized action areas. The Federal Department of Finance will implement the measures in 2022 and subsequent years in close coordination with relevant stakeholders, including the private sector. Among the policy topics addressed are open finance, artificial intelligence, distributed ledger technology, cybersecurity, green fintech, the Cloud, data sharing and cross-border data flows. Operational resilience and cybersecurity In 2021, there were several regulatory developments on operational resilience and cybersecurity. In March 2021, the BCBS published its Principles for Operational Resilience (the BCBS Principles), providing global standards intended to strengthen the ability of banks to absorb operational risk-related events that could cause significant operational failures or widescale disruption in financial markets. In March 2021, the Prudential Regulation Authority (the PRA) and the Financial Conduct Authority (the FCA) published their final rules on the UK operational resilience framework. The new rules require firms to identify their important business services, set impact tolerances for such and commence testing against severe but plausible scenarios by 31 March 2022. Firms are expected to introduce any required resilience reinforcements by 31 March 2025. The rules in the UK will apply to UBS AG London Branch and other Group entities that provide services to UBS AG London Branch. 60 61 61 Our strategy, business model and environmentOur strategy, business model and environment | Regulatory and legal developments deposit 50% of the contribution obligations in securities or Swiss francs. The revision also introduces amendments with regard to insolvency law and segregation, in particular the introduction of a more detailed and solid legal basis for bail-in, including the ranking of claims subject to bail in, ensuring legal certainty for the operationalization of a bail-in. The new provisions also provide for the subordination of bail-in-bonds, with the exception of such bail-in-bonds issued by a holding company if other debt ranking pari passu does not exceed 5% of the total bail-in-bond debt. The revised Banking Act will enter into force at the beginning of 2023. We expect moderate costs for all Switzerland-based UBS Group entities that are within the scope of the revision. Review of restrictions on the business model of PostFinance AG In January 2021, the Swiss Federal Council announced that it intends to privatize PostFinance AG, a Swiss systemically important bank, which is held by the state-owned Swiss Post AG. As a result, the prohibition on PostFinance AG granting mortgages and other types of loans would be lifted, among other changes. As the envisaged changes require a revision of the Post Organization Act, the Swiss Parliament will ultimately decide on any changes. In June 2021, the Swiss Federal Council submitted a dispatch to the Swiss Parliament. If the revision passes the legislative process, which is expected to start in 2022, the reform could further intensify competition in the Swiss mortgage market. Registration under the US security-based swaps regulations In October 2021, FINMA and the US Securities and Exchange Commission (the SEC) finalized a memorandum of understanding relating to cooperation in oversight of Swiss entities registered under the SEC’s security-based swaps regulations. The SEC also published a substituted compliance order modifying the application of certain of its regulations for Swiss security-based swap dealers. Under SEC regulations, UBS AG has been registered as a security-based swap dealer since 1 November 2021. Developments regarding LIBOR In March 2021, the FCA confirmed that the one-week and two- month US dollar London Interbank Offered Rate (USD LIBOR) settings, along with all GBP, EUR, CHF, and JPY LIBOR settings, would, immediately after 31 December 2021, either cease to be provided by any administrator or no longer be representative of the underlying market. The FCA further confirmed that the remaining USD LIBOR settings will cease immediately after 30 June 2023. In October 2021, the FRB issued guidance that banks should, with limited exceptions, cease to enter into new contracts referencing USD LIBOR as soon as practicable and, in any event, no later than 31 December 2021. In the fourth quarter of 2021, both the Monetary Authority of Singapore and the Hong Kong Monetary Authority issued consultations on proposed rules to incorporate the BCBS Principles for Operational Resilience into their regulatory and supervisory frameworks. Rules in the UK, Singapore and Hong Kong SAR are broadly aligned to the BCBS Principles. UBS established a global Enhanced Operational Resilience program the aim of ensuring implementation and alignment with key regulatory requirements on operational resilience. in August 2020 with In November 2021, the US banking regulators, including the FRB, the OCC and the FDIC published final rules regarding computer security incident reporting requirements, including thresholds and timing, that apply to supervised banks and service providers and become effective in April 2022. In January 2022, the Swiss Federal Council initiated a consultation on a proposal to introduce a reporting obligation for cyberattacks on critical infrastructures, including banks. The proposal defines the tasks of the National Cybersecurity Centre, the designated central recipient of the reports. The consultation will last until 14 April 2022. Once finalized, UBS will need to adjust its reporting processes accordingly. Developments regarding the relationship between Switzerland and the European Union In May 2021, the Swiss Federal Council terminated negotiations on the Institutional Framework Agreement (the IFA) between Switzerland and the European Union (the EU) due to substantial differences of opinion regarding key aspects of the agreement. The IFA would have formed a mutually agreed basis to consolidate and further develop Switzerland’s bilateral market access approach with the EU. As a result, the EU is unlikely to be ready to conclude new market access agreements – including on financial services – with Switzerland in the near future. In November 2021, the Swiss Federal Council decided to extend the existing measure protecting the Swiss stock exchange infrastructure (which was due to expire on 31 December 2021) until 31 December 2025 and to open a consultation on Financial Market incorporating Infrastructure Act. In the absence of mutual recognition of equivalence by both Swiss and EU authorities, the measure requires EU investment firms to trade Swiss equities on Swiss stock exchanges. UBS had previously adjusted its internal processes to reflect this measure. this measure into the Revision of the Swiss Banking Act In December 2021, the Swiss Parliament adopted a revision of the Banking Act. The legislative amendment aims to strengthen depositor protection and promote financial system stability by reducing the time needed to pay out protected deposits through the depositor protection scheme in the event a bank enters bankruptcy. Among other measures, it will also require banks to 62 62 Our strategy, business model and environment | Regulatory and legal developments In the fourth quarter of 2021, both the Monetary Authority of deposit 50% of the contribution obligations in securities or Swiss Singapore and the Hong Kong Monetary Authority issued francs. The revision also introduces amendments with regard to consultations on proposed rules to incorporate the BCBS insolvency law and segregation, in particular the introduction of Principles for Operational Resilience into their regulatory and a more detailed and solid legal basis for bail-in, including the supervisory frameworks. Rules in the UK, Singapore and Hong ranking of claims subject to bail in, ensuring legal certainty for the Kong SAR are broadly aligned to the BCBS Principles. operationalization of a bail-in. The new provisions also provide for UBS established a global Enhanced Operational Resilience the subordination of bail-in-bonds, with the exception of such program in August 2020 with the aim of ensuring bail-in-bonds issued by a holding company if other debt ranking implementation and alignment with key regulatory requirements pari passu does not exceed 5% of the total bail-in-bond debt. The on operational resilience. revised Banking Act will enter into force at the beginning of 2023. In November 2021, the US banking regulators, including the We expect moderate costs for all Switzerland-based UBS Group FRB, the OCC and the FDIC published final rules regarding entities that are within the scope of the revision. computer security incident reporting requirements, including thresholds and timing, that apply to supervised banks and service Review of restrictions on the business model of providers and become effective in April 2022. PostFinance AG In January 2022, the Swiss Federal Council initiated a consultation on a proposal to introduce a reporting obligation for In January 2021, the Swiss Federal Council announced that it cyberattacks on critical infrastructures, including banks. The intends to privatize PostFinance AG, a Swiss systemically proposal defines the tasks of the National Cybersecurity Centre, important bank, which is held by the state-owned Swiss Post AG. the designated central recipient of the reports. The consultation As a result, the prohibition on PostFinance AG granting will last until 14 April 2022. Once finalized, UBS will need to mortgages and other types of loans would be lifted, among other adjust its reporting processes accordingly. Developments regarding the relationship between any changes. Switzerland and the European Union changes. As the envisaged changes require a revision of the Post Organization Act, the Swiss Parliament will ultimately decide on In June 2021, the Swiss Federal Council submitted a dispatch to the Swiss Parliament. If the revision passes the legislative In May 2021, the Swiss Federal Council terminated negotiations process, which is expected to start in 2022, the reform could on the Institutional Framework Agreement (the IFA) between further intensify competition in the Swiss mortgage market. Switzerland and the European Union (the EU) due to substantial differences of opinion regarding key aspects of the agreement. Registration under the US security-based swaps The IFA would have formed a mutually agreed basis to consolidate regulations and further develop Switzerland’s bilateral market access approach with the EU. As a result, the EU is unlikely to be ready In October 2021, FINMA and the US Securities and Exchange to conclude new market access agreements – including on Commission (the SEC) finalized a memorandum of understanding financial services – with Switzerland in the near future. relating to cooperation in oversight of Swiss entities registered In November 2021, the Swiss Federal Council decided to under the SEC’s security-based swaps regulations. The SEC also extend the existing measure protecting the Swiss stock exchange published a substituted compliance order modifying the infrastructure (which was due to expire on 31 December 2021) application of certain of its regulations for Swiss security-based until 31 December 2025 and to open a consultation on swap dealers. Under SEC regulations, UBS AG has been registered incorporating this measure into the Financial Market as a security-based swap dealer since 1 November 2021. Infrastructure Act. In the absence of mutual recognition of equivalence by both Swiss and EU authorities, the measure Developments regarding LIBOR requires EU investment firms to trade Swiss equities on Swiss stock exchanges. UBS had previously adjusted its internal processes to In March 2021, the FCA confirmed that the one-week and two- reflect this measure. Revision of the Swiss Banking Act month US dollar London Interbank Offered Rate (USD LIBOR) settings, along with all GBP, EUR, CHF, and JPY LIBOR settings, would, immediately after 31 December 2021, either cease to be provided by any administrator or no longer be representative of In December 2021, the Swiss Parliament adopted a revision of the the underlying market. The FCA further confirmed that the Banking Act. The legislative amendment aims to strengthen remaining USD LIBOR settings will cease immediately after depositor protection and promote financial system stability by 30 June 2023. reducing the time needed to pay out protected deposits through In October 2021, the FRB issued guidance that banks should, the depositor protection scheme in the event a bank enters with limited exceptions, cease to enter into new contracts bankruptcy. Among other measures, it will also require banks to referencing USD LIBOR as soon as practicable and, in any event, no later than 31 December 2021. Risk factors Certain risks, including those described below, may affect our ability to execute our strategy or our business activities, financial condition, results of operations and prospects. We are inherently exposed to multiple risks, many of which may become apparent only with the benefit of hindsight. As a result, risks that we do not consider to be material, or of which we are not currently aware, could also adversely affect us. Within each category, the risks that we consider to be most material are presented first. Market, credit and macroeconomic risks Performance in the financial services industry is affected by market conditions and the macroeconomic climate Our businesses are materially affected by market and macroeconomic conditions. A market downturn and weak macroeconomic conditions can be precipitated by a number of factors, including geopolitical events, such as international armed conflicts, the imposition of sanctions, global trade or global supply chain disruptions, changes in monetary or fiscal policy, changes in trade policies or trade disputes, significant inflationary or deflationary price changes, disruptions in one or sectors, natural disasters, more concentrated economic pandemics, civil unrest, acts of violence, war or terrorism. Such developments can have unpredictable and destabilizing effects. international For example, as a result of the Russian invasion of Ukraine on 24 February 2022 and the ongoing hostilities, Switzerland, the US, the EU, the UK and others have announced sanctions against certain Russian banks, companies and individuals, as well as the Russian Central Bank, and have announced that certain Russian banks will be barred from using the Society for Worldwide (SWIFT) messaging Interbank Financial Telecommunication system. In addition, it is estimated that one million people have been displaced inside Ukraine and many of those displaced may seek refuge in Poland and other neighboring countries, as the conflict continues these numbers are likely to increase. The scale of the conflict and the unprecedented speed and extent of sanctions may produce many of the effects described above, including in ways that cannot now be anticipated. Adverse changes in interest rates, credit spreads, securities prices, market volatility and liquidity, foreign exchange rates, commodity prices, and other market fluctuations, as well as changes in investor sentiment, can affect our earnings and ultimately our financial and capital positions. As financial markets are global and highly interconnected, local and regional events can have widespread effects well beyond the countries in which they occur. Any of these developments may adversely affect our business or financial results. If individual countries impose restrictions on cross-border payments, trade, or other exchange or capital controls, or change their currency (for example, if one or more countries should leave the Eurozone or as result of the imposition of sanctions on individuals, entities or countries), we could suffer losses from enforced default by counterparties, be unable to access our own assets, or be unable to effectively manage our risks. Should the market experience significant volatility, a decrease in business and client activity and market volumes could result, which would adversely affect our ability to generate transaction fees, commissions and margins, particularly in Global Wealth Management and the Investment Bank, as we experienced in the fourth quarter of 2018. A market downturn would likely reduce the volume and valuation of assets that we manage on behalf of clients, which would reduce recurring fee income that is charged based on invested assets in Global Wealth Management and Asset Management and performance-based fees in Asset Management. Such a downturn could also cause a decline in the value of assets that we own and account for as investments or trading positions. In addition, reduced market liquidity or volatility may limit trading opportunities and may therefore reduce transaction-based income and may also impede our ability to manage risks. We could be materially affected if a crisis develops, regionally or globally, as a result of disruptions in markets due to macroeconomic or political developments, or as a result of the failure of a major market participant. Over time, our strategic plans have become more heavily dependent on our ability to generate growth and revenue in emerging markets, including China, causing us to be more exposed to the risks associated with such markets. Global Wealth Management derives revenues from all the principal regions, but has a greater concentration in Asia than many peers and a substantial presence in the US, unlike many European peers. The Investment Bank’s business is more heavily weighted to Europe and Asia than our peers, while its derivatives business is more heavily weighted to structured products for wealth management clients, in particular with European and Asian underlyings. Our performance may therefore be more affected by political, economic and market developments in these regions and businesses than some other financial service providers. 62 63 63 Our strategy, business model and environmentOur strategy, business model and environment | Risk factors Our results of operations and financial condition may be adversely affected by the COVID-19 pandemic and the response to it The COVID-19 pandemic and the governmental measures taken to manage it, as well as labor market displacements, supply chain disruptions, and inflationary pressures, may continue to adversely affect global and regional economic conditions, resulting in contraction in the global economy, substantial volatility in the financial markets, crises in markets for goods and services, as well as significant disruptions in certain regional real estate markets, increased unemployment, increased credit and counterparty risk, and operational challenges. Governments and central banks around the world reacted to the economic crisis caused by the pandemic by implementing stimulus and liquidity programs and cutting interest rates and have begun to phase out pandemic relief. In addition, while vaccination campaigns have had significant success in some regions and a number of economies are recovering, outbreaks in locations where vaccination rates are low or vaccines are unavailable on a large scale, as well as the spread of new variants of COVID-19, create uncertainty around a sustainable recovery. Resurgence of the pandemic, ineffectiveness of vaccines and continuance or imposition of new pandemic control measures may result in additional adverse effects on the global economy negatively affecting UBS’s results of operations and financial condition. The COVID-19 pandemic affected all of UBS’s businesses, and these effects could be greater in the future if adverse conditions persist or worsen. These effects included declines in some asset prices, spikes in volatility, inflationary pressures, supply chain disruptions, lower or negative interest rates, widening of credit spreads and credit deterioration. These effects have resulted in decreases in the valuation of loans and commitments, an increase in the allowance for credit losses and lower valuations of certain classes of trading assets. While many of these effects have reversed as economies have reopened and economic stimulus has been maintained, or were offset by high levels of client activity and by improved asset prices in many sectors in 2021, these favorable conditions may not persist. In particular, real estate markets in some regions may be significantly disrupted as a result of repeated temporary closures of business, sheltering-in-place directives, and remote work protocols enacted to respond to seasonal increases in infection rates of COVID-19. Should inflationary pressures or other adverse global market conditions persist, or should the pandemic lead to additional economic or market disruptions, we may experience reduced client activity and demand for our products and services, increased utilization of lending commitments, significantly increased client defaults, continued and increasing credit and valuation losses in our loan portfolios, loan commitments and other assets, and impairments of other financial assets. A fall in equity markets and consequent decline in invested assets would also reduce recurring fee income in our Global Wealth Management and Asset Management businesses. These factors and other consequences of the COVID-19 pandemic may negatively affect our financial condition, including possible constraints on capital and liquidity, as well as a higher cost of capital, and possible downgrades to our credit ratings. The extent to which the pandemic, and the related adverse economic conditions, affect our businesses, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and any recovery period, the adequacy of vaccine distribution plans and execution of those plans, as well as the efficacy of vaccines against potential virus variants, future actions taken by governmental authorities, central banks and other third parties in response to the pandemic, and the effects on our customers, counterparties, employees and third-party service providers. Our credit risk exposure to clients, trading counterparties and other financial institutions would increase under adverse or other economic conditions Credit risk is an integral part of many of our activities, including lending, underwriting and derivatives activities. Adverse economic or market conditions, or the imposition of sanctions or other restrictions on clients, counterparties or financial institutions, may lead to impairments and defaults on these credit exposures. Losses may be exacerbated by declines in the value of collateral securing loans and other exposures. In our prime brokerage, securities finance and Lombard lending businesses, we extend substantial amounts of credit against securities collateral, the value or liquidity of which may decline rapidly. Market closures the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures. Our Swiss mortgage and corporate lending portfolios are a large part of our overall lending. We are therefore exposed to the risk of adverse economic developments in Switzerland, including property valuations in the housing market, the strength of the Swiss franc and its effect on Swiss exports, prevailing negative interest rates applied by the Swiss National Bank, economic conditions within the Eurozone or the EU, and the evolution of agreements between Switzerland and the EU or European Economic Area, which represent Switzerland’s largest export market. We have exposures related to real estate in various countries, including a substantial Swiss mortgage portfolio. Although we believe this portfolio is prudently managed, we could nevertheless be exposed to losses if a substantial deterioration in the Swiss real estate market were to occur. As we experienced in 2020, under the IFRS 9 expected credit loss (ECL) regime, credit loss expenses may increase rapidly at the onset of an economic downturn as a result of higher levels of credit impairments (stage 3), as well as higher ECL from stages 1 and 2. Substantial increases in ECL could exceed expected loss for regulatory capital purposes and adversely affect our common equity tier 1 (CET1) capital and regulatory capital ratios. Interest rate trends and changes could negatively affect our financial results The low or negative interest rate environment, particularly in Switzerland and the Eurozone, may further erode interest margins and adversely affect the net interest income generated by the Personal & Corporate Banking and Global Wealth Management businesses. The Swiss National Bank permits Swiss banks to make deposits up to a threshold at zero interest. Any reduction in or limitation on the use of this exemption from the otherwise applicable negative interest rates would exacerbate the effect of negative interest rates in Switzerland on our business. 64 64 Our strategy, business model and environment | Risk factors Our results of operations and financial condition may be and financial condition, as well as our regulatory capital and adversely affected by the COVID-19 pandemic and the response liquidity ratios, will depend on future developments, including the to it scope and duration of the pandemic and any recovery period, the The COVID-19 pandemic and the governmental measures taken adequacy of vaccine distribution plans and execution of those to manage it, as well as labor market displacements, supply chain plans, as well as the efficacy of vaccines against potential virus disruptions, and inflationary pressures, may continue to adversely variants, future actions taken by governmental authorities, central affect global and regional economic conditions, resulting in banks and other third parties in response to the pandemic, and contraction in the global economy, substantial volatility in the the effects on our customers, counterparties, employees and financial markets, crises in markets for goods and services, as well third-party service providers. as significant disruptions in certain regional real estate markets, increased unemployment, increased credit and counterparty risk, Our credit risk exposure to clients, trading counterparties and and operational challenges. Governments and central banks other financial institutions would increase under adverse or around the world reacted to the economic crisis caused by the other economic conditions pandemic by implementing stimulus and liquidity programs and Credit risk is an integral part of many of our activities, including cutting interest rates and have begun to phase out pandemic lending, underwriting and derivatives activities. Adverse economic relief. In addition, while vaccination campaigns have had or market conditions, or the imposition of sanctions or other significant success in some regions and a number of economies restrictions on clients, counterparties or financial institutions, may are recovering, outbreaks in locations where vaccination rates are lead to impairments and defaults on these credit exposures. low or vaccines are unavailable on a large scale, as well as the Losses may be exacerbated by declines in the value of collateral spread of new variants of COVID-19, create uncertainty around a securing loans and other exposures. In our prime brokerage, sustainable recovery. Resurgence of the pandemic, ineffectiveness securities finance and Lombard lending businesses, we extend of vaccines and continuance or imposition of new pandemic substantial amounts of credit against securities collateral, the control measures may result in additional adverse effects on the value or liquidity of which may decline rapidly. Market closures global economy negatively affecting UBS’s results of operations the imposition of exchange controls, sanctions or other measures and financial condition. may limit our ability to settle existing transactions or to realize on The COVID-19 pandemic affected all of UBS’s businesses, and collateral, which may result in unexpected increases in exposures. these effects could be greater in the future if adverse conditions Our Swiss mortgage and corporate lending portfolios are a large persist or worsen. These effects included declines in some asset part of our overall lending. We are therefore exposed to the risk prices, spikes in volatility, inflationary pressures, supply chain of adverse economic developments in Switzerland, including disruptions, lower or negative interest rates, widening of credit property valuations in the housing market, the strength of the spreads and credit deterioration. These effects have resulted in Swiss franc and its effect on Swiss exports, prevailing negative decreases in the valuation of loans and commitments, an increase interest rates applied by the Swiss National Bank, economic in the allowance for credit losses and lower valuations of certain conditions within the Eurozone or the EU, and the evolution of classes of trading assets. While many of these effects have agreements between Switzerland and the EU or European reversed as economies have reopened and economic stimulus has Economic Area, which represent Switzerland’s largest export been maintained, or were offset by high levels of client activity market. We have exposures related to real estate in various and by improved asset prices in many sectors in 2021, these countries, including a substantial Swiss mortgage portfolio. markets in some regions may be significantly disrupted as a result could nevertheless be exposed to losses if a substantial of repeated temporary closures of business, sheltering-in-place deterioration in the Swiss real estate market were to occur. directives, and remote work protocols enacted to respond to As we experienced in 2020, under the IFRS 9 expected credit seasonal increases in infection rates of COVID-19. loss (ECL) regime, credit loss expenses may increase rapidly at the Should inflationary pressures or other adverse global market onset of an economic downturn as a result of higher levels of conditions persist, or should the pandemic lead to additional credit impairments (stage 3), as well as higher ECL from stages 1 economic or market disruptions, we may experience reduced and 2. Substantial increases in ECL could exceed expected loss for client activity and demand for our products and services, increased regulatory capital purposes and adversely affect our common utilization of lending commitments, significantly increased client equity tier 1 (CET1) capital and regulatory capital ratios. defaults, continued and increasing credit and valuation losses in our loan portfolios, loan commitments and other assets, and Interest rate trends and changes could negatively affect our impairments of other financial assets. financial results A fall in equity markets and consequent decline in invested The low or negative interest rate environment, particularly in assets would also reduce recurring fee income in our Global Switzerland and the Eurozone, may further erode interest margins Wealth Management and Asset Management businesses. These and adversely affect the net interest income generated by the factors and other consequences of the COVID-19 pandemic may Personal & Corporate Banking and Global Wealth Management negatively affect our financial condition, including possible businesses. The Swiss National Bank permits Swiss banks to make constraints on capital and liquidity, as well as a higher cost of deposits up to a threshold at zero interest. Any reduction in or capital, and possible downgrades to our credit ratings. limitation on the use of this exemption from the otherwise The extent to which the pandemic, and the related adverse applicable negative interest rates would exacerbate the effect of economic conditions, affect our businesses, results of operations negative interest rates in Switzerland on our business. Low and negative interest rates may also affect customer behavior and hence our overall balance sheet structure. Mitigating actions that we have taken, or may take in the future, such as the introduction of selective deposit fees or minimum lending rates, have resulted and may further result in the loss of customer deposits (a key source of funding for us), net new money outflows and a declining market share in our Swiss lending business. Interest rates in the US and some other markets are expected to increase as central banks respond to higher inflation. As returns for alternatives to deposits, such as money market funds, increase with interest rates, we may experience outflows of customer deposits or a higher cost of deposit funding if customers shift from deposits to alternative products. Our shareholders’ equity and capital are also affected by changes in interest rates. In particular, the calculation of our Swiss pension plan’s net defined benefit assets and liabilities is sensitive to the applied discount rate and to fluctuations in the value of pension plan assets. Any further reduction in interest rates may lower the discount rates and result in pension plan deficits as a result of the long duration of corresponding liabilities. This could lead to a corresponding reduction in our equity and CET1 capital. Currency fluctuation may have an adverse effect on our profits, balance sheet and regulatory capital We are subject to currency fluctuation risks. Although our change from the Swiss franc to the US dollar as our functional and presentation currency in 2018 reduces our exposure to currency fluctuation risks with respect to the Swiss franc, a substantial portion of our assets and liabilities are denominated in currencies other than the US dollar. Additionally, in order to hedge our CET1 capital ratio, our CET1 capital must have foreign currency exposure, which leads to currency sensitivity. As a consequence, it is not possible to simultaneously fully hedge both the amount of capital and the capital ratio. Accordingly, changes in foreign exchange rates may adversely affect our profits, balance sheet and capital, leverage and liquidity coverage ratios. favorable conditions may not persist. In particular, real estate Although we believe this portfolio is prudently managed, we Regulatory and legal risks Material legal and regulatory risks arise in the conduct of our business As a global financial services firm operating in more than 50 countries, we are subject to many different legal, tax and regulatory regimes, including extensive regulatory oversight, and are exposed to significant liability risk. We are subject to a large number of claims, disputes, legal proceedings and government investigations, and we expect that our ongoing business activities will continue to give rise to such matters in the future. The extent of our financial exposure to these and other matters is material and could substantially exceed the level of provisions that we have established. We are not able to predict the financial and non-financial consequences these matters may have when resolved. We may be subject to adverse preliminary determinations or court decisions that may negatively affect public perception and our reputation, result in prudential actions from regulators, and cause us to record additional provisions for such matters even when we believe we have substantial defenses and expect to ultimately achieve a more favorable outcome. This risk is illustrated by the award of aggregate penalties and damages of EUR 4.5 billion by the court of first instance in France. This award was reduced to an aggregate of EUR 1.8 billion by the Court of Appeal, and UBS has further appealed this judgment. Resolution of regulatory proceedings may require us to obtain waivers of regulatory disqualifications to maintain certain operations; may entitle regulatory authorities to limit, suspend or terminate licenses and regulatory authorizations; and may permit financial market utilities to limit, suspend or terminate our participation in them. Failure to obtain such waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material adverse consequences for us. interest rates starkly Our settlements with governmental authorities in connection with foreign exchange, London Interbank Offered Rates (LIBOR) and other benchmark illustrate the significantly increased level of financial and reputational risk now associated with regulatory matters in major jurisdictions. In connection with investigations related to LIBOR and other benchmark rates and to foreign exchange and precious metals, very large fines and disgorgement amounts were assessed against us, and we were required to enter guilty pleas despite our full cooperation with the authorities in the investigations, and despite our receipt of conditional leniency or conditional immunity from anti-trust authorities in a number of jurisdictions, including the US and Switzerland. For a number of years we have been, and we continue to be, subject to a very high level of regulatory scrutiny and to certain regulatory measures that constrain our strategic flexibility. We believe we have remediated the deficiencies that led to significant losses in the past and made substantial changes in our controls and conduct risk frameworks to address the issues highlighted by the LIBOR-related, foreign exchange and precious metals regulatory resolutions. We have also undertaken extensive efforts to implement new regulatory requirements and meet heightened expectations. risk control, anti-money We continue to be in active dialog with regulators concerning the actions we are taking to improve our operational risk management, laundering, data management and other frameworks, and otherwise seek to meet supervisory expectations, but there can be no assurance that our efforts will have the desired effects. As a result of this history, our level of risk with respect to regulatory enforcement may be greater than that of some of our peers. Substantial changes in regulation may adversely affect our businesses and our ability to execute our strategic plans Since the financial crisis of 2008, we are subject to significant including recovery and resolution regulatory requirements, planning, changes in capital and prudential standards, changes in taxation regimes as a result of changes in governmental administrations, as well as new and revised market standards and fiduciary duties. Notwithstanding attempts by regulators to align their efforts, the measures adopted or proposed for banking regulation differ significantly across the major jurisdictions, making it increasingly difficult to manage a global institution. In addition, Swiss regulatory changes with regard to such matters as capital and liquidity have often proceeded more quickly than those in other major jurisdictions, and Switzerland’s requirements for major international banks are among the strictest of the major financial centers. This could put Swiss banks, such as UBS, at a disadvantage when competing with peer financial institutions subject to more lenient regulation or with unregulated non-bank competitors. 64 65 65 Our strategy, business model and environmentOur strategy, business model and environment | Risk factors Our implementation of additional regulatory requirements and changes in supervisory standards, as well as our compliance with existing laws and regulations, continue to receive heightened scrutiny from supervisors. If we do not meet supervisory expectations in relation to these or other matters, or if additional supervisory or regulatory issues arise, we would likely be subject to further regulatory scrutiny as well as measures that may further constrain our strategic flexibility. into subsidiaries to Resolvability and resolution and recovery planning: We have improve moved significant operations resolvability and meet other regulatory requirements, and this has resulted in substantial implementation costs, increased our capital and funding costs and reduced operational flexibility. For example, we have transferred all of our US subsidiaries under a US intermediate holding company to meet US regulatory requirements, and have transferred substantially all the operations of Personal & Corporate Banking and Global Wealth Management booked in Switzerland to UBS Switzerland AG to improve resolvability. These changes create operational, capital, liquidity, funding and tax inefficiencies. Our operations in subsidiaries are subject to local capital, liquidity, stable funding, capital planning and stress testing requirements. These requirements have resulted in increased capital and in affected subsidiaries, which limit our operational flexibility and negatively affect our ability to benefit from synergies between business units and to distribute earnings to the Group. requirements liquidity Under the Swiss too-big-to-fail (TBTF) framework, we are required to put in place viable emergency plans to preserve the operation of systemically important functions in the event of a failure. Moreover, under this framework and similar regulations in the US, the UK, the EU and other jurisdictions in which we operate, we are required to prepare credible recovery and resolution plans detailing the measures that would be taken to recover in a significant adverse event or in the event of winding down the Group or the operations in a host country through resolution or insolvency proceedings. If a recovery or resolution plan that we produce is determined by the relevant authority to be inadequate or not credible, relevant regulation may permit the authority to place limitations on the scope or size of our business in that jurisdiction, or oblige us to hold higher amounts of capital or liquidity or to change our legal structure or business in order to remove the relevant impediments to resolution. Capital and prudential standards: As an internationally active Swiss systemically relevant bank (an SRB), we are subject to capital and total loss-absorbing capacity (TLAC) requirements that are among the most stringent in the world. Moreover, many of our subsidiaries must comply with minimum capital, liquidity and similar requirements and, as a result, UBS Group AG and UBS AG have contributed a significant portion of their capital and provide substantial liquidity to these subsidiaries. These funds are available to meet funding and collateral needs in the relevant entities, but are generally not readily available for use by the Group as a whole. 66 66 We expect our risk-weighted assets (RWA) to further increase as the effective date for additional capital standards promulgated by the Basel Committee on Banking Supervision (the BCBS) draws nearer. Increases in capital and liquidity standards could significantly curtail our ability to pursue strategic opportunities or to return capital to shareholders. Market regulation and fiduciary standards: Our wealth and asset management businesses operate in an environment of increasing regulatory scrutiny and changing standards with respect to fiduciary and other standards of care and the focus on mitigating or eliminating conflicts of interest between a manager or advisor and the client, which require effective implementation across the global systems and processes of investment managers and other industry participants. For example, we have made material changes to our business processes, policies and the terms on which we interact with these clients in order to comply with SEC Regulation Best Interest, which is intended to enhance and clarify the duties of brokers and investment advisers to retail customers, the Volcker Rule, which limits our ability to engage in proprietary trading, as well as changes in European and Swiss market conduct regulation. Future changes in the regulation of our duties to customers may require us to make further changes to our businesses, which would result in additional expense and may adversely affect our business. We may also become subject to other similar regulations substantively limiting the types of activities in which we may engage or the way we conduct our operations. In many instances, we provide services on a cross-border basis, and we are therefore sensitive to barriers restricting market access for third-country firms. In particular, efforts in the EU to harmonize the regime for third-country firms to access the European market may have the effect of creating new barriers that adversely affect our ability to conduct business in these jurisdictions from Switzerland. In addition, a number of jurisdictions are increasingly regulating cross-border activities based on determinations of equivalence of home country regulation, substituted compliance or similar principles of comity. A negative determination with respect to Swiss equivalence could limit our access to the market in those jurisdictions and may negatively influence our ability to act as a global firm. For example, the EU declined to extend its equivalence determination for Swiss exchanges, which lapsed as of 30 June 2019. UBS experienced cross-border outflows over a number of years as a result of heightened focus by fiscal authorities on cross- border investment and fiscal amnesty programs, in anticipation of the implementation in Switzerland of the global automatic exchange of tax information, and as a result of the measures UBS has implemented in response to these changes. Further changes in local tax laws or regulations and their enforcement, additional cross-border tax information exchange regimes, national tax amnesty or enforcement programs or similar actions may affect our clients’ ability or willingness to do business with us and could result in additional cross-border outflows. Our strategy, business model and environment | Risk factors Our implementation of additional regulatory requirements and We expect our risk-weighted assets (RWA) to further increase changes in supervisory standards, as well as our compliance with as the effective date for additional capital standards promulgated existing laws and regulations, continue to receive heightened by the Basel Committee on Banking Supervision (the BCBS) draws scrutiny from supervisors. If we do not meet supervisory nearer. expectations in relation to these or other matters, or if additional Increases in capital and liquidity standards could significantly supervisory or regulatory issues arise, we would likely be subject curtail our ability to pursue strategic opportunities or to return to further regulatory scrutiny as well as measures that may further capital to shareholders. constrain our strategic flexibility. Market regulation and fiduciary standards: Our wealth and Resolvability and resolution and recovery planning: We have asset management businesses operate in an environment of moved significant operations into subsidiaries to improve increasing regulatory scrutiny and changing standards with resolvability and meet other regulatory requirements, and this has respect to fiduciary and other standards of care and the focus on resulted in substantial implementation costs, increased our capital mitigating or eliminating conflicts of interest between a manager and funding costs and reduced operational flexibility. For or advisor and the client, which require effective implementation example, we have transferred all of our US subsidiaries under a across the global systems and processes of investment managers US intermediate holding company to meet US regulatory and other industry participants. For example, we have made requirements, and have transferred substantially all the operations material changes to our business processes, policies and the terms of Personal & Corporate Banking and Global Wealth on which we interact with these clients in order to comply with Management booked in Switzerland to UBS Switzerland AG to SEC Regulation Best Interest, which is intended to enhance and improve resolvability. clarify the duties of brokers and investment advisers to retail These changes create operational, capital, liquidity, funding customers, the Volcker Rule, which limits our ability to engage in and tax inefficiencies. Our operations in subsidiaries are subject to proprietary trading, as well as changes in European and Swiss local capital, liquidity, stable funding, capital planning and stress market conduct regulation. Future changes in the regulation of testing requirements. These requirements have resulted in our duties to customers may require us to make further changes increased capital and liquidity requirements in affected to our businesses, which would result in additional expense and subsidiaries, which limit our operational flexibility and negatively may adversely affect our business. We may also become subject affect our ability to benefit from synergies between business units to other similar regulations substantively limiting the types of and to distribute earnings to the Group. activities in which we may engage or the way we conduct our Under the Swiss too-big-to-fail (TBTF) framework, we are operations. required to put in place viable emergency plans to preserve the In many instances, we provide services on a cross-border basis, operation of systemically important functions in the event of a and we are therefore sensitive to barriers restricting market access failure. Moreover, under this framework and similar regulations in for third-country firms. In particular, efforts in the EU to the US, the UK, the EU and other jurisdictions in which we harmonize the regime for third-country firms to access the operate, we are required to prepare credible recovery and European market may have the effect of creating new barriers resolution plans detailing the measures that would be taken to that adversely affect our ability to conduct business in these recover in a significant adverse event or in the event of winding jurisdictions from Switzerland. In addition, a number of down the Group or the operations in a host country through jurisdictions are increasingly regulating cross-border activities resolution or insolvency proceedings. If a recovery or resolution based on determinations of equivalence of home country plan that we produce is determined by the relevant authority to regulation, substituted compliance or similar principles of comity. be inadequate or not credible, relevant regulation may permit the A negative determination with respect to Swiss equivalence could authority to place limitations on the scope or size of our business limit our access to the market in those jurisdictions and may in that jurisdiction, or oblige us to hold higher amounts of capital negatively influence our ability to act as a global firm. For or liquidity or to change our legal structure or business in order to example, the EU declined to extend its equivalence determination remove the relevant impediments to resolution. for Swiss exchanges, which lapsed as of 30 June 2019. Capital and prudential standards: As an internationally active UBS experienced cross-border outflows over a number of years Swiss systemically relevant bank (an SRB), we are subject to capital as a result of heightened focus by fiscal authorities on cross- and total loss-absorbing capacity (TLAC) requirements that are border investment and fiscal amnesty programs, in anticipation of among the most stringent in the world. Moreover, many of our the implementation in Switzerland of the global automatic subsidiaries must comply with minimum capital, liquidity and exchange of tax information, and as a result of the measures UBS similar requirements and, as a result, UBS Group AG and UBS AG has implemented in response to these changes. Further changes have contributed a significant portion of their capital and provide in local tax laws or regulations and their enforcement, additional substantial liquidity to these subsidiaries. These funds are available cross-border tax information exchange regimes, national tax to meet funding and collateral needs in the relevant entities, but amnesty or enforcement programs or similar actions may affect are generally not readily available for use by the Group as a whole. our clients’ ability or willingness to do business with us and could result in additional cross-border outflows. If we experience financial difficulties, FINMA has the power to open restructuring or liquidation proceedings or impose protective measures in relation to UBS Group AG, UBS AG or UBS Switzerland AG, and such proceedings or measures may have a material adverse effect on our shareholders and creditors Under the Swiss Banking Act, FINMA is able to exercise broad statutory powers with respect to Swiss banks and Swiss parent companies of financial groups, such as UBS Group AG, UBS AG and UBS Switzerland AG, if there is justified concern that the entity is over-indebted, has serious liquidity problems or, after the expiration of any relevant deadline, no longer fulfills capital adequacy requirements. Such powers include ordering protective measures, instituting restructuring proceedings (and exercising any Swiss resolution powers in connection therewith), and instituting liquidation proceedings, all of which may have a material adverse effect on shareholders and creditors or may prevent UBS Group AG, UBS AG or UBS Switzerland AG from paying dividends or making payments on debt obligations. UBS would have limited ability to challenge any such protective measures, and creditors and shareholders would also have limited ability under Swiss law or in Swiss courts to reject them, seek their suspension, or challenge their imposition, including measures that require or result in the deferment of payments. If restructuring proceedings are opened with respect to UBS Group AG, UBS AG or UBS Switzerland AG, the resolution powers that FINMA may exercise include the power to: (i) transfer all or some of the assets, debt and other liabilities, and contracts of the entity subject to proceedings to another entity; (ii) stay for a maximum of two business days (a) the termination of, or the exercise of rights to terminate, netting rights, (b) rights to enforce or dispose of certain types of collateral or (c) rights to transfer claims, liabilities or certain collateral, under contracts to which the entity subject to proceedings is a party; and / or (iii) partially or fully write down the equity capital and regulatory capital instruments and, if such regulatory capital is fully written down, convert debt instruments of the entity subject to proceedings into equity. Shareholders and creditors would have no right to reject, or to seek the suspension of, any restructuring plan pursuant to which such resolution powers are exercised. They would have only limited rights to challenge any decision to exercise resolution powers or to have that decision reviewed by a judicial or administrative process or otherwise. Upon full or partial write-down of the equity and regulatory instruments of the entity subject to restructuring capital proceedings, the relevant shareholders and creditors would receive no payment in respect of the equity and debt that is written down, the write-down would be permanent, and the investors would likely not, at such time or at any time thereafter, receive any shares or other participation rights, or be entitled to any write-up or any other compensation in the event of a potential subsequent recovery of the debtor. If FINMA orders the conversion of debt of the entity subject to restructuring proceedings into equity, the securities received by the investors may be worth significantly less than the original debt and may have a significantly different risk profile. In addition, creditors receiving equity would be effectively subordinated to all creditors of the restructured entity in the event of a subsequent winding up, liquidation or dissolution of the restructured entity, which would increase the risk that investors would lose all or some of their investment. FINMA has significant discretion in the exercise of its powers in connection with restructuring proceedings. Furthermore, certain categories of debt obligations, such as certain types of deposits, are subject to preferential treatment. As a result, holders of obligations of an entity subject to a Swiss restructuring proceeding may have their obligations written down or converted into equity even though obligations ranking on par with such obligations are not written down or converted. We may be unable to fully realize our sustainability, climate, environmental and social goals, which could damage our business prospects, reputation and lead to increased regulatory scrutiny and increased risk of litigation We have set ambitious goals for environmental, social and governance matters. These goals include our ambitions for environmental sustainability in our operations, including carbon emissions, in the business we do with clients and in products that we offer. They also include goals or ambitions for diversity in our workforce and supply chain, and support for the United Nations Sustainable Development Goals. There is substantial uncertainty as to the scope of actions that may be required of us, governments and others to achieve the goals we have set, and many of our goals and objectives are only achievable with a combination of government and private action. National and international standards, industry and scientific practices, and regulatory taxonomies and disclosure obligations addressing these matters are in a state of rapid development. Although we have defined and disclosed our goals based on the standards that exist today, there can be no assurance that the various ESG regulatory and disclosure regimes under which we operate will not come into conflict with one another or that the current standards will not be than our understanding or change in a manner that substantially increases the cost or effort for us to achieve such goals or that such goals may prove to be considerably more difficult or even impossible to achieve. If we are not able to achieve the goals we have set, or can only do so at significant expense to our business, we may fail to meet regulatory expectations, incur damage to our reputation or be exposed to risk of litigation or other adverse action. interpreted differently 66 67 67 Our strategy, business model and environmentOur strategy, business model and environment | Risk factors Our financial results may be negatively affected by changes to assumptions and valuations, as well as changes to accounting standards We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The application of these accounting standards requires the use of judgment based on estimates and assumptions that may involve significant uncertainty at the time they are made. This is the case, for example, with respect to the measurement of fair value of financial instruments, the recognition of deferred tax assets, the assessment of the impairment of goodwill, expected credit losses and estimation of provisions for litigation, regulatory and similar matters. Such judgments, including the underlying estimates and experience, encompass assumptions, which expectations of the future and other factors, are regularly evaluated to determine their continuing relevance based on current conditions. Using different assumptions could cause the reported results to differ. Changes in assumptions, or failure to make the changes necessary to reflect evolving market conditions, may have a significant effect on the financial statements in the periods when changes occur. Estimates of provisions may be subject to a wide range of potential outcomes and significant uncertainty. For example, the broad range of potential outcomes in our proceeding in France increases the uncertainty associated with assessing the appropriate provision. If the estimates and assumptions in future periods deviate from the current outlook, our financial results may also be negatively affected. historical Changes to IFRS or interpretations thereof may cause future reported results and financial position to differ from current expectations, or historical results to differ from those previously reported due to the adoption of accounting standards on a retrospective basis. Such changes may also affect our regulatory capital and ratios. For example, the introduction of the expected credit loss (ECL) framework under IFRS 9 in 2018 fundamentally changed how credit risk arising from loans, loan commitments, guarantees and certain revocable facilities is accounted for. Under the regime, credit loss expenses may increase rapidly at the onset of an economic downturn as a result of higher levels of credit impairments (stage 3), as well as higher ECL from stages 1 and 2, only gradually diminishing once the economic outlook improves. As we observed in 2020, this effect may be more pronounced in a deteriorating economic environment. Substantial increases in ECL could exceed expected loss for regulatory capital purposes and adversely affect our CET1 capital and regulatory capital ratios. We may be unable to maintain our capital strength Capital strength enables us to grow our businesses and absorb increases in regulatory and capital requirements. It reassures our clients and stakeholders, allows us to maintain our capital return policy and contributes to our credit ratings. Our capital ratios are driven primarily by RWA, the leverage ratio denominator and eligible capital, all of which may fluctuate based on a number of factors, some of which are outside our control. Our ability to maintain our capital ratios is subject to numerous risks, including the financial results of our businesses, the effect of changes to capital standards, methodologies and interpretations that may adversely affect the calculation of our CET1 ratios, the imposition of risk add-ons or capital buffers, and the application of additional capital, liquidity and similar requirements to subsidiaries. The results of our businesses may be adversely affected by events arising from other risk factors described herein. In some cases, such as litigation and regulatory risk and operational risk events, losses may be sudden and large. These risks could reduce the amount of capital available for return to shareholders and hinder our ability to achieve our capital returns target of a progressive cash dividend coupled with a share repurchase program. Our eligible capital may be reduced by losses recognized within net profit or other comprehensive income. Eligible capital may also be reduced for other reasons, including acquisitions which change the level of goodwill, changes in temporary differences related to deferred tax assets included in capital, adverse currency movements affecting the value of equity, prudential adjustments that may be required due to the valuation uncertainty associated with certain regulatory types of positions, changes interpretations on the inclusion or exclusion of items contributing to our shareholders equity in regulatory capital, and changes in the value of certain pension fund assets and liabilities or in the interest rate and other assumptions used to calculate the changes in our net defined benefit obligation recognized in other comprehensive income. in increased counterparty RWA are driven by our business activities, by changes in the risk profile of our exposures, by changes in our foreign currency exposures and foreign exchange rates, and by regulation. For instance, substantial market volatility, a widening of credit spreads, risk, adverse currency movements, deterioration in the economic environment or increased operational risk could result in an increase in RWA. We have significantly reduced our market risk and credit risk RWA in recent years. However, increases in operational risk RWA, particularly those arising from litigation, regulatory and similar matters, and regulatory changes in the calculation of RWA, as well as regulatory add-ons to RWA, have offset a substantial portion of this reduction. Changes in the calculation of RWA, the imposition of additional supplemental RWA charges or multipliers applied to certain exposures and other methodology changes, as well as the implementation of the capital standards promulgated by the Basel Committee on Banking Supervision, which are proposed to take effect in 2023, are expected to increase our RWA. The leverage ratio is a balance sheet-driven measure and therefore limits balance sheet-intensive activities, such as lending, more than activities that are less balance sheet intensive, and it may constrain our business even if we satisfy other risk-based capital requirements. Our leverage ratio denominator is driven by, among other things, the level of client activity, including deposits and loans, foreign exchange rates, interest rates and other market factors. Many of these factors are wholly or partly outside of our control. 68 68 Our strategy, business model and environment | Risk factors Our financial results may be negatively affected by changes to the financial results of our businesses, the effect of changes to assumptions and valuations, as well as changes to accounting capital standards, methodologies and interpretations that may standards adversely affect the calculation of our CET1 ratios, the imposition We prepare our consolidated financial statements in accordance of risk add-ons or capital buffers, and the application of additional with International Financial Reporting Standards (IFRS). The capital, liquidity and similar requirements to subsidiaries. The application of these accounting standards requires the use of results of our businesses may be adversely affected by events judgment based on estimates and assumptions that may involve arising from other risk factors described herein. In some cases, significant uncertainty at the time they are made. This is the case, such as litigation and regulatory risk and operational risk events, for example, with respect to the measurement of fair value of losses may be sudden and large. These risks could reduce the financial instruments, the recognition of deferred tax assets, the amount of capital available for return to shareholders and hinder assessment of the impairment of goodwill, expected credit losses our ability to achieve our capital returns target of a progressive and estimation of provisions for litigation, regulatory and similar cash dividend coupled with a share repurchase program. matters. Such judgments, including the underlying estimates and Our eligible capital may be reduced by losses recognized within assumptions, which encompass historical experience, net profit or other comprehensive income. Eligible capital may expectations of the future and other factors, are regularly also be reduced for other reasons, including acquisitions which evaluated to determine their continuing relevance based on change the level of goodwill, changes in temporary differences current conditions. Using different assumptions could cause the related to deferred tax assets included in capital, adverse currency reported results to differ. Changes in assumptions, or failure to movements affecting the value of equity, prudential adjustments make the changes necessary to reflect evolving market conditions, that may be required due to the valuation uncertainty associated may have a significant effect on the financial statements in the with certain types of positions, changes in regulatory periods when changes occur. Estimates of provisions may be interpretations on the inclusion or exclusion of items contributing subject to a wide range of potential outcomes and significant to our shareholders equity in regulatory capital, and changes in uncertainty. For example, the broad range of potential outcomes the value of certain pension fund assets and liabilities or in the in our proceeding in France increases the uncertainty associated interest rate and other assumptions used to calculate the changes with assessing the appropriate provision. If the estimates and in our net defined benefit obligation recognized in other assumptions in future periods deviate from the current outlook, comprehensive income. our financial results may also be negatively affected. RWA are driven by our business activities, by changes in the risk Changes to IFRS or interpretations thereof may cause future profile of our exposures, by changes in our foreign currency reported results and financial position to differ from current exposures and foreign exchange rates, and by regulation. For expectations, or historical results to differ from those previously instance, substantial market volatility, a widening of credit spreads, reported due to the adoption of accounting standards on a adverse currency movements, increased counterparty risk, retrospective basis. Such changes may also affect our regulatory deterioration in the economic environment or increased operational capital and ratios. For example, the introduction of the expected risk could result in an increase in RWA. We have significantly credit loss (ECL) framework under IFRS 9 in 2018 fundamentally reduced our market risk and credit risk RWA in recent years. changed how credit risk arising from loans, loan commitments, However, increases in operational risk RWA, particularly those guarantees and certain revocable facilities is accounted for. Under arising from litigation, regulatory and similar matters, and the regime, credit loss expenses may increase rapidly at the onset regulatory changes in the calculation of RWA, as well as regulatory of an economic downturn as a result of higher levels of credit add-ons to RWA, have offset a substantial portion of this reduction. impairments (stage 3), as well as higher ECL from stages 1 and 2, Changes in the calculation of RWA, the imposition of additional only gradually diminishing once the economic outlook improves. supplemental RWA charges or multipliers applied to certain As we observed in 2020, this effect may be more pronounced in exposures and other methodology changes, as well as the a deteriorating economic environment. Substantial increases in implementation of the capital standards promulgated by the Basel ECL could exceed expected loss for regulatory capital purposes Committee on Banking Supervision, which are proposed to take and adversely affect our CET1 capital and regulatory capital ratios. effect in 2023, are expected to increase our RWA. We may be unable to maintain our capital strength The leverage ratio is a balance sheet-driven measure and therefore limits balance sheet-intensive activities, such as lending, Capital strength enables us to grow our businesses and absorb more than activities that are less balance sheet intensive, and it increases in regulatory and capital requirements. It reassures our may constrain our business even if we satisfy other risk-based clients and stakeholders, allows us to maintain our capital return capital requirements. Our leverage ratio denominator is driven by, policy and contributes to our credit ratings. Our capital ratios are among other things, the level of client activity, including deposits driven primarily by RWA, the leverage ratio denominator and and loans, foreign exchange rates, interest rates and other market eligible capital, all of which may fluctuate based on a number of factors. Many of these factors are wholly or partly outside of our factors, some of which are outside our control. Our ability to control. maintain our capital ratios is subject to numerous risks, including The effect of taxes on our financial results is significantly influenced by tax law changes and reassessments of our deferred tax assets Our effective tax rate is highly sensitive to our performance, our expectation of future profitability and any potential increases or decreases in statutory tax rates, such as any potential increase in the US federal corporate tax rate. Further, based on prior years’ tax losses, we have recognized deferred tax assets (DTAs) reflecting the probable recoverable level based on future taxable profit as informed by our business plans. If our performance is expected to produce diminished taxable profit in future years, particularly in the US, we may be required to write down all or a portion of the currently recognized DTAs through the income statement in excess of anticipated amortization. This would have the effect of increasing our effective tax rate in the year in which any write-downs are taken. Conversely, if we expect the performance of entities in which we have unrecognized tax losses to improve, particularly in the US or the UK, we could potentially recognize additional DTAs. The effect of doing so would be to reduce our effective tax rate in years in which additional DTAs are recognized and to increase our effective tax rate in future years. Our effective tax rate is also sensitive to any future reductions in statutory tax rates, particularly in the US, which would cause the expected future tax benefit from items such as tax loss carry- forwards in the affected locations to diminish in value. This, in turn, would cause a write-down of the associated DTAs. For example, the reduction in the US federal corporate tax rate to 21% from 35% introduced by the US Tax Cuts and Jobs Act resulted in a USD 2.9 billion net write-down in the Group’s DTAs in the fourth quarter of 2017. Conversely, an increase in US corporate tax rates would result in an increase in the Group’s DTAs. We generally revalue our DTAs in the fourth quarter of the financial year based on a reassessment of future profitability taking into account our updated business plans. We consider the performance of our businesses and the accuracy of historical forecasts, tax rates and other factors in evaluating the recoverability of our DTAs, including the remaining tax loss carry- forward period and our assessment of expected future taxable profits over the life of DTAs. Estimating future profitability is inherently subjective and is particularly sensitive to future economic, market and other conditions, which are difficult to predict. Our results in past years have demonstrated that changes in the recognition of DTAs can have a very significant effect on our reported results. Any future change in the manner in which UBS remeasures DTAs could affect UBS’s effective tax rate, particularly in the year in which the change is made. Our full-year effective tax rate could change if aggregate tax expenses in respect of profits from branches and subsidiaries without loss coverage differ from what is expected, or if branches and subsidiaries generate tax losses that we cannot benefit from through the income statement. In particular, losses at entities or branches that cannot offset for tax purposes taxable profits in other group entities, and which do not result in additional DTA recognition, may increase our effective tax rate. In addition, tax laws or the tax authorities in countries where we have undertaken legal structure changes may cause entities to be subject to taxation as permanent establishments or may prevent the transfer of tax losses incurred in one legal entity to newly organized or reorganized subsidiaries or affiliates or may impose limitations on the utilization of tax losses that relate to businesses formerly conducted by the transferor. Were this to occur in situations where there were also limited planning opportunities to utilize the tax losses in the originating entity, the DTAs associated with such tax losses may be required to be written down through the income statement. Changes in tax law may materially affect our effective tax rate, and, in some cases, may substantially affect the profitability of certain activities. In addition, statutory and regulatory changes, as well as changes to the way in which courts and tax authorities interpret tax laws, including assertions that we are required to pay taxes in a jurisdiction as a result of activities connected to that jurisdiction constituting a permanent establishment or similar theory, and changes in our assessment of uncertain tax positions, could cause the amount of taxes we ultimately pay to materially differ from the amount accrued. Strategy, management and operational risks Operational risks affect our business Our businesses depend on our ability to process a large number of transactions, many of which are complex, across multiple and in different currencies, to comply with diverse markets requirements of many different legal and regulatory regimes to which we are subject and to prevent, or promptly detect and stop, unauthorized, fictitious or fraudulent transactions. We also rely on access to, and on the functioning of, systems maintained by third parties, including clearing systems, exchanges, information processors and central counterparties. Any failure of our or third- party systems could have an adverse effect on us. These risks may be greater as we deploy newer technologies, such as blockchain, or products that rely on these technologies. Our operational risk management and control systems and processes are designed to help ensure that the risks associated with our activities – including those arising from process error, failed execution, misconduct, unauthorized trading, fraud, system failures, financial crime, cyberattacks, breaches of information security, inadequate or ineffective access controls and failure of security and physical protection – are appropriately controlled. If our internal controls fail or prove ineffective in identifying and remedying these risks, we could suffer operational failures that might result in material losses, such as the substantial loss we incurred from the unauthorized trading incident announced in September 2011. As a significant proportion of our staff have been and will continue working from outside the offices as a consequence of the COVID-19 pandemic, we have faced, and will continue to face, new challenges and operational including maintenance of supervisory and surveillance controls, as well as increased fraud and data security risks. While we have taken measures to manage these risks, such measures have never been tested on the scale or duration that we are currently experiencing, and there is risk that these measures will prove not to have been effective in the current unprecedented operating environment. risks, 68 69 69 Our strategy, business model and environmentOur strategy, business model and environment | Risk factors We use automation as part of our efforts to improve efficiency, reduce the risk of error and improve our client experience. We intend to expand the use of robotic processing, machine learning and artificial intelligence to further these goals. Use of these tools presents their own risks, including the need for effective design and testing; the quality of the data used for development and operation of machine learning and artificial intelligence tools may adversely affect their functioning and result in errors and other operational risks. For financial institutions, cybersecurity risks have increased due to the widespread use of digital technologies, cloud computing and mobile devices to conduct financial business and transactions. In addition, cyberattacks by hackers, terrorists, criminal organizations, nation states and extremists have also increased in frequency and sophistication. Current geopolitical tensions also may lead to increased risk of cyberattack from foreign state actors. In particular, the Russian invasion of Ukraine and the imposition of significant sanctions on Russia by Switzerland, the US, the EU, the UK and others may result in an increase in the risk of cyberattacks. We and other financial services firms have been subject to breaches of security and to cyber- and other forms of attack, some of which are sophisticated and targeted attacks intended to gain access to confidential information or systems, disrupt service or destroy data. These attacks may be attempted through the introduction of viruses or malware, phishing and other forms of social engineering, distributed denial of service attacks and other means. These attempts may occur directly, or using equipment or security passwords of our employees, third-party service providers or other users. In addition to external attacks, we have experienced loss of client data from failure by employees and others to follow internal policies and procedures and from misappropriation of our data by employees and others. We may not be able to anticipate, detect or recognize threats to our systems or data and our preventative measures may not be effective to prevent an attack or a security breach. In the event of a security breach, notwithstanding our preventative measures, we may not immediately detect a particular breach or attack. Once a particular attack is detected, time may be required to investigate and assess the nature and extent of the attack. A successful breach or circumvention of security of our systems or data could have significant negative consequences for us, including disruption of our operations, misappropriation of confidential information concerning us or our customers, damage to our systems, financial losses for us or our customers, violations of data privacy and similar laws, litigation exposure and damage to our reputation. We may be subject to enforcement actions as regulatory focus on cybersecurity increases and regulators have announced new rules, guidance and initiatives on ransomware and other cybersecurity-related issues. We are subject to complex and frequently changing laws and regulations governing the protection of client and personal data, such as the EU General Data Protection Regulation. Ensuring that we comply with applicable laws and regulations when we collect, use and transfer personal information requires substantial resources and may affect the ways in which we conduct our 70 70 business. In the event that we fail to comply with applicable laws, we may be exposed to regulatory fines and penalties and other sanctions. We may also incur such penalties if our vendors or other service providers or clients or counterparties fail to comply with these laws or to maintain appropriate controls over protected data. In addition, any loss or exposure of client or other data may adversely damage our reputation and adversely affect our business. A major focus of US and other countries’ governmental policies relating to financial institutions in recent years has been on fighting money laundering and terrorist financing. We are required to maintain effective policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, and to verify the identity of our clients under the laws of many of the countries in which we operate. We are also subject to laws and regulations related to corrupt and illegal payments to government officials by others, such as the US Foreign Corrupt Practices Act and the UK Bribery Act. We have implemented policies, procedures and internal controls that are designed to comply with such laws and regulations. Notwithstanding this, US regulators have found deficiencies in the design and operation of anti-money laundering programs in our US operations. We have undertaken a significant program to address these regulatory findings with regulatory expectations for our programs. Failure to maintain and implement adequate programs to combat money laundering, terrorist financing or corruption, or any failure of our programs in these areas, could have serious consequences both from legal enforcement action and from damage to our reputation. Frequent changes in sanctions imposed and increasingly complex sanctions imposed on countries, entities and individuals, as exemplified by the breadth and scope of the sanctions imposed in relation the Russian invasion of Ukraine, increase our cost of monitoring and complying with sanctions requirements and increase the risk that we will not identify in a timely manner client activity that is subject to a sanction. the objective of fully meeting As a result of new and changed regulatory requirements and the changes we have made in our legal structure, the volume, frequency and complexity of our regulatory and other reporting has remained elevated. Regulators have also significantly increased expectations regarding our internal reporting and data aggregation, as well as management reporting. We have incurred and continue to incur significant costs to implement infrastructure to meet these requirements. Failure to meet external reporting requirements accurately and in a timely manner or failure to meet regulatory expectations of internal reporting, data aggregation and management reporting could result in enforcement action or other adverse consequences for us. In addition, despite the contingency plans that we have in place, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our businesses and the communities in which we operate. This may include a disruption due to natural disasters, pandemics, civil unrest, war or terrorism and involve electrical, communications, transportation or other services that we use or that are used by third parties with whom we conduct business. Our strategy, business model and environment | Risk factors We use automation as part of our efforts to improve efficiency, business. In the event that we fail to comply with applicable laws, reduce the risk of error and improve our client experience. We we may be exposed to regulatory fines and penalties and other intend to expand the use of robotic processing, machine learning sanctions. We may also incur such penalties if our vendors or and artificial intelligence to further these goals. Use of these tools other service providers or clients or counterparties fail to comply presents their own risks, including the need for effective design with these laws or to maintain appropriate controls over protected and testing; the quality of the data used for development and data. In addition, any loss or exposure of client or other data may operation of machine learning and artificial intelligence tools may adversely damage our reputation and adversely affect our adversely affect their functioning and result in errors and other business. operational risks. A major focus of US and other countries’ governmental policies For financial institutions, cybersecurity risks have increased due relating to financial institutions in recent years has been on to the widespread use of digital technologies, cloud computing fighting money laundering and terrorist financing. We are and mobile devices to conduct financial business and transactions. required to maintain effective policies, procedures and controls to In addition, cyberattacks by hackers, terrorists, criminal detect, prevent and report money laundering and terrorist organizations, nation states and extremists have also increased in financing, and to verify the identity of our clients under the laws frequency and sophistication. Current geopolitical tensions also of many of the countries in which we operate. We are also subject may lead to increased risk of cyberattack from foreign state to laws and regulations related to corrupt and illegal payments to actors. In particular, the Russian invasion of Ukraine and the government officials by others, such as the US Foreign Corrupt imposition of significant sanctions on Russia by Switzerland, the Practices Act and the UK Bribery Act. We have implemented US, the EU, the UK and others may result in an increase in the risk policies, procedures and internal controls that are designed to of cyberattacks. comply with such laws and regulations. Notwithstanding this, US We and other financial services firms have been subject to regulators have found deficiencies in the design and operation of breaches of security and to cyber- and other forms of attack, some anti-money laundering programs in our US operations. We have of which are sophisticated and targeted attacks intended to gain undertaken a significant program to address these regulatory access to confidential information or systems, disrupt service or findings with the objective of fully meeting regulatory destroy data. These attacks may be attempted through the expectations for our programs. Failure to maintain and implement introduction of viruses or malware, phishing and other forms of adequate programs to combat money laundering, terrorist social engineering, distributed denial of service attacks and other financing or corruption, or any failure of our programs in these means. These attempts may occur directly, or using equipment or areas, could have serious consequences both from legal security passwords of our employees, third-party service providers enforcement action and from damage to our reputation. Frequent or other users. In addition to external attacks, we have changes in sanctions imposed and increasingly complex sanctions experienced loss of client data from failure by employees and imposed on countries, entities and individuals, as exemplified by others to follow internal policies and procedures and from the breadth and scope of the sanctions imposed in relation the misappropriation of our data by employees and others. We may Russian invasion of Ukraine, increase our cost of monitoring and not be able to anticipate, detect or recognize threats to our complying with sanctions requirements and increase the risk that systems or data and our preventative measures may not be we will not identify in a timely manner client activity that is subject effective to prevent an attack or a security breach. In the event of to a sanction. a security breach, notwithstanding our preventative measures, we As a result of new and changed regulatory requirements and may not immediately detect a particular breach or attack. Once a the changes we have made in our legal structure, the volume, particular attack is detected, time may be required to investigate frequency and complexity of our regulatory and other reporting and assess the nature and extent of the attack. A successful has remained elevated. Regulators have also significantly breach or circumvention of security of our systems or data could increased expectations regarding our internal reporting and data have significant negative consequences for us, including aggregation, as well as management reporting. We have incurred disruption of our operations, misappropriation of confidential and continue to incur significant costs to implement infrastructure information concerning us or our customers, damage to our to meet these requirements. Failure to meet external reporting systems, financial losses for us or our customers, violations of data requirements accurately and in a timely manner or failure to meet privacy and similar laws, litigation exposure and damage to our regulatory expectations of internal reporting, data aggregation reputation. We may be subject to enforcement actions as and management reporting could result in enforcement action or regulatory focus on cybersecurity increases and regulators have other adverse consequences for us. announced new rules, guidance and initiatives on ransomware In addition, despite the contingency plans that we have in and other cybersecurity-related issues. place, our ability to conduct business may be adversely affected We are subject to complex and frequently changing laws and by a disruption in the infrastructure that supports our businesses regulations governing the protection of client and personal data, and the communities in which we operate. This may include a such as the EU General Data Protection Regulation. Ensuring that disruption due to natural disasters, pandemics, civil unrest, war or we comply with applicable laws and regulations when we collect, terrorism and involve electrical, communications, transportation use and transfer personal information requires substantial or other services that we use or that are used by third parties with resources and may affect the ways in which we conduct our whom we conduct business. We may not be successful in the ongoing execution of our strategic plans We have transformed UBS to focus on our Global Wealth Management business and our universal bank in Switzerland, complemented by Asset Management and a significantly smaller and more capital-efficient Investment Bank; we have substantially reduced the risk-weighted assets and leverage ratio denominator usage in Group Functions; and made significant cost reductions. Risk remains that going forward we may not succeed in executing our strategy or achieving our performance targets, or may be delayed in doing so. Macroeconomic conditions, geopolitical uncertainty, changes to regulatory requirements and the continuing costs of meeting these requirements have prompted us to adapt our targets and ambitions in the past and we may need to do so again in the future. To achieve our strategic plans, we expect to continue to make significant expenditures on technology and infrastructure to improve client experience, improve and further enable digital offerings and increase efficiency. We also may seek to implement our strategy through acquisitions or strategic partnerships to expand or improve our product offerings or target additional client segments. Our investments in new technology and our acquisitions and strategic partnerships may not fully achieve our objectives or improve our ability to attract and retain customers. In addition, we face competition in providing digitally enabled offerings from both existing competitors and new financial service providers in various portions of the value chain. For example, technological advances and the growth of e-commerce have made it possible for e-commerce firms and other companies to offer products and services that were traditionally offered only by banks. These advances have also allowed financial institutions and other companies to provide digitally based financial solutions, including electronic securities trading, payments processing and online automated algorithmic-based investment advice at a low cost to their customers. We may have to lower our prices, or risk losing customers as a result. Our ability to develop and implement competitive digitally enabled offerings and processes will be an important factor in our ability to compete. As part of our strategy, we seek to improve our operating efficiency, in part by controlling our costs. We may not be able to identify feasible cost reduction opportunities that are consistent with our business goals and cost reductions may be realized later or may be smaller than we anticipate. Higher temporary and permanent regulatory costs and higher business demand than anticipated have partly offset cost reductions and delayed the achievement of our past cost reduction targets, and we could continue to be challenged in the execution of our ongoing efforts to improve operating efficiency. Changes in our workforce as a result of outsourcing, nearshoring, offshoring, insourcing or staff reductions or, changes which arise from the introduction of work from home or other flexible ways of working or agile work methodologies may introduce new operational risks that, if not effectively addressed, could affect our ability to achieve cost and other benefits from such changes, or could result in operational losses. As we implement effectiveness and efficiency programs, we may also experience unintended consequences, such as the unintended loss or degradation of capabilities that we need in order to maintain our competitive position, achieve our targeted returns or meet existing or new regulatory requirements and expectations. We depend on our risk management and control processes to avoid or limit potential losses in our businesses Controlled risk-taking is a major part of the business of a financial services firm. Some losses from risk-taking activities are inevitable, but to be successful over time, we must balance the risks we take against the returns generated. Therefore, we must diligently identify, assess, manage and control our risks, not only in normal market conditions but also as they might develop under more extreme, stressed conditions, when concentrations of exposures can lead to severe losses. We have not always been able to prevent serious losses arising from risk management failures and extreme or sudden market events. We recorded substantial losses on fixed-income trading positions in the 2008 financial crisis, in the unauthorized trading incident in 2011 and, more recently, positions resulting from the default of a US prime brokerage client. We revise and strengthen our risk management and control frameworks to seek to address identified shortcomings. Nonetheless, we could suffer further losses in the future if, for example: – we do not fully identify the risks in our portfolio, in particular risk concentrations and correlated risks; – our assessment of the risks identified, or our response to negative trends, proves to be untimely, inadequate, insufficient or incorrect; – our risk models prove insufficient to predict the scale of financial risks the bank faces; – markets move in ways that we do not expect – in terms of their speed, direction, severity or correlation – and our ability to manage risks in the resulting environment is, therefore, affected; – third parties to whom we have credit exposure or whose securities we hold are severely affected by events and we suffer defaults and impairments beyond the level implied by our risk assessment; or – collateral or other security provided by our counterparties and clients proves inadequate to cover their obligations at the time of default. We also hold legacy risk positions, primarily in Group Functions, that, in many cases, are illiquid and may again deteriorate in value. We also manage risk on behalf of our clients. The performance of assets we hold for our clients may be adversely affected by the same factors mentioned above. If clients suffer losses or the performance of their assets held with us is not in line with relevant benchmarks against which clients assess investment performance, we may suffer reduced fee income and a decline in assets under management, or withdrawal of mandates. Investment positions, such as equity investments made as part of strategic initiatives and seed investments made at the inception of funds that we manage, may also be affected by market risk factors. These investments are often not liquid and generally are intended or required to be held beyond a normal trading horizon. Deteriorations in the fair value of these positions would have a negative effect on our earnings. 70 71 71 Our strategy, business model and environmentOur strategy, business model and environment | Risk factors We may not be successful in implementing changes in our wealth management businesses to meet changing market, regulatory and other conditions In recent years, inflows from lower-margin segments and markets have been replacing outflows from higher-margin segments and markets, in particular for cross-border clients. This dynamic, combined with changes in client product preferences as a result of which low-margin products account for a larger share of our revenues than in the past, has put downward pressure on Global Wealth Management’s margins. We are exposed to possible outflows of client assets in our asset-gathering businesses and to changes affecting the profitability of Global Wealth Management, in particular. Initiatives that we may implement to overcome the effects of changes in the business environment on our profitability, balance sheet and capital positions may not succeed in counteracting those effects and may cause net new money outflows and reductions in client deposits, as happened with our balance sheet and capital optimization program in 2015. There is no assurance that we will be successful in our efforts to offset the adverse effect of these or similar trends and developments. We may be unable to identify or capture revenue or competitive opportunities, or retain and attract qualified employees The financial services industry is characterized by intense competition, continuous innovation, restrictive, detailed, and sometimes fragmented regulation and ongoing consolidation. We face competition at the level of local markets and individual business lines, and from global financial institutions that are comparable to us in their size and breadth, as well as competition from new technology-based market entrants, which may not be subject to the same level of regulation. Barriers to entry in individual markets and pricing levels are being eroded by new technology. We expect these trends to continue and competition to increase. Our competitive strength and market position could be eroded if we are unable to identify market trends and developments, do not respond to such trends and developments by devising and implementing adequate business strategies, do not adequately develop or update our technology including our digital channels and tools, or are unable to attract or retain the qualified people needed. The amount and structure of our employee compensation is affected not only by our business results, but also by competitive factors and regulatory considerations. In response to the demands of various stakeholders, including regulatory authorities and shareholders, and in order to better align the interests of our staff with other stakeholders, we have increased average deferral periods for stock awards, expanded forfeiture provisions and, to a more limited extent, introduced clawback provisions for certain awards linked to business performance. We have also introduced individual caps on the proportion of fixed to variable pay for the Group Executive Board (GEB) members, as well as certain other employees. Constraints on the amount or structure of employee compensation, higher levels of deferral, performance conditions and other circumstances triggering the forfeiture of unvested awards may adversely affect our ability to retain and attract key employees, particularly where we compete with companies that are not subject to these constraints. The loss of key staff and the inability to attract qualified replacements could seriously compromise our ability to execute our strategy and to successfully improve our operating and control environment, and could affect our business performance. Swiss law requires that shareholders approve the compensation of the Board of Directors (the BoD) and the GEB each year. If our shareholders fail to approve the compensation for the GEB or the BoD, this could have an adverse effect on our ability to retain experienced directors and our senior management. Our reputation is critical to our success Our reputation is critical to the success of our strategic plans, business and prospects. Reputational damage is difficult to reverse, and improvements tend to be slow and difficult to measure. In the past, our reputation has been adversely affected by our losses during the financial crisis, investigations into our cross-border private banking services, criminal resolutions of LIBOR-related and foreign exchange matters, as well as other matters. We believe that reputational damage as a result of these events was an important factor in our loss of clients and client assets across our asset-gathering businesses. New events that cause reputational damage could have a material adverse effect on our results of operation and financial condition, as well as our ability to achieve our strategic goals and financial targets. As UBS Group AG is a holding company, its operating results, financial condition and ability to pay dividends and other distributions and / or to pay its obligations in the future depend on funding, dividends and other distributions received directly or indirectly from its subsidiaries, which may be subject to restrictions UBS Group AG’s ability to pay dividends and other distributions and to pay its obligations in the future will depend on the level of funding, dividends and other distributions, if any, received from UBS AG and other subsidiaries. The ability of such subsidiaries to make loans or distributions, directly or indirectly, to UBS Group AG may be restricted as a result of several factors, including restrictions in financing agreements and the requirements of applicable law and regulatory, fiscal or other restrictions. In particular, UBS Group AG’s direct and indirect subsidiaries, including UBS AG, UBS Switzerland AG, UBS Americas Holding LLC and UBS Europe SE, are subject to laws and regulations that restrict dividend payments, authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to UBS Group AG, or could affect their ability to repay any loans made to, or other investments in, such subsidiary by UBS Group AG or another member of the Group. For example, in the early stages of the COVID-19 pandemic, the European Central Bank ordered all banks under its supervision to cease dividend distributions and the Federal Reserve Board has limited capital distributions by bank holding companies and intermediate holding companies. Restrictions and regulatory actions of this kind could impede access to funds that UBS Group AG may need to meet its obligations or to pay dividends to shareholders. In addition, UBS Group AG’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to all prior claims of the subsidiary’s creditors. Our capital instruments may contractually prevent UBS Group AG from proposing the distribution of dividends to shareholders, other than in the form of shares and from engaging in repurchases of shares, if we do not pay interest on these instruments. 72 72 Reductions in our credit ratings may adversely affect the market value of the securities and other obligations and increase our funding costs, in particular with regard to funding from wholesale unsecured sources, and could affect the availability of certain kinds of funding. In addition, as experienced in connection with Moody’s downgrade of UBS AG’s long-term debt rating in June 2012, rating downgrades can require us to post additional collateral or make additional cash payments under trading agreements. Our credit ratings, together with our capital strength and reputation, also contribute to maintaining client and counterparty confidence, and it is possible that rating changes could influence the performance of some of our businesses. The requirement to maintain a liquidity coverage ratio of high- quality liquid assets to estimated stressed short-term net cash outflows, and other similar liquidity and funding requirements, oblige us to maintain high levels of overall liquidity, limit our ability to optimize interest income and expense, make certain lines of business less attractive and reduce our overall ability to generate profits. In particular, UBS AG is subjected to increased liquidity coverage requirements under the direction of FINMA. Regulators may consider it necessary to increase these requirements in light of the anticipated economic stresses resulting from the COVID-19 pandemic. The liquidity coverage ratio and net stable funding ratio requirements are intended to ensure that we are not overly reliant on short-term funding and that we have sufficient long- term funding for illiquid assets. The relevant calculations make assumptions about the relative likelihood and amount of outflows of funding and available sources of additional funding in market- wide and firm-specific stress situations. There can be no assurance that in an actual stress situation our funding outflows would not exceed the assumed amounts. profitability of Global Wealth Management, in particular. reverse, and improvements tend to be slow and difficult to Liquidity and funding risk Furthermore, UBS Group AG may guarantee some of the payment obligations of certain of the Group’s subsidiaries from time to time. These guarantees may require UBS Group AG to provide substantial funds or assets to subsidiaries or their creditors or counterparties at a time when UBS Group AG is in need of liquidity to fund its own obligations. The credit ratings of UBS Group AG or its subsidiaries used for funding purposes could be lower than the ratings of the Group’s operating subsidiaries, which may adversely affect the market value of the securities and other obligations of UBS Group AG or those subsidiaries on a standalone basis. Liquidity and funding management are critical to UBS’s ongoing performance The viability of our business depends on the availability of funding sources, and our success depends on our ability to obtain funding at times, in amounts, for tenors and at rates that enable us to efficiently support our asset base in all market conditions. Our funding sources have generally been stable, but could change in the future because of, among other things, general market disruptions or widening credit spreads, which could also influence the cost of funding. A substantial part of our liquidity and funding requirements are met using short-term unsecured funding sources, including retail and wholesale deposits and the regular issuance of money market securities. A change in the availability of short-term funding could occur quickly. The addition of loss-absorbing debt as a component of capital requirements, the regulatory requirements to maintain minimum TLAC at UBS’s holding company and at subsidiaries, as well as the power of resolution authorities to bail in TLAC and other debt obligations, and uncertainty as to how such powers will be exercised, will increase our cost of funding and could potentially increase the total amount of funding required, in the absence of other changes in our business. Our strategy, business model and environment | Risk factors We may not be successful in implementing changes in our compromise our ability to execute our strategy and to successfully wealth management businesses to meet changing market, improve our operating and control environment, and could affect regulatory and other conditions our business performance. Swiss law requires that shareholders In recent years, inflows from lower-margin segments and markets approve the compensation of the Board of Directors (the BoD) have been replacing outflows from higher-margin segments and and the GEB each year. If our shareholders fail to approve the markets, in particular for cross-border clients. This dynamic, compensation for the GEB or the BoD, this could have an adverse combined with changes in client product preferences as a result effect on our ability to retain experienced directors and our senior of which low-margin products account for a larger share of our management. revenues than in the past, has put downward pressure on Global Wealth Management’s margins. Our reputation is critical to our success We are exposed to possible outflows of client assets in our Our reputation is critical to the success of our strategic plans, asset-gathering businesses and to changes affecting the business and prospects. Reputational damage is difficult to Initiatives that we may implement to overcome the effects of measure. In the past, our reputation has been adversely affected changes in the business environment on our profitability, balance by our losses during the financial crisis, investigations into our sheet and capital positions may not succeed in counteracting cross-border private banking services, criminal resolutions of those effects and may cause net new money outflows and LIBOR-related and foreign exchange matters, as well as other reductions in client deposits, as happened with our balance sheet matters. We believe that reputational damage as a result of these and capital optimization program in 2015. There is no assurance events was an important factor in our loss of clients and client that we will be successful in our efforts to offset the adverse effect assets across our asset-gathering businesses. New events that of these or similar trends and developments. cause reputational damage could have a material adverse effect on our results of operation and financial condition, as well as our We may be unable to identify or capture revenue or competitive ability to achieve our strategic goals and financial targets. opportunities, or retain and attract qualified employees The financial services industry is characterized by intense As UBS Group AG is a holding company, its operating results, competition, continuous innovation, restrictive, detailed, and financial condition and ability to pay dividends and other sometimes fragmented regulation and ongoing consolidation. We distributions and / or to pay its obligations in the future depend face competition at the level of local markets and individual on funding, dividends and other distributions received directly or business lines, and from global financial institutions that are indirectly from its subsidiaries, which may be subject to comparable to us in their size and breadth, as well as competition restrictions from new technology-based market entrants, which may not be UBS Group AG’s ability to pay dividends and other distributions subject to the same level of regulation. Barriers to entry in and to pay its obligations in the future will depend on the level of individual markets and pricing levels are being eroded by new funding, dividends and other distributions, if any, received from technology. We expect these trends to continue and competition UBS AG and other subsidiaries. The ability of such subsidiaries to to increase. Our competitive strength and market position could make loans or distributions, directly or indirectly, to UBS Group be eroded if we are unable to identify market trends and AG may be restricted as a result of several factors, including developments, do not respond to such trends and developments restrictions in financing agreements and the requirements of by devising and implementing adequate business strategies, do applicable law and regulatory, fiscal or other restrictions. In not adequately develop or update our technology including our particular, UBS Group AG’s direct and indirect subsidiaries, digital channels and tools, or are unable to attract or retain the including UBS AG, UBS Switzerland AG, UBS Americas Holding qualified people needed. LLC and UBS Europe SE, are subject to laws and regulations that The amount and structure of our employee compensation is restrict dividend payments, authorize regulatory bodies to block affected not only by our business results, but also by competitive or reduce the flow of funds from those subsidiaries to UBS Group factors and regulatory considerations. AG, or could affect their ability to repay any loans made to, or In response to the demands of various stakeholders, including other investments in, such subsidiary by UBS Group AG or another regulatory authorities and shareholders, and in order to better member of the Group. For example, in the early stages of the align the interests of our staff with other stakeholders, we have COVID-19 pandemic, the European Central Bank ordered all increased average deferral periods for stock awards, expanded banks under its supervision to cease dividend distributions and the forfeiture provisions and, to a more limited extent, introduced Federal Reserve Board has limited capital distributions by bank clawback provisions for certain awards linked to business holding companies and intermediate holding companies. performance. We have also introduced individual caps on the Restrictions and regulatory actions of this kind could impede proportion of fixed to variable pay for the Group Executive Board access to funds that UBS Group AG may need to meet its (GEB) members, as well as certain other employees. obligations or to pay dividends to shareholders. In addition, UBS Constraints on the amount or structure of employee Group AG’s right to participate in a distribution of assets upon a compensation, higher levels of deferral, performance conditions subsidiary’s liquidation or reorganization is subject to all prior and other circumstances triggering the forfeiture of unvested claims of the subsidiary’s creditors. awards may adversely affect our ability to retain and attract key Our capital instruments may contractually prevent UBS Group employees, particularly where we compete with companies that AG from proposing the distribution of dividends to shareholders, are not subject to these constraints. The loss of key staff and the other than in the form of shares and from engaging in inability to attract qualified replacements could seriously repurchases of shares, if we do not pay interest on these instruments. 72 73 73 Our strategy, business model and environmentFinancial and operating performance Management report 2 Financial and operating performance | Accounting and financial reporting Accounting and financial reporting Significant accounting and financial reporting changes in 2021 Amendments to IFRS as a consequence of Interest Rate Benchmark Reform Effective from 1 January 2021, we have adopted Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, addressing a number of issues in financial reporting areas that arise when interbank offered rates (IBORs) are reformed or replaced, in particular in the area of hedge accounting. The amendments also introduced additional disclosure requirements covering how we are managing the transition to alternative benchmark rates, our progress as of the reporting date and the risks to which we are exposed because of the transition. › Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” and “Note 25 Interest rate benchmark reform” in the “Consolidated financial statements” section of this report for more information Critical accounting estimates and judgments In preparing our financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (the IASB), we apply judgment and make estimates and assumptions that may involve significant uncertainty at the time they are made. We regularly reassess those estimates and assumptions, which encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing relevance based on current conditions, and update them as necessary. Changes in estimates and assumptions may have significant effects on the financial statements. Furthermore, actual results may differ significantly from our estimates, which could result in significant losses to the Group, beyond what we expected or provided for. Key areas involving a high degree of judgment and areas where estimates and assumptions are significant to the consolidated financial statements include: – expected credit loss measurement; – fair value measurement; – income taxes; – provisions and contingent liabilities; – post-employment benefit plans; – goodwill; and – consolidation of structured entities. › Refer to “Note 1a Material accounting policies” in the “Consolidated financial statements” section of this report for more information › Refer to the “Risk factors” section of this report for more information 76 76 Financial and operating performance | Accounting and financial reporting Accounting and financial reporting Group performance Critical accounting estimates and judgments Significant accounting and financial reporting changes in Income statement In preparing our financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the 2021 Amendments to IFRS as a consequence of Interest Rate International Accounting Standards Board (the IASB), we apply Benchmark Reform judgment and make estimates and assumptions that may involve significant uncertainty at the time they are made. We regularly reassess those estimates and assumptions, which encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing relevance based on current conditions, and update them as necessary. Changes in estimates and assumptions may have significant effects on the financial statements. Furthermore, actual results may differ significantly from our estimates, which could result in significant Effective from 1 January 2021, we have adopted Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, addressing a number of issues in financial reporting areas that arise when interbank offered rates (IBORs) are reformed or replaced, in particular in the area of hedge accounting. The amendments also introduced additional disclosure requirements covering how we are managing the transition to alternative benchmark rates, our progress as of the reporting date and the risks to which we are exposed because of losses to the Group, beyond what we expected or provided for. the transition. Key areas involving a high degree of judgment and areas where estimates and assumptions are significant to the › Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” and “Note 25 Interest rate benchmark reform” in the “Consolidated financial statements” section of this report for more information consolidated financial statements include: – expected credit loss measurement; – fair value measurement; – income taxes; – provisions and contingent liabilities; – post-employment benefit plans; – goodwill; and – consolidation of structured entities. › Refer to “Note 1a Material accounting policies” in the “Consolidated financial statements” section of this report for › Refer to the “Risk factors” section of this report for more more information information USD million Net interest income Other net income from financial instruments measured at fair value through profit or loss Credit loss (expense) / release Fee and commission income Fee and commission expense Net fee and commission income Other income Total operating income Personnel expenses General and administrative expenses Depreciation, amortization and impairment of non-financial assets Total operating expenses Operating profit / (loss) before tax Tax expense / (benefit) Net profit / (loss) Net profit / (loss) attributable to non-controlling interests NNeett pprrooffiitt // ((lloossss)) aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss Comprehensive income Total comprehensive income Total comprehensive income attributable to non-controlling interests TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss 76 For the year ended % change from 3311..1122..2211 31.12.20 31.12.19 31.12.20 66,,770055 55,,885500 114488 2244,,337722 ((11,,998855)) 2222,,338877 445522 3355,,554422 1188,,338877 55,,555533 22,,111188 2266,,005588 99,,448844 11,,999988 77,,448866 2299 77,,445577 55,,111199 1133 55,,110066 5,862 6,960 (694) 20,961 (1,775) 19,186 1,076 32,390 17,224 4,885 2,126 24,235 8,155 1,583 6,572 15 6,557 8,312 36 8,276 4,501 6,842 (78) 19,110 (1,696) 17,413 212 28,889 16,084 5,288 1,940 23,312 5,577 1,267 4,310 6 4,304 5,091 2 5,089 14 (16) 16 12 17 (58) 10 7 14 0 8 16 26 14 92 14 (38) (64) (38) 77 77 Financial and operating performance Financial and operating performance | Group performance 2021 compared with 2020 Results In 2021, net profit attributable to shareholders increased by USD 900 million, or 14%, to USD 7,457 million, which included a net tax expense of USD 1,998 million. Profit before tax increased by USD 1,329 million, or 16%, to USD 9,484 million, reflecting higher operating income, partly offset by an increase in operating expenses. Operating income increased by USD 3,152 million, or 10%, to USD 35,542 million, mainly reflecting a USD 3,201 million increase in net fee and commission income. Net credit loss releases were USD 148 million, compared with net credit loss expenses of USD 694 million in 2020. This was partly offset by USD 624 million lower other income and a USD 267 million decrease in total combined net interest income and other net income from financial instruments measured at fair value through profit or loss. Operating expenses increased by USD 1,823 million, or 8%, to USD 26,058 million. This increase was mainly driven by USD 1,163 million higher personnel expenses and USD 668 million higher general and administrative expenses. Operating income Operating income increased by USD 3,152 million, or 10%, to USD 35,542 million. Net interest income and other net income from financial instruments measured at fair value through profit or loss Total combined net interest income and other net income from financial instruments measured at fair value through profit or loss decreased by USD 267 million to USD 12,555 million. The Investment Bank decreased by USD 576 million to USD 5,067 million, largely driven by a USD 713 million decrease in our Financing business in Global Markets, primarily reflecting a loss of USD 861 million incurred in the first half of 2021 on the default of a US-based client of our prime brokerage business, partly offset by higher capital markets financing revenues. Derivatives & Solutions increased by USD 169 million, mainly due to higher revenues from equity derivatives, partly offset by lower income from foreign exchange, rates and credit products. Group Functions recognized negative income of USD 397 million, compared with negative income of USD 302 million. This was largely due to USD 113 million lower net income in Group Treasury, mainly reflecting net effects related to accounting asymmetries, including hedge accounting ineffectiveness, partly offset by lower negative revenues related to centralized Group Treasury risk management services. In addition, 2021 included valuation gains of USD 58 million on auction rate securities in Non-core and Legacy Portfolio, compared with valuation losses of USD 9 million in the prior year. Global Wealth Management increased by USD 302 million to USD 5,341 million, mainly driven by higher net interest income, largely reflecting growth in lending revenues from higher volumes and margins, partly offset by lower deposit revenues, mainly due to lower US dollar interest rates and despite higher deposit volumes. Personal & Corporate Banking increased by USD 98 million to USD 2,557 million, mainly due to higher net interest income, driven by proactive deposit management. › Refer to “Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss” in the “Consolidated financial statements” section of this report for more information Net interest income and other net income from financial instruments measured at fair value through profit or loss For the year ended 31.12.20 3311..1122..2211 31.12.19 % change from 31.12.20 USD million Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income Net interest income from financial instruments measured at fair value through profit or loss Other net income from financial instruments measured at fair value through profit or loss TToottaall Global Wealth Management of which: net interest income of which: transaction-based income from foreign exchange and other intermediary activity 1 Personal & Corporate Banking of which: net interest income of which: transaction-based income from foreign exchange and other intermediary activity 1 Asset Management Investment Bank 2 Global Banking Global Markets 55,,227744 11,,443311 55,,885500 1122,,555555 55,,334411 44,,224444 11,,009977 22,,555577 22,,112200 443377 ((1133)) 55,,006677 559966 44,,447711 ((339977)) 4,563 1,299 6,960 12,822 5,039 4,027 1,012 2,459 2,049 409 (16) 5,643 585 5,057 (302) 3,490 1,011 6,842 11,343 4,913 3,947 966 2,436 1,992 443 (13) 4,189 414 3,775 (182) 16 10 (16) (2) 6 5 8 4 3 7 (16) (10) 2 (12) 31 Group Functions 11 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction-based income in the management discussion and analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report, respectively. 22 Investment Bank information is provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion and analysis in the “Investment Bank” section of this report. 78 78 Financial and operating performance | Group performance 2021 compared with 2020 Results In 2021, net profit attributable to shareholders increased by USD 900 million, or 14%, to USD 7,457 million, which included a net tax expense of USD 1,998 million. Profit before tax increased by USD 1,329 million, or 16%, to USD 9,484 million, reflecting higher operating income, partly offset by an increase in operating expenses. Operating income increased by USD 3,152 million, or 10%, to USD 35,542 million, mainly reflecting a USD 3,201 million increase in net fee and commission income. Net credit loss releases were USD 148 million, compared with net credit loss expenses of USD 694 million in 2020. This was partly offset by USD 624 million lower other income and a USD 267 million decrease in total combined net interest income and other net income from financial instruments measured at fair value through profit or loss. Operating expenses increased by USD 1,823 million, or 8%, to USD 26,058 million. This increase was mainly driven by USD 1,163 million higher personnel expenses and USD 668 million higher general and administrative expenses. Operating income USD 35,542 million. Operating income increased by USD 3,152 million, or 10%, to Net interest income and other net income from financial instruments measured at fair value through profit or loss Total combined net interest income and other net income from financial instruments measured at fair value through profit or loss decreased by USD 267 million to USD 12,555 million. The Investment Bank decreased by USD 576 million to USD 5,067 million, largely driven by a USD 713 million decrease in our Financing business in Global Markets, primarily reflecting a loss of USD 861 million incurred in the first half of 2021 on the default of a US-based client of our prime brokerage business, partly offset by higher capital markets financing revenues. Derivatives & Solutions increased by USD 169 million, mainly due to higher revenues from equity derivatives, partly offset by lower income from foreign exchange, rates and credit products. Group Functions recognized negative income of USD 397 million, compared with negative income of USD 302 million. This was largely due to USD 113 million lower net income in Group Treasury, mainly reflecting net effects related to accounting asymmetries, including hedge accounting ineffectiveness, partly offset by lower negative revenues related to centralized Group Treasury risk management services. In addition, 2021 included valuation gains of USD 58 million on auction rate securities in Non-core and Legacy Portfolio, compared with valuation losses of USD 9 million in the prior year. Global Wealth Management increased by USD 302 million to USD 5,341 million, mainly driven by higher net interest income, largely reflecting growth in lending revenues from higher volumes and margins, partly offset by lower deposit revenues, mainly due to lower US dollar interest rates and despite higher deposit volumes. Personal & Corporate Banking increased by USD 98 million to USD 2,557 million, mainly due to higher net interest income, driven by proactive deposit management. › Refer to “Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss” in the “Consolidated financial statements” section of this report for more information Net interest income and other net income from financial instruments measured at fair value through profit or loss For the year ended 3311..1122..2211 31.12.20 31.12.19 % change from 31.12.20 Net interest income from financial instruments measured at amortized cost and fair value through other Net interest income from financial instruments measured at fair value through profit or loss Other net income from financial instruments measured at fair value through profit or loss of which: transaction-based income from foreign exchange and other intermediary activity 1 of which: transaction-based income from foreign exchange and other intermediary activity 1 55,,227744 11,,443311 55,,885500 1122,,555555 55,,334411 44,,224444 11,,009977 22,,555577 22,,112200 443377 ((1133)) 55,,006677 559966 44,,447711 ((339977)) 4,563 1,299 6,960 12,822 5,039 4,027 1,012 2,459 2,049 409 (16) 5,643 585 5,057 (302) 3,490 1,011 6,842 11,343 4,913 3,947 966 2,436 1,992 443 (13) 4,189 414 3,775 (182) 16 10 (16) (2) 6 5 8 4 3 7 (16) (10) 2 (12) 31 11 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction-based income in the management discussion and analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report, respectively. 22 Investment Bank information is provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion and analysis in the “Investment Bank” section of this report. USD million comprehensive income TToottaall Global Wealth Management of which: net interest income Personal & Corporate Banking of which: net interest income Asset Management Investment Bank 2 Global Banking Global Markets Group Functions 78 Net fee and commission income Net fee and commission income increased by USD 3,201 million to USD 22,387 million. Fees for portfolio management and related services increased by USD 1,753 million to USD 9,762 million, driven by Global Wealth Management, reflecting higher average fee-generating assets, due to positive market performance and net new fee- generating assets. Investment fund fees increased by USD 501 million to USD 5,790 million, mainly driven by Global Wealth Management, reflecting higher average fee-generating assets. Management fees in Asset Management increased on a higher average invested asset base, partly offset by lower performance-based fee income, compared with the particularly high levels in 2020. Underwriting fees increased by USD 378 million to USD 1,463 million, largely driven by higher equity underwriting revenues from public offerings in the Investment Bank. M&A and corporate finance fees increased by USD 366 million to USD 1,102 million, primarily reflecting higher revenues from M&A transactions in our Global Banking business in the Investment Bank, due to an increase in the number of transactions that closed in 2021. Net brokerage fees increased by USD 265 million to USD 4,123 million, reflecting higher levels of client activity in the Cash Equities business of the Investment Bank, as well as in Global Wealth Management. › Refer to “Note 4 Net fee and commission income” in the “Consolidated financial statements” section of this report for more information Other income Other income decreased by USD 624 million to USD 452 million, mainly driven by lower gains from disposals of subsidiaries and associates, largely reflecting a USD 37 million gain from the sale of our remaining minority investment in Clearstream Fund Centre AG (previously Fondcenter AG) in 2021, compared with a gain of USD 631 million from the partial sale of Fondcenter AG (now Clearstream Fund Centre AG) in 2020. In 2021, we also recognized a gain of USD 100 million from the sale of our domestic wealth management business in Austria and income of USD 51 million related to a legacy bankruptcy claim. In the prior year, we recognized a USD 215 million gain from the sale of intellectual property rights associated with the Bloomberg Commodity Index family. › Refer to “Note 5 Other income” in the “Consolidated financial statements” section of this report for more information › Refer to “Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses” in the “Consolidated financial statements” section of this report for more information about the sale of our remaining investment in Clearstream Fund Centre AG and the sale of our domestic wealth management business in Austria Credit loss expense / release Total net credit loss releases were USD 148 million, compared with net credit loss expenses of USD 694 million in the prior year, reflecting net releases of USD 123 million related to stage 1 and 2 positions and net releases of USD 25 million related to credit- impaired (stage 3) positions. › Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about credit loss expenses / releases › Refer to the “Risk factors” section of this report for more information Credit loss (expense) / release USD million FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2200 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..1199 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions 2288 11 2299 (48) (40) ((8888)) 3 (23) ((2200)) 6622 2244 8866 (129) (128) ((225577)) 23 (44) ((2211)) 00 ((11)) ((11)) 0 (2) ((22)) 0 0 00 3344 00 3344 (88) (217) ((330055)) (4) (26) ((3300)) 00 00 00 0 (42) ((4422)) 0 (7) ((77)) Total 112233 2255 114488 (266) (429) ((669944)) 22 (100) ((7788)) 79 79 Financial and operating performanceFinancial and operating performance | Group performance Operating expenses Operating expenses increased by USD 1,823 million, or 8%, to USD 26,058 million. increased by USD 1,163 million Personnel expenses Personnel expenses to USD 18,387 million, including net restructuring expenses of USD 200 million, compared with USD 106 million in the prior year. Total restructuring expenses in 2021 are net of curtailment gains of USD 80 million, which represent a reduction in the defined benefit obligation (DBO) related to the Swiss pension plan resulting from a decrease in headcount following restructuring activities. Financial advisor compensation increased by USD 769 million to USD 4,860 million, due to an increase in compensable revenues. Salary costs increased by USD 316 million to USD 7,339 million, mainly driven by foreign currency translation effects and higher restructuring expenses. Social security expenses increased by USD 79 million to USD 978 million, broadly in line with higher salary expenses. › Refer to the “Compensation” section of this report for more information › Refer to “Note 6 Personnel expenses,” “Note 27 Post- employment benefit plans” and “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of this report for more information Operating expenses USD million Personnel expenses of which: salaries of which: variable compensation of which: relating to current year 1 of which: relating to prior years 2 of which: financial advisor compensation 3 of which: other personnel expenses 4 General and administrative expenses of which: net expenses for litigation, regulatory and similar matters of which: other general and administrative expenses General and administrative expenses General and administrative expenses increased by USD 668 million to USD 5,553 million, mainly driven by a USD 740 million (EUR 650 million) increase in litigation provisions for the French cross-border matter and USD 106 million higher IT expenses. These effects were partly offset by lower consulting fees and outsourcing costs. Net expenses for the UK and German bank levies were USD 58 million in 2021 and included a USD 16 million credit related to prior years. In 2020, net expenses for the UK and German bank levies were USD 55 million and included a USD 27 million credit related to prior years. We believe that the industry continues to operate in an environment in which expenses associated with litigation, regulatory and similar matters will remain elevated for the foreseeable future, and we continue to be exposed to a number of significant claims and regulatory matters. The outcome of many of these matters, the timing of a resolution, and the potential effects of resolutions on our future business, financial results or financial condition are extremely difficult to predict. › Refer to “Note 7 General and administrative expenses” and “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information Depreciation, amortization and impairment Depreciation, amortization and impairment of non-financial assets decreased by USD 8 million to USD 2,118 million, mainly driven by lower impairment expenses on internally generated software, a decrease in depreciation expenses related to leased properties and lower amortization of intangible assets, partly offset by higher depreciation expenses on internally generated software. › Refer to “Note 12 Property, equipment and software” and “Note 13 Goodwill and intangible assets” in the “Consolidated financial statements” section of this report for more information For the year ended 31.12.20 17,224 7,023 3,429 2,634 795 5 4,091 2,680 5 4,885 197 4,688 2,126 24,235 3311..1122..2211 1188,,338877 77,,333399 33,,441199 22,,997799 444400 44,,886600 22,,776688 55,,555533 991111 44,,664422 22,,111188 2266,,005588 31.12.19 16,084 6,518 3,001 2,352 650 4,043 2,521 5,288 165 5,122 1,940 23,312 % change from 31.12.20 7 4 0 13 (45) 19 3 14 363 (1) 0 8 Depreciation, amortization and impairment of non-financial assets TToottaall ooppeerraattiinngg eexxppeennsseess 11 Includes expenses relating to performance awards and other variable compensation for the respective performance year. 22 Consists of amortization of prior years’ awards relating to performance awards and other variable compensation. 33 Financial advisor compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 44 Consists of expenses related to contractors, social security, post-employment benefit plans, and other personnel expenses. Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information. 55 During 2020, UBS modified the conditions for continued vesting of certain outstanding deferred compensation awards for qualifying employees, resulting in an expense of approximately USD 280 million, of which USD 240 million is disclosed within Variable compensation and USD 40 million within Other personnel expenses in this table. 80 80 Operating expenses increased by USD 1,823 million, or 8%, to million to USD 5,553 million, mainly driven by a USD 740 million General and administrative expenses increased by USD 668 USD 26,058 million. Personnel expenses (EUR 650 million) increase in litigation provisions for the French cross-border matter and USD 106 million higher IT expenses. These effects were partly offset by lower consulting fees and Personnel expenses increased by USD 1,163 million to outsourcing costs. USD 18,387 million, including net restructuring expenses of Net expenses for the UK and German bank levies were USD 58 USD 200 million, compared with USD 106 million in the prior million in 2021 and included a USD 16 million credit related to year. Total restructuring expenses in 2021 are net of curtailment prior years. In 2020, net expenses for the UK and German bank gains of USD 80 million, which represent a reduction in the levies were USD 55 million and included a USD 27 million credit defined benefit obligation (DBO) related to the Swiss pension plan related to prior years. resulting from a decrease in headcount following restructuring We believe that the industry continues to operate in an Financial advisor compensation increased by USD 769 million regulatory and similar matters will remain elevated for the to USD 4,860 million, due to an increase in compensable foreseeable future, and we continue to be exposed to a number environment in which expenses associated with litigation, Salary costs increased by USD 316 million to USD 7,339 of these matters, the timing of a resolution, and the potential million, mainly driven by foreign currency translation effects and effects of resolutions on our future business, financial results or of significant claims and regulatory matters. The outcome of many activities. revenues. higher restructuring expenses. Social security expenses increased by USD 79 million to USD 978 million, broadly in line with higher salary expenses. › Refer to the “Compensation” section of this report for more information › Refer to “Note 6 Personnel expenses,” “Note 27 Post- financial condition are extremely difficult to predict. › Refer to “Note 7 General and administrative expenses” and “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information employment benefit plans” and “Note 28 Employee benefits: Depreciation, amortization and impairment variable compensation” in the “Consolidated financial statements” section of this report for more information Depreciation, amortization and impairment of non-financial assets decreased by USD 8 million to USD 2,118 million, mainly driven by lower impairment expenses on internally generated software, a decrease in depreciation expenses related to leased properties and lower amortization of intangible assets, partly offset by higher depreciation expenses on internally generated software. › Refer to “Note 12 Property, equipment and software” and “Note 13 Goodwill and intangible assets” in the “Consolidated financial statements” section of this report for more information For the year ended % change from 31.12.20 3311..1122..2211 1188,,338877 77,,333399 33,,441199 22,,997799 444400 44,,886600 22,,776688 55,,555533 991111 44,,664422 22,,111188 2266,,005588 31.12.20 17,224 7,023 3,429 2,634 795 5 4,091 2,680 5 4,885 197 4,688 2,126 31.12.19 16,084 6,518 3,001 2,352 650 4,043 2,521 5,288 165 5,122 1,940 24,235 23,312 7 4 0 13 (45) 19 3 14 363 (1) 0 8 Operating expenses USD million Personnel expenses of which: salaries of which: variable compensation of which: relating to current year 1 of which: relating to prior years 2 of which: financial advisor compensation 3 of which: other personnel expenses 4 General and administrative expenses of which: net expenses for litigation, regulatory and similar matters of which: other general and administrative expenses Depreciation, amortization and impairment of non-financial assets TToottaall ooppeerraattiinngg eexxppeennsseess Financial and operating performance | Group performance Operating expenses General and administrative expenses Tax Income tax expenses of USD 1,998 million were recognized for the Group in 2021, representing an effective tax rate of 21.1%, compared with USD 1,583 million for 2020, which represented an effective tax rate of 19.4%. The income tax expenses for 2021 included Swiss tax expenses of USD 714 million and non-Swiss tax expenses of USD 1,284 million. The Swiss tax expenses included current tax expenses of USD 680 million related to taxable profits of UBS Switzerland AG and other Swiss entities. They also included deferred tax expenses of USD 34 million, which reflect movements in temporary differences. The non-Swiss tax expenses included current tax expenses of USD 884 million related to taxable profits earned by non-Swiss subsidiaries and branches and net deferred tax expenses of USD 400 million. Expenses of USD 734 million, which primarily related to the amortization of deferred tax assets (DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences of UBS Americas Inc., were partly offset by a benefit of USD 334 million in respect of the remeasurement of DTAs. This benefit included upward revaluations of DTAs of USD 152 million for certain entities, primarily in connection with our business planning process. It also included USD 113 million in respect of additional DTA recognition that primarily related to the contribution of real estate assets by UBS AG to UBS Americas Inc. and UBS Financial Services Inc., which allowed the full recognition of DTAs in respect of the associated historic real estate costs that were previously capitalized for US tax purposes under elections that were made in the fourth quarter of 2018. In addition, it included USD 69 million in respect of an increase in the expected value of future tax deductions for deferred compensation awards, due to an increase in the Group’s share price during the year. The pre-tax expense that was recognized in the year in respect of the increase in litigation provisions for the French cross-border matter did not result in any tax benefit. Excluding any potential effects from the remeasurement of DTAs in connection with next year’s business planning process and any potential US corporate tax rate changes or other material jurisdictional statutory tax rate changes that could be enacted during the year, we expect a tax rate for 2022 of around 24%. › Refer to “Note 8 Income taxes” in the “Consolidated financial statements” section of this report for more information › Refer to the “Risk factors” section of this report for more information OCI related to cash flow hedges was negative USD 1,675 million, mainly reflecting net gains on hedging instruments that were reclassified from OCI to the income statement as the hedged forecast cash flows affected profit or loss. Foreign currency translation OCI was negative USD 535 million, mainly due to the weakening of the euro (7%), the Swiss franc (3%) and the Japanese yen (10%) against the US dollar. OCI associated with financial assets measured at fair value through OCI was negative USD 157 million, primarily reflecting net unrealized losses of USD 203 million following increases in the relevant US dollar long-term interest rates. OCI related to cost of hedging was negative USD 26 million, mainly driven by a tightening of the US dollar / euro cross-currency basis that decreased the fair value of the cross-currency swaps. Defined benefit plan OCI, net of tax, was negative USD 5 million. Total net pre-tax OCI related to the Swiss pension plan was negative USD 336 million. This was mainly driven by an extraordinary employer contribution of USD 254 million that increased the gross plan assets and a pension plan curtailment of USD 80 million that reduced the DBO against profit or loss. These effects led to an offsetting OCI loss, as no net pension asset could be recognized on the balance sheet as of 31 December 2021 due to the asset ceiling. As announced in 2018, UBS agreed to mitigate the effects from changes to the Swiss pension plan implemented in 2019 by contributing up to CHF 720 million (USD 790 million at the closing exchange rate as of 31 December 2021) in three installments in 2020, 2021 and 2022. The extraordinary contribution of USD 254 million in the first quarter of 2021 reflected the second installment paid (first installment in the first quarter of 2020: USD 235 million). Total pre-tax OCI related to our non-Swiss pension plans was positive USD 339 million, mainly driven by the UK pension plan, which recorded positive net pre-tax OCI of USD 207 million. The positive OCI in the UK plan reflected gains of USD 277 million due to a positive return on plan assets, partly offset by losses of USD 71 million from remeasurement of the DBO. The DBO remeasurement effect was mainly driven by a loss of USD 316 million due to an increase in the applicable inflation rate and a USD 59 million experience loss representing the effects of differences between the previous actuarial assumptions and what actually occurred, partly offset by a USD 319 million gain due to an increase in the applicable discount rate. OCI related to own credit on financial liabilities designated at fair value was positive USD 46 million, primarily reflecting effects from time decay. › Refer to “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for 11 Includes expenses relating to performance awards and other variable compensation for the respective performance year. 22 Consists of amortization of prior years’ awards relating to performance awards and other variable compensation. 33 Financial advisor compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 44 Consists of expenses related to contractors, social security, post-employment benefit plans, and other personnel expenses. Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information. 55 During 2020, UBS modified the conditions for continued vesting of certain outstanding deferred compensation awards for qualifying employees, resulting in an expense of approximately USD 280 million, of which USD 240 million is disclosed within Variable compensation and USD 40 million within Other personnel expenses in this table. In 2021, total comprehensive income attributable to shareholders was USD 5,106 million, reflecting net profit of USD 7,457 million and negative other comprehensive income (OCI), net of tax, of USD 2,351 million. › Refer to “Note 21 Fair value measurement” in the “Consolidated financial statements” section of this report for more information about own credit on financial liabilities designated at fair value › Refer to “Note 26 Hedge accounting” in the “Consolidated financial statements” section of this report for more information about cash flow hedges of forecast transactions › Refer to “Note 27 Post-employment benefit plans” in the “Consolidated financial statements” section of this report for more information about OCI related to defined benefit plans Total comprehensive income attributable to shareholders more information 80 81 81 Financial and operating performanceFinancial and operating performance | Group performance Sensitivity to interest rate movements As of 31 December 2021, we estimate that a parallel shift in yield curves by +100 basis points could lead to a combined increase in annual net interest income of approximately USD 1.8 billion in Global Wealth Management and Personal & Corporate Banking in the first year after such a shift. Of this increase, approximately USD 1.2 billion and USD 0.2 billion would result from changes in US dollar and Swiss franc interest rates, respectively. A parallel shift in yield curves by –100 basis points could lead to a combined decrease in annual net interest income of approximately USD 0.8 billion in Global Wealth Management and Personal & Corporate Banking in the first year after such a shift, predominantly driven by positions denominated in US dollars. These estimates are based on a hypothetical scenario of an immediate change in interest rates, equal across all currencies and relative to implied forward rates as of 31 December 2021 applied to our banking book. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action. Seasonal characteristics Our revenues may show seasonal patterns, notably in the Investment Bank and transaction-based revenues for Global Wealth Management, and typically reflect the highest client activity levels in the first quarter, with lower levels throughout the rest of the year, especially during the summer months and the end-of-year holiday season. Key figures Below we provide an overview of selected key figures of the Group. For further information about key figures related to capital management, refer to the “Capital, liquidity and funding, and balance sheet” section of this report. Cost / income ratio The cost / income ratio was 73.6%, compared with 73.3%, reflecting higher operating expenses, with a partly offsetting effect driven by an increase in operating income. The cost / income ratio is measured based on income before credit loss expenses or releases. Common equity tier 1 capital Common equity tier 1 (CET1) capital increased by USD 5.4 billion to USD 45.3 billion, mainly as a result of operating profit before tax of USD 9.5 billion, a USD 0.5 billion increase in eligible deferred tax assets on temporary differences, a USD 0.4 billion decrease in deduction of goodwill resulting from the sale of our remaining minority investment in Clearstream Fund Centre AG (previously Fondcenter AG) and an increase of USD 0.2 billion related to the launch of our new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. These effects were partly offset by dividend accruals of USD 1.7 billion, current tax expenses of USD 1.6 billion, share repurchases under our share repurchase program of USD 0.6 billion, negative foreign currency effects of USD 0.6 billion, compensation- and own share-related capital components of USD 0.4 billion, and negative effects from defined benefit plans of USD 0.2 billion. Our share repurchases in 2021 decreased CET1 capital by USD 0.6 billion, reflecting shares repurchased under our share repurchase programs of USD 2.6 billion, partly offset by the use of the capital reserve for potential share repurchases of USD 2.0 billion. The capital reserve for potential share repurchases was fully utilized during 2021. Return on CET1 capital Our return on CET1 capital (RoCET1) was 17.5%, compared with 17.4%, reflecting a USD 900 million increase in net profit attributable to shareholders, with a partly offsetting effect driven by USD 5.0 billion higher average CET1 capital. Risk-weighted assets Risk-weighted assets (RWA) increased by USD 13.1 billion to USD 302.2 billion, primarily driven by increases of USD 12.0 billion in credit and counterparty credit risk RWA, USD 1.0 billion in operational risk RWA and USD 0.9 billion in non-counterparty- related risk. These increases were partly offset by a decrease of USD 0.8 billion in market risk RWA. Common equity tier 1 capital ratio Our CET1 capital ratio increased 1.2 percentage points to 15.0%, reflecting a USD 5.4 billion increase in CET1 capital that was partly offset by the aforementioned increase in RWA. Leverage ratio denominator The leverage ratio denominator (the LRD) increased by USD 32 billion (excluding the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by the Swiss Financial Market Supervisory Authority (FINMA)) to USD 1,069 billion, driven by asset size and other movements of USD 54 billion, partly offset by a decrease due to currency effects of USD 23 billion. Common equity tier 1 leverage ratio Our CET1 leverage ratio increased to 4.24% from 3.85% (excluding the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA), as the aforementioned USD 5.4 billion increase in CET1 capital was partly offset by the aforementioned increase in the LRD. Going concern leverage ratio Our going concern leverage ratio increased to 5.7% from 5.4% (excluding the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA), as the USD 4.3 billion increase in our going concern capital was partly offset by the aforementioned increase in the LRD. Personnel The number of personnel employed as of 31 December 2021 was broadly stable at 71,385 (full-time equivalents), a net decrease of 166 compared with 31 December 2020. 82 82 As of or for the year ended 3311..1122..2211 31.12.20 31.12.19 77,,445577 6,557 4,304 6600,,666622 66,,337788 5544,,228833 99,,000033 4455,,228811 1122..66 1144..11 1177..55 59,445 6,480 52,965 13,075 39,890 11.3 12.8 17.4 54,501 6,469 48,032 12,497 35,535 7.9 9.0 12.4 Sensitivity to interest rate movements effects of USD 0.6 billion, compensation- and own share-related capital components of USD 0.4 billion, and negative effects from Return on equity and CET1 capital USD million, except where indicated Net profit Net profit attributable to shareholders Equity Equity attributable to shareholders Less: goodwill and intangible assets Tangible equity attributable to shareholders Less: other CET1 deductions CET1 capital Return on equity Return on equity (%) Return on tangible equity (%) Return on common equity tier 1 capital (%) Financial and operating performance | Group performance As of 31 December 2021, we estimate that a parallel shift in yield defined benefit plans of USD 0.2 billion. curves by +100 basis points could lead to a combined increase in Our share repurchases in 2021 decreased CET1 capital by annual net interest income of approximately USD 1.8 billion in USD 0.6 billion, reflecting shares repurchased under our share Global Wealth Management and Personal & Corporate Banking repurchase programs of USD 2.6 billion, partly offset by the use in the first year after such a shift. Of this increase, approximately of the capital reserve for potential share repurchases of USD 2.0 USD 1.2 billion and USD 0.2 billion would result from changes in billion. The capital reserve for potential share repurchases was US dollar and Swiss franc interest rates, respectively. A parallel fully utilized during 2021. shift in yield curves by –100 basis points could lead to a combined decrease in annual net interest income of approximately USD 0.8 Return on CET1 capital billion in Global Wealth Management and Personal & Corporate Our return on CET1 capital (RoCET1) was 17.5%, compared with Banking in the first year after such a shift, predominantly driven 17.4%, reflecting a USD 900 million increase in net profit by positions denominated in US dollars. attributable to shareholders, with a partly offsetting effect driven These estimates are based on a hypothetical scenario of an by USD 5.0 billion higher average CET1 capital. immediate change in interest rates, equal across all currencies and relative to implied forward rates as of 31 December 2021 applied Risk-weighted assets to our banking book. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action. Seasonal characteristics Risk-weighted assets (RWA) increased by USD 13.1 billion to USD 302.2 billion, primarily driven by increases of USD 12.0 billion in credit and counterparty credit risk RWA, USD 1.0 billion in operational risk RWA and USD 0.9 billion in non-counterparty- related risk. These increases were partly offset by a decrease of USD 0.8 billion in market risk RWA. Our revenues may show seasonal patterns, notably in the Investment Bank and transaction-based revenues for Global Common equity tier 1 capital ratio Wealth Management, and typically reflect the highest client activity levels in the first quarter, with lower levels throughout the Our CET1 capital ratio increased 1.2 percentage points to 15.0%, reflecting a USD 5.4 billion increase in CET1 capital that was partly rest of the year, especially during the summer months and the offset by the aforementioned increase in RWA. end-of-year holiday season. Key figures Leverage ratio denominator The leverage ratio denominator (the LRD) increased by USD 32 billion (excluding the temporary exemption that applied from Below we provide an overview of selected key figures of the 25 March 2020 until 1 January 2021 and was granted by the Group. For further information about key figures related to capital Swiss Financial Market Supervisory Authority (FINMA)) to management, refer to the “Capital, liquidity and funding, and USD 1,069 billion, driven by asset size and other movements of balance sheet” section of this report. USD 54 billion, partly offset by a decrease due to currency effects of USD 23 billion. Cost / income ratio The cost / income ratio was 73.6%, compared with 73.3%, Common equity tier 1 leverage ratio reflecting higher operating expenses, with a partly offsetting Our CET1 leverage ratio increased to 4.24% from 3.85% effect driven by an increase in operating income. The cost / (excluding the temporary exemption that applied from 25 March income ratio is measured based on income before credit loss 2020 until 1 January 2021 and was granted by FINMA), as the aforementioned USD 5.4 billion increase in CET1 capital was partly offset by the aforementioned increase in the LRD. expenses or releases. Common equity tier 1 capital Common equity tier 1 (CET1) capital increased by USD 5.4 billion Going concern leverage ratio to USD 45.3 billion, mainly as a result of operating profit before Our going concern leverage ratio increased to 5.7% from 5.4% tax of USD 9.5 billion, a USD 0.5 billion increase in eligible (excluding the temporary exemption that applied from 25 March deferred tax assets on temporary differences, a USD 0.4 billion 2020 until 1 January 2021 and was granted by FINMA), as the decrease in deduction of goodwill resulting from the sale of our USD 4.3 billion increase in our going concern capital was partly remaining minority investment in Clearstream Fund Centre AG offset by the aforementioned increase in the LRD. (previously Fondcenter AG) and an increase of USD 0.2 billion related to the launch of our new operational partnership entity Personnel with Sumitomo Mitsui Trust Holdings, Inc. These effects were The number of personnel employed as of 31 December 2021 was partly offset by dividend accruals of USD 1.7 billion, current tax broadly stable at 71,385 (full-time equivalents), a net decrease of expenses of USD 1.6 billion, share repurchases under our share 166 compared with 31 December 2020. repurchase program of USD 0.6 billion, negative foreign currency 82 83 83 Financial and operating performance Financial and operating performance | Global Wealth Management Global Wealth Management Global Wealth Management1 USD million, except where indicated Results Net interest income Recurring net fee income2 Transaction-based income2 Other income Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx As of or for the year ended % change from 3311..1122..2211 31.12.20 31.12.20 44,,224444 1111,,117700 33,,883366 116688 1199,,441199 2299 1199,,444499 1144,,666655 44,,778833 4,027 9,372 3,576 159 17,134 (88) 17,045 13,026 4,019 5 19 7 5 13 14 13 19 10 22 (5) Performance measures and other information Financial advisor variable compensation3,4 Compensation commitments with recruited financial advisors3,5 Pre-tax profit growth (year-on-year, %)2 Cost / income ratio (%)2 Average attributed equity (USD billion)6 Return on attributed equity (%)2,6 Risk-weighted assets (USD billion)6 Leverage ratio denominator (USD billion)6,7 Goodwill and intangible assets (USD billion) Net new fee-generating assets (USD billion)2 Fee-generating assets (USD billion)2 Fee-generating asset margin (bps)2 Net new money (USD billion)2 Invested assets (USD billion)2 Loans, gross (USD billion)8 Customer deposits (USD billion)8 Recruitment loans to financial advisors3 Other loans to financial advisors3 Impaired loan portfolio as a percentage of total loan portfolio, gross (%)2,9 (3) Advisors (full-time equivalents) 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 33 Relates to licensed professionals with the ability to provide investment advice to clients in the Americas. 44 Financial advisor variable compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, new assets and other variables. 55 Compensation commitments with recruited financial advisors represent expenses related to compensation commitments granted to financial advisors at the time of recruitment that are subject to vesting requirements. 66 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 77 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 88 Loans and Customer deposits in this table include customer brokerage receivables and payables, respectively, which are presented in a separate reporting line on the balance sheet. 99 Refer to the “Risk management and control” section of this report for more information about (credit-)impaired exposures. Excludes loans to financial advisors. 44,,338822 447799 1199..00 7755..55 1188..88 2255..44 9999..88 339999..66 55..00 110066..99 11,,448822 8822..66 111111..11 33,,330033 223344..11 336699..88 11,,883300 662233 00..22 99,,332299 3,589 502 18.3 76.0 17.1 23.6 87.2 371.2 5.1 40.8 1,277 86.2 43.3 3,016 213.1 348.0 1,872 697 0.4 9,575 10 10 6 (2) (11) 15 8 (1) 16 84 84 Financial and operating performance | Global Wealth Management Global Wealth Management BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Financial advisor variable compensation3,4 Compensation commitments with recruited financial advisors3,5 Global Wealth Management1 USD million, except where indicated Results Net interest income Recurring net fee income2 Transaction-based income2 Other income Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess Pre-tax profit growth (year-on-year, %)2 Cost / income ratio (%)2 Average attributed equity (USD billion)6 Return on attributed equity (%)2,6 Risk-weighted assets (USD billion)6 Leverage ratio denominator (USD billion)6,7 Goodwill and intangible assets (USD billion) Net new fee-generating assets (USD billion)2 Fee-generating assets (USD billion)2 Fee-generating asset margin (bps)2 Net new money (USD billion)2 Invested assets (USD billion)2 Loans, gross (USD billion)8 Customer deposits (USD billion)8 Recruitment loans to financial advisors3 Other loans to financial advisors3 As of or for the year ended % change from 3311..1122..2211 31.12.20 31.12.20 44,,338822 3,589 44,,224444 1111,,117700 33,,883366 116688 1199,,441199 2299 1199,,444499 1144,,666655 44,,778833 447799 1199..00 7755..55 1188..88 2255..44 9999..88 339999..66 55..00 110066..99 11,,448822 8822..66 111111..11 33,,330033 223344..11 336699..88 11,,883300 662233 00..22 99,,332299 4,027 9,372 3,576 159 17,134 (88) 17,045 13,026 4,019 502 18.3 76.0 17.1 23.6 87.2 371.2 5.1 40.8 1,277 86.2 43.3 3,016 213.1 348.0 1,872 697 0.4 9,575 19 5 7 5 13 14 13 19 22 (5) 10 15 8 (1) 16 10 10 6 (2) (11) (3) Impaired loan portfolio as a percentage of total loan portfolio, gross (%)2,9 Advisors (full-time equivalents) 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 33 Relates to licensed professionals with the ability to provide investment advice to clients in the Americas. 44 Financial advisor variable compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, new assets and other variables. 55 Compensation commitments with recruited financial advisors represent expenses related to compensation commitments granted to financial advisors at the time of recruitment that are subject to vesting requirements. 66 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 77 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 88 Loans and Customer deposits in this table include customer brokerage receivables and payables, respectively, which are presented in a separate reporting line on the balance sheet. 99 Refer to the “Risk management and control” section of this report for more information about (credit-)impaired exposures. Excludes loans to financial advisors. 2021 compared with 2020 Results Profit before tax increased by USD 764 million, or 19%, to USD 4,783 million, driven by higher operating income, partly offset by higher operating expenses, which included a USD 657 million increase in litigation provisions for the French cross-border matter. Operating income Total operating income increased by USD 2,404 million, or 14%, to USD 19,449 million, driven by increases across all operating income lines. Net income interest increased by USD 217 million to USD 4,244 million, mostly reflecting growth in loan revenues from higher volumes and margins, partly offset by lower deposit revenues, mainly due to lower US dollar interest rates and despite higher deposit volumes. Recurring net fee income increased by USD 1,798 million to USD 11,170 million, primarily driven by higher average fee- generating assets, reflecting positive market performance and net new fee-generating assets. Transaction-based income increased by USD 260 million to USD 3,836 million, reflecting higher levels of client activity in the Americas, EMEA and Switzerland. Other income increased by USD 9 million to USD 168 million, primarily driven by a gain of USD 100 million related to the sale of our domestic wealth management business in Austria to LGT. 2020 included a gain of USD 60 million from the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG). Net credit loss releases were USD 29 million, compared with net expenses of USD 88 million. Stage 1 and 2 credit loss releases were USD 28 million, largely resulting from a partial release of a post-model adjustment of USD 12 million during the year, as well as model updates. Stage 3 net credit loss releases were USD 1 million. Operating expenses Total operating expenses increased by USD 1,639 million to USD 14,665 million. This was mainly driven by an increase in financial advisor variable compensation, reflecting higher compensable revenues, and by the aforementioned USD 657 million increase in litigation provisions for the French cross-border matter. Pre-tax profit growth Pre-tax profit growth in 2021 was 19.0%, compared with 18.3% in 2020. Our target range is 10–15% over the cycle. Cost / income ratio The cost / income ratio decreased to 75.5% from 76.0%, reflecting positive operating leverage. Fee-generating assets Fee-generating assets increased by USD 205 billion, or 16%, to USD 1,482 billion, predominantly driven by net new fee- generating assets of USD 106.9 billion, with inflows across all regions, and net positive market performance and foreign currency effects of USD 98.0 billion. Loans Loans increased by USD 21.0 billion, or 10%, to USD 234.1 billion, primarily driven by net new loans of USD 25.1 billion, partly offset by USD 3.0 billion from negative foreign exchange effects and USD 1.1 billion from the reclassification of loans to disposal groups held for sale in connection with the upcoming sales of our domestic wealth management business in Spain and UBS Swiss Financial Advisers AG. Net new loans were largely driven by an increase in Lombard loans and mortgages. Loan penetration was stable at 7.1% in 2021. › Refer to the “Risk management and control” section of this report for more information 84 85 85 Financial and operating performanceFinancial and operating performance | Global Wealth Management Regional breakdown of performance measures As of or for the year ended 31.12.21 USD billion, except where indicated Total operating income (USD million) Total operating expenses (USD million) Operating profit / (loss) before tax (USD million) Cost / income ratio (%)4 Loans, gross Net new loans Loan penetration (%)4,6 Fee-generating assets4 Net new fee-generating assets4 Invested assets4 Net new money4 Advisors (full-time equivalents) Americas1 1100,,667722 88,,667711 22,,000011 8811..44 9922..005 1199..66 55..00 990000 6644..33 11,,884422 6600..33 66,,221188 Switzerland 11,,990066 11,,115566 775500 6600..88 4433..22 22..33 1155..33 113300 1100..66 228833 00..77 668855 EMEA2 33,,995533 33,,114411 881122 7799..66 4499..66 33..88 77..66 333344 1188..88 665544 2244..55 11,,449944 Asia Pacific 22,,990011 11,,666644 11,,223377 5577..44 4488..66 ((00..55)) 99..33 111166 1133..77 552211 2266..44 885522 Global Wealth Management3 1199,,444499 1144,,666655 44,,778833 7755..55 223344..11 2255..11 77..11 11,,448822 110066..99 33,,330033 111111..11 99,,332299 11 Including the following business units: United States and Canada; and Latin America. 22 Including the following business units: Europe; Central & Eastern Europe, Greece and Israel; and Middle East and Africa. 33 Including minor functions, which are not included in the four regions individually presented in this table, with USD 16 million of total operating income, USD 34 million of total operating expenses, USD 17 million of operating loss before tax, USD 0.6 billion of loans, USD 0.0 billion of net new loan outflows, USD 1 billion of fee-generating assets, USD 0.5 billion of net new fee-generating asset outflows, USD 3 billion of invested assets, USD 0.8 billion of net new money outflows and 80 advisors in 2021. 44 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 55 Loans include customer brokerage receivables, which are presented in a separate reporting line on the balance sheet. 66 Loans, gross as a percentage of invested assets. Regional comments: 2021 compared with 2020 Americas Profit before tax increased by USD 641 million to USD 2,001 million. Operating income increased by USD 1,645 million to USD 10,672 million, driven by higher recurring net fee, net interest and transaction-based income. The cost / income ratio decreased to 81.4% from 84.4%. Loans increased 27% to USD 92 billion, reflecting USD 19.6 billion of net new loans. Fee- generating assets increased 19% to USD 900 billion, mainly driven by positive market performance and net new fee- generating assets of USD 64.3 billion. Switzerland Profit before tax increased by USD 108 million to USD 750 million. This included an USD 85 million increase in litigation provisions for the French cross-border matter. Operating income increased by USD 206 million to USD 1,906 million, mainly driven by higher recurring net fee, net interest and transaction-based income. The cost / income ratio decreased to 60.8% from 61.7%. Loans increased 3% to USD 43 billion, driven by net new loans of USD 2.3 billion, partly offset by negative foreign currency effects. Fee-generating assets increased 17% to USD 130 billion, mainly driven by net new fee-generating assets of USD 10.6 billion and net positive market performance and foreign currency effects. EMEA Profit before tax decreased by USD 145 million to USD 812 million, driven by a USD 572 million increase in litigation provisions for the French cross-border matter. Operating income increased by USD 397 million to USD 3,953 million, due to higher recurring net fee income and other income, which was driven by the aforementioned gain from the sale of our domestic wealth management business in Austria, as well as higher transaction- based income. The cost / income ratio increased to 79.6% from 72.7%. Loans increased 3% to USD 50 billion, mainly reflecting USD 3.8 billion of net new loans, partly offset by negative foreign currency effects and the aforementioned reclassification of USD 0.7 billion of loans to disposal groups held for sale. Fee- generating assets increased 9% to USD 334 billion, mainly driven by net new fee-generating assets of USD 18.8 billion and net positive market performance and foreign currency effects. Asia Pacific Profit before tax increased by USD 176 million to USD 1,237 million. Operating income increased by USD 166 million to USD 2,901 million, mostly driven by recurring net fee and net interest income. The cost / income ratio decreased to 57.4% from 61.2%. Loans decreased 2% to USD 49 billion, driven by negative foreign currency effects and net new loan outflows of USD 0.5 billion, as clients reduced their debts in light of market uncertainty. Fee-generating assets increased 13% to USD 116 billion, mainly driven by net new fee-generating assets of USD 13.7 billion. 86 86 Financial and operating performance | Global Wealth Management Regional breakdown of performance measures As of or for the year ended 31.12.21 USD billion, except where indicated Total operating income (USD million) Total operating expenses (USD million) Operating profit / (loss) before tax (USD million) Cost / income ratio (%)4 Loans, gross Net new loans Loan penetration (%)4,6 Fee-generating assets4 Net new fee-generating assets4 Invested assets4 Net new money4 Advisors (full-time equivalents) Americas1 1100,,667722 Switzerland 11,,990066 11,,115566 Asia Pacific Global Wealth Management3 1199,,444499 1144,,666655 88,,667711 22,,000011 8811..44 9922..005 1199..66 55..00 990000 6644..33 11,,884422 6600..33 66,,221188 775500 6600..88 4433..22 22..33 1155..33 113300 1100..66 228833 00..77 668855 EMEA2 33,,995533 33,,114411 881122 7799..66 4499..66 33..88 77..66 333344 1188..88 665544 2244..55 11,,449944 22,,990011 11,,666644 11,,223377 5577..44 4488..66 ((00..55)) 99..33 111166 1133..77 552211 2266..44 885522 44,,778833 7755..55 223344..11 2255..11 77..11 11,,448822 110066..99 33,,330033 111111..11 99,,332299 11 Including the following business units: United States and Canada; and Latin America. 22 Including the following business units: Europe; Central & Eastern Europe, Greece and Israel; and Middle East and Africa. 33 Including minor functions, which are not included in the four regions individually presented in this table, with USD 16 million of total operating income, USD 34 million of total operating expenses, USD 17 million of operating loss before tax, USD 0.6 billion of loans, USD 0.0 billion of net new loan outflows, USD 1 billion of fee-generating assets, USD 0.5 billion of net new fee-generating asset outflows, USD 3 billion of invested assets, USD 0.8 billion of net new money outflows and 80 advisors in 2021. 44 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 55 Loans include customer brokerage receivables, which are presented in a separate reporting line on the balance sheet. 66 Loans, gross as a percentage of invested assets. Regional comments: 2021 compared with 2020 EMEA Americas Profit before tax decreased by USD 145 million to USD 812 million, driven by a USD 572 million increase in litigation Profit before tax increased by USD 641 million to USD 2,001 provisions for the French cross-border matter. Operating income million. Operating income increased by USD 1,645 million to increased by USD 397 million to USD 3,953 million, due to higher USD 10,672 million, driven by higher recurring net fee, net recurring net fee income and other income, which was driven by interest and transaction-based income. The cost / income ratio the aforementioned gain from the sale of our domestic wealth decreased to 81.4% from 84.4%. Loans increased 27% to management business in Austria, as well as higher transaction- USD 92 billion, reflecting USD 19.6 billion of net new loans. Fee- based income. The cost / income ratio increased to 79.6% from generating assets increased 19% to USD 900 billion, mainly 72.7%. Loans increased 3% to USD 50 billion, mainly reflecting driven by positive market performance and net new fee- USD 3.8 billion of net new loans, partly offset by negative foreign generating assets of USD 64.3 billion. Switzerland currency effects and the aforementioned reclassification of USD 0.7 billion of loans to disposal groups held for sale. Fee- generating assets increased 9% to USD 334 billion, mainly driven This included an USD 85 million increase in litigation provisions positive market performance and foreign currency effects. for the French cross-border matter. Operating income increased by USD 206 million to USD 1,906 million, mainly driven by higher Asia Pacific recurring net fee, net interest and transaction-based income. The Profit before tax increased by USD 176 million to USD 1,237 cost / income ratio decreased to 60.8% from 61.7%. Loans million. Operating income increased by USD 166 million to increased 3% to USD 43 billion, driven by net new loans of USD 2,901 million, mostly driven by recurring net fee and net USD 2.3 billion, partly offset by negative foreign currency effects. interest income. The cost / income ratio decreased to 57.4% from Fee-generating assets increased 17% to USD 130 billion, mainly 61.2%. Loans decreased 2% to USD 49 billion, driven by negative driven by net new fee-generating assets of USD 10.6 billion and foreign currency effects and net new loan outflows of USD 0.5 net positive market performance and foreign currency effects. billion, as clients reduced their debts in light of market uncertainty. Fee-generating assets increased 13% to USD 116 billion, mainly driven by net new fee-generating assets of USD 13.7 billion. Personal & Corporate Banking Personal & Corporate Banking – in Swiss francs1 CHF million, except where indicated Results Net interest income Recurring net fee income2 Transaction-based income2 Other income Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Average attributed equity (CHF billion)3 Return on attributed equity (%)2,3 Pre-tax profit growth (%) (year-on-year, %)2 Cost / income ratio (%)2 Net interest margin (bps)2 Risk-weighted assets (CHF billion)3 Leverage ratio denominator (CHF billion)3,4 Business volume for Personal Banking (CHF billion)2 Net new business volume for Personal Banking (CHF billion)2 Net new business volume growth for Personal Banking (%)2 Active Digital Banking clients in Personal Banking (%)2,5 Active Digital Banking clients in Corporate & Institutional Clients (%)2 Mobile Banking log-in share in Personal Banking (%)2 Client assets (CHF billion)2 As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 11,,994411 777744 11,,007799 111100 33,,990044 7799 33,,998844 22,,339977 11,,558877 88..44 1199..00 3355..11 6611..44 114400 6666..77 222211..77 118844 55..33 33..00 7700..33 7799..33 7733..55 775511 1,916 676 985 74 3,650 (243) 3,407 2,233 1,175 8.3 14.1 (18.0) 61.2 142 63.8 219.9 179 11.6 6.9 66.1 77.9 68.0 702 1 15 10 49 7 17 7 35 1 4 1 3 7 2 Profit before tax increased by USD 108 million to USD 750 million. by net new fee-generating assets of USD 18.8 billion and net Loans, gross (CHF billion) 113399..33 136.4 Customer deposits (CHF billion) Secured loan portfolio as a percentage of total loan portfolio, gross (%)2 Impaired loan portfolio as a percentage of total loan portfolio, gross (%)2,6 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 33 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 44 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 55 In 2021, 86.4% of clients of Personal Banking were “activated users” of Digital Banking (i.e., clients who had logged into Digital Banking at least once in the course of their relationship with UBS). 66 Refer to the “Risk management and control” section of this report for more information about (credit-)impaired exposures. 116622..11 161.1 92.9 9922..77 1.1 00..99 1 86 87 87 Financial and operating performance Financial and operating performance | Personal & Corporate Banking 2021 compared with 2020 Results Profit before tax increased by CHF 412 million, or 35%, to CHF 1,587 million, reflecting higher operating income, partly offset by higher operating expenses. Operating income Total operating income increased by CHF 577 million, or 17%, to CHF 3,984 million, reflecting net credit loss releases, compared with net credit loss expenses in the prior year, as well as increases across all income lines. Net interest income increased by CHF 25 million to CHF 1,941 million, mainly driven by proactive deposit management. Recurring net fee income increased by CHF 98 million to CHF 774 million, primarily driven by higher custody, mandate and investment fund fees, resulting from an increase in average custody assets, reflecting net new investment product inflows and positive market performance. Transaction-based income increased by CHF 94 million to CHF 1,079 million, largely driven by higher revenues from credit card and foreign exchange transactions, reflecting a continued increase in spending on travel and leisure by clients following the easing of COVID-19-related restrictions in certain countries relative to 2020. The third quarter of 2020 included a CHF 17 million gain related to the sale of an equity investment. Other income increased by CHF 36 million to CHF 110 million, mostly driven by a gain of CHF 26 million from the sale of several small properties in the second quarter of 2021. Net credit loss releases were CHF 79 million, compared with net expenses of CHF 243 million. Stage 1 and 2 credit loss releases were CHF 57 million, largely resulting from a partial release of a post-model adjustment during the year, as well as model updates. Prior-year stage 1 and 2 net credit loss expenses were CHF 123 million, which mainly reflected expenses for selected exposures to large Swiss corporate clients, small and medium-sized entities, financial intermediaries, and, to a lesser extent, real estate. These modeled expected losses were predominantly driven by the update to the forward-looking scenarios and their associated weightings, factoring in updated macroeconomic assumptions to reflect the effects of the COVID-19 pandemic. Stage 3 net releases were CHF 23 million, compared with net expenses of CHF 120 million, which included expenses of CHF 54 million related to a case of fraud at a commodity trade finance counterparty. Operating expenses Total operating expenses increased by CHF 164 million, or 7%, to CHF 2,397 million, mostly driven by a CHF 76 million (USD 83 million) increase in litigation provisions for the French cross-border matter, as well as higher investments in technology and higher variable compensation. Cost / income ratio The cost / income ratio slightly increased to 61.4% from 61.2%, reflecting higher operating expenses, partly offset by higher income. 88 88 Financial and operating performance | Personal & Corporate Banking 2021 compared with 2020 Results Net credit loss releases were CHF 79 million, compared with net expenses of CHF 243 million. Stage 1 and 2 credit loss releases were CHF 57 million, largely resulting from a partial release of a post-model adjustment during the year, as well as model updates. Profit before tax increased by CHF 412 million, or 35%, to Prior-year stage 1 and 2 net credit loss expenses were CHF 123 CHF 1,587 million, reflecting higher operating income, partly million, which mainly reflected expenses for selected exposures to offset by higher operating expenses. Operating income large Swiss corporate clients, small and medium-sized entities, financial intermediaries, and, to a lesser extent, real estate. These modeled expected losses were predominantly driven by the Total operating income increased by CHF 577 million, or 17%, to update to the forward-looking scenarios and their associated CHF 3,984 million, reflecting net credit loss releases, compared weightings, factoring in updated macroeconomic assumptions to with net credit loss expenses in the prior year, as well as increases reflect the effects of the COVID-19 pandemic. Stage 3 net across all income lines. releases were CHF 23 million, compared with net expenses of Net interest income increased by CHF 25 million to CHF 1,941 CHF 120 million, which included expenses of CHF 54 million million, mainly driven by proactive deposit management. related to a case of fraud at a commodity trade finance Recurring net fee income increased by CHF 98 million to counterparty. CHF 774 million, primarily driven by higher custody, mandate and investment fund fees, resulting from an increase in average Operating expenses custody assets, reflecting net new investment product inflows and Total operating expenses increased by CHF 164 million, or 7%, to positive market performance. CHF 2,397 million, mostly driven by a CHF 76 million (USD 83 Transaction-based income increased by CHF 94 million to million) increase in litigation provisions for the French cross-border CHF 1,079 million, largely driven by higher revenues from credit matter, as well as higher investments in technology and higher card and foreign exchange transactions, reflecting a continued variable compensation. increase in spending on travel and leisure by clients following the easing of COVID-19-related restrictions in certain countries Cost / income ratio relative to 2020. The third quarter of 2020 included a CHF 17 The cost / income ratio slightly increased to 61.4% from 61.2%, million gain related to the sale of an equity investment. reflecting higher operating expenses, partly offset by higher Other income increased by CHF 36 million to CHF 110 million, income. mostly driven by a gain of CHF 26 million from the sale of several small properties in the second quarter of 2021. Personal & Corporate Banking – in US dollars1 USD million, except where indicated Results Net interest income Recurring net fee income2 Transaction-based income2 Other income Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Average attributed equity (USD billion)3 Return on attributed equity (%)2,3 Pre-tax profit growth (%) (year-on-year, %)2 Cost / income ratio (%)2 Net interest margin (bps)2 Risk-weighted assets (USD billion)3 Leverage ratio denominator (USD billion)3,4 Business volume for Personal Banking (USD billion)2 Net new business volume for Personal Banking (USD billion)2 Net new business volume growth for Personal Banking (%)2 Active Digital Banking clients in Personal Banking (%)2,5 Active Digital Banking clients in Corporate & Institutional Clients (%)2 Mobile Banking log-in share in Personal Banking (%)2 Client assets (USD billion)2 Loans, gross (USD billion) As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 22,,112200 884466 11,,117788 111199 44,,226633 8866 44,,334499 22,,661188 11,,773311 99..22 1188..99 3377..55 6611..44 114422 7733..22 224433..22 220022 55..88 22..99 7700..33 7799..33 7733..55 882244 2,049 725 1,054 79 3,908 (257) 3,651 2,392 1,259 8.9 14.2 (12.6) 61.2 143 72.1 248.3 202 12.3 7.1 66.1 77.9 68.0 793 115522..88 154.0 3 17 12 50 9 19 9 37 3 1 (2) 0 4 (1) Customer deposits (USD billion) Secured loan portfolio as a percentage of total loan portfolio, gross (%)2 Impaired loan portfolio as a percentage of total loan portfolio, gross (%)2,6 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 33 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 44 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 55 In 2021, 86.4% of clients of Personal Banking were “activated users” of Digital Banking (i.e., clients who had logged into Digital Banking at least once in the course of their relationship with UBS). 66 Refer to the “Risk management and control” section of this report for more information about (credit-)impaired exposures. 117777..88 181.9 9922..77 92.9 1.1 00..99 (2) 88 89 89 Financial and operating performance Financial and operating performance | Asset Management Asset Management Asset Management1 USD million, except where indicated Results Net management fees2 Performance fees Net gain from disposal of an associate / a subsidiary Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Average attributed equity (USD billion)3 Return on attributed equity (%)3,4 Pre-tax profit growth (year-on-year, %)4 Cost / income ratio (%)4 Risk-weighted assets (USD billion)3 Leverage ratio denominator (USD billion)3,5 Goodwill and intangible assets (USD billion) Net margin on invested assets (bps)4 Gross margin on invested assets (bps)4 Information by business line / asset class NNeett nneeww mmoonneeyy ((UUSSDD bbiilllliioonn))44 Equities Fixed Income of which: money market Multi-asset & Solutions Hedge Fund Businesses Real Estate & Private Markets TToottaall nneett nneeww mmoonneeyy of which: net new money excluding money market IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Equities Fixed Income of which: money market Multi-asset & Solutions Hedge Fund Businesses Real Estate & Private Markets TToottaall iinnvveesstteedd aasssseettss of which: passive strategies Information by region IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Americas Asia Pacific Europe, Middle East and Africa (excluding Switzerland) Switzerland TToottaall iinnvveesstteedd aasssseettss As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 22,,332200 226600 3377 ((11)) 22,,661166 11,,558866 11,,003300 22..00 5511..88 ((2299..22)) 6600..66 66..99 22..99 11..22 99 2233 1100..33 2222..77 ((33..11)) 66..88 55..77 ((00..66)) 4444..99 4488..00 558800 228855 9922 119933 5555 9988 11,,221111 554400 228877 119900 333344 339999 11,,221111 1,950 455 571 (2) 2,974 1,519 1,455 2.0 74.2 173.6 51.0 6.9 5.8 1.2 16 32 65.1 7.3 (7.4) 6.6 (1.1) 2.3 80.1 87.5 506 274 97 172 48 93 1,092 457 254 181 294 363 1,092 19 (43) (93) (12) 4 (29) 1 (1) (51) (2) (42) (29) 15 4 (5) 12 15 5 11 18 13 5 14 10 11 Information by channel IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Third-party institutional Third-party wholesale UBS’s wealth management businesses TToottaall iinnvveesstteedd aasssseettss 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and foreign exchange hedging as part of the fund services offering), distribution fees, incremental fund-related expenses, gains or losses from seed money and co-investments, funding costs, the negative pass-through impact of third-party performance fees, and other items that are not Asset Management’s performance fees. 33 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 44 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 55 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 648 128 316 1,092 770077 114455 335599 11,,221111 9 13 13 11 90 90 Financial and operating performance | Asset Management Asset Management Asset Management1 USD million, except where indicated Results Net management fees2 Performance fees Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess Net gain from disposal of an associate / a subsidiary BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Average attributed equity (USD billion)3 Return on attributed equity (%)3,4 Pre-tax profit growth (year-on-year, %)4 Cost / income ratio (%)4 Risk-weighted assets (USD billion)3 Leverage ratio denominator (USD billion)3,5 Goodwill and intangible assets (USD billion) Net margin on invested assets (bps)4 Gross margin on invested assets (bps)4 Information by business line / asset class NNeett nneeww mmoonneeyy ((UUSSDD bbiilllliioonn))44 of which: net new money excluding money market Equities Fixed Income of which: money market Multi-asset & Solutions Hedge Fund Businesses Real Estate & Private Markets TToottaall nneett nneeww mmoonneeyy IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Equities Fixed Income of which: money market Multi-asset & Solutions Hedge Fund Businesses Real Estate & Private Markets TToottaall iinnvveesstteedd aasssseettss of which: passive strategies Information by region IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Americas Asia Pacific Switzerland TToottaall iinnvveesstteedd aasssseettss Information by channel IInnvveesstteedd aasssseettss ((UUSSDD bbiilllliioonn))44 Third-party institutional Third-party wholesale UBS’s wealth management businesses TToottaall iinnvveesstteedd aasssseettss Europe, Middle East and Africa (excluding Switzerland) As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 22,,332200 226600 3377 ((11)) 22,,661166 11,,558866 11,,003300 22..00 5511..88 ((2299..22)) 6600..66 66..99 22..99 11..22 99 2233 1100..33 2222..77 ((33..11)) 66..88 55..77 ((00..66)) 4444..99 4488..00 558800 228855 9922 119933 5555 9988 11,,221111 554400 228877 119900 333344 339999 11,,221111 770077 114455 335599 11,,221111 1,950 455 571 (2) 2,974 1,519 1,455 2.0 74.2 173.6 51.0 6.9 5.8 1.2 16 32 65.1 7.3 (7.4) 6.6 (1.1) 2.3 80.1 87.5 506 274 97 172 48 93 1,092 457 254 181 294 363 1,092 648 128 316 1,092 19 (43) (93) (12) 4 (29) 1 (1) (51) (2) (42) (29) (5) 15 4 12 15 5 11 18 13 5 14 10 11 9 13 13 11 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and foreign exchange hedging as part of the fund services offering), distribution fees, incremental fund-related expenses, gains or losses from seed money and co-investments, funding costs, the negative pass-through impact of third-party performance fees, and other items that are not Asset Management’s performance fees. 33 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 44 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 55 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 2021 compared with 2020 Results Profit before tax decreased by USD 425 million, or 29%, to USD 1,030 million. This reflected a gain of USD 571 million from the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG) in the third quarter of 2020 and a gain of USD 37 million related to the sale of our remaining minority investment in Clearstream Fund Centre AG (previously Fondcenter AG) to Deutsche Börse AG in the second quarter of 2021. Excluding these gains, profit before tax increased by USD 109 million, or 12%, to USD 993 million, reflecting positive operating leverage. › Refer to “Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses” in the “Consolidated financial statements” section of this report for more information about the aforementioned sales Operating income Total operating income decreased by USD 358 million, or 12%, to USD 2,616 million. Excluding the aforementioned gains from sales, total operating income increased by USD 176 million, or 7%. Net management fees increased by USD 370 million, or 19%, to USD 2,320 million on a higher average invested asset base, reflecting a combination of a constructive market backdrop and strong net new money generation. Performance fees decreased by USD 195 million to USD 260 million, mainly in our Hedge Fund Businesses and our Equities levels of business, compared with the particularly high performance fees in 2020. Operating expenses Total operating expenses increased by USD 67 million, or 4%, to USD 1,586 million, mainly driven by higher personnel expenses and foreign currency effects, partly offset by lower general and administrative expenses. Cost / income ratio The cost / income ratio was 60.6%, compared with 51.0% in 2020. Excluding the aforementioned gains from sales, the cost / income ratio was 61.5%, compared with 63.2% in 2020. Invested assets Invested assets increased to USD 1,211 billion from USD 1,092 billion, reflecting positive market performance of USD 102 billion and net new money inflows of USD 45 billion, partly offset by negative foreign currency effects of USD 28 billion. Excluding money market flows, net new money was USD 48 billion. Investment performance 2021 saw risk assets perform strongly and subdued market volatility. Expansive monetary policy supported a continued, broad economic recovery across the globe. Shortages in supplies to meet heightened global demand led to higher energy prices and strong inflation over the year, and central banks, led by the US Federal Reserve, started to reconsider their future monetary policy. As of year-end 2021, Morningstar assigned a four- or five-star rating to 64% of our retail and institutional funds (both actively managed and passive), on an assets under management (AuM)- weighted basis. Furthermore, 55% of our actively managed open- ended retail funds and actively managed institutional AuM (which account in total for 44% of our relevant AuM) are ranked, on an AuM-weighted basis over a three-year investment period, above their respective peer median. Investment performance as of 31 December 2021 In % % of UBS Asset Management fund assets rated as 4- or 5-star1,2 Total traditional investments 64 Equities 66 Fixed income 65 Multi-asset 49 % of UBS Asset Management above peer median over a 3-year investment period2,3 65 11 Percentage of AuM to which Morningstar has assigned a four- or five-star rating. AuM reflect the AuM of Asset Management’s retail and institutional funds (both actively managed and passive) across all domiciles for which Asset Management owns the investment performance, i.e., Asset Management is either the sole portfolio manager or co-portfolio manager. Source: Morningstar (Morningstar® Essentials Quantitative Star Rating & Rankings; © 2022 Morningstar). Universe is approximately 31% of all active and passive traditional assets of Asset Management (Equities, Fixed Income excluding money market, and Multi-asset) as of 31 December 2021. 22 Morningstar® Essentials Quantitative Star Rating & Rankings; © 2022 Morningstar. All Rights Reserved. The information contained herein: (i) is proprietary to Morningstar and / or its content providers; (ii) may not be copied or distributed; and (iii) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of to: https://s21.q4cdn.com/198919461/files/doc_downloads/othe_disclosure_materials/MorningstarRatingforFunds.pdf. 33 Percentage of AuM above peer median over a three-year investment period. AuM reflect the AuM of Asset Management’s actively managed open-ended retail funds across all domiciles and actively managed institutional AuM for which Asset Management owns the investment performance, i.e., Asset Management is either the sole portfolio manager or co-portfolio manager. Source: Morningstar (Morningstar® Essentials Quantitative Star Rating & Rankings; © 2022 Morningstar) extract date 11 January 2022, eVestment extract date 4 February 2022, KGAST extract date 4 February 2022. Universe is approximately 44% of all active traditional assets of Asset Management (Equities, Fixed Income excluding money market, and Multi-asset) as of 31 December 2021. information. Past performance results. For more detailed the Morningstar Rating, is no guarantee of information about its methodology, including future refer this 55 48 61 90 91 91 Financial and operating performance Financial and operating performance | Investment Bank Investment Bank Investment Bank1 USD million, except where indicated Results Advisory Capital Markets GGlloobbaall BBaannkkiinngg Execution Services2 Derivatives & Solutions Financing GGlloobbaall MMaarrkkeettss of which: Equities of which: Foreign Exchange, Rates and Credit Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 998888 22,,117700 33,,115588 11,,889944 33,,442222 997799 66,,229966 44,,558811 11,,771155 99,,445544 3344 99,,448888 66,,885588 22,,663300 634 1,744 2,378 1,857 3,609 1,674 7,141 4,502 2,638 9,519 (305) 9,214 6,732 2,482 56 24 33 2 (5) (42) (12) 2 (35) (1) 3 2 6 Performance measures and other information Pre-tax profit growth (year-on-year, %)3 Average attributed equity (USD billion)4 Return on attributed equity (%)3,4 Cost / income ratio (%)3 Risk-weighted assets (USD billion)4 Return on risk-weighted assets, gross (%)3 Leverage ratio denominator (USD billion)4,5 Return on leverage ratio denominator, gross (%)3,5 Goodwill and intangible assets (USD billion) (14) (9) Average VaR (1-day, 95% confidence, 5 years of historical data) 11 Comparative figures in this table may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Execution & Platform, which was disclosed in previous periods, has been renamed Execution Services. 33 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 44 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 55 The leverage ratio denominators calculated as of the respective dates in 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 55..99 1133..00 2200..33 7722..55 9922..22 1100..00 331199..22 22..99 00..11 1111 216.6 12.6 19.7 70.7 94.3 10.0 315.5 3.1 0.2 12 (2) 3 1 92 92 Financial and operating performance | Investment Bank Investment Bank Investment Bank1 USD million, except where indicated Results Advisory Capital Markets GGlloobbaall BBaannkkiinngg Execution Services2 Derivatives & Solutions Financing GGlloobbaall MMaarrkkeettss of which: Equities of which: Foreign Exchange, Rates and Credit Income Credit loss (expense) / release TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Performance measures and other information Pre-tax profit growth (year-on-year, %)3 Average attributed equity (USD billion)4 Return on attributed equity (%)3,4 Cost / income ratio (%)3 Risk-weighted assets (USD billion)4 Return on risk-weighted assets, gross (%)3 Leverage ratio denominator (USD billion)4,5 Return on leverage ratio denominator, gross (%)3,5 Goodwill and intangible assets (USD billion) Average VaR (1-day, 95% confidence, 5 years of historical data) As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 998888 22,,117700 33,,115588 11,,889944 33,,442222 997799 66,,229966 44,,558811 11,,771155 99,,445544 3344 99,,448888 66,,885588 22,,663300 55..99 1133..00 2200..33 7722..55 9922..22 1100..00 331199..22 22..99 00..11 1111 634 1,744 2,378 1,857 3,609 1,674 7,141 4,502 2,638 9,519 (305) 9,214 6,732 2,482 216.6 12.6 19.7 70.7 94.3 10.0 315.5 3.1 0.2 12 56 24 33 2 (5) (42) (12) 2 (35) (1) 3 2 6 3 (2) 1 (14) (9) 11 Comparative figures in this table may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Execution & Platform, which was disclosed in previous periods, has been renamed Execution Services. 33 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 44 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 55 The leverage ratio denominators calculated as of the respective dates in 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 2021 compared with 2020 Results Global Markets Equities revenues increased by USD 79 million, or 2%, to USD 4,581 million. Equity derivatives and cash equities products revenues increased, while Financing revenues included the aforementioned loss in our prime brokerage business. Profit before tax increased by USD 148 million, or 6%, to USD 2,630 million, driven by higher operating income, partly offset by higher operating expenses. Global Markets Foreign Exchange, Rates and Credit revenues decreased by USD 923 million, or 35%, to USD 1,715 million, compared with strong revenues in 2020. Credit loss expense / release Net credit loss releases were USD 34 million, primarily related to stage 1 and 2 positions, resulting from model updates, as well as a partial net release of a post-model adjustment during the year. Prior-year net credit loss expenses were USD 305 million, driven by the effects of the COVID-19 pandemic. Operating expenses Total operating expenses increased by USD 126 million, or 2%, to USD 6,858 million, largely driven by foreign currency effects. Cost / income ratio The cost / income ratio increased to 72.5% from 70.7%, as income decreased by 1% compared with a strong prior year, and operating expenses increased by 2%. Risk-weighted assets Risk-weighted assets (RWA) decreased by USD 2 billion, or 2%, to USD 92 billion, primarily due to a USD 3 billion decrease in operational risk RWA and a USD 1 billion decrease in market risk RWA, partly offset by a USD 2 billion increase in credit risk RWA due to higher loans and loan commitments. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information Leverage ratio denominator The leverage ratio denominator increased by USD 4 billion, or 1%, to USD 319 billion, mainly reflecting a USD 9 billion increase in on-balance sheet exposures, partly offset by a USD 4 billion decrease in derivative and securities financing transaction exposures. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information Operating income Total operating income increased by USD 274 million, or 3%, to USD 9,488 million, reflecting higher revenues in Global Banking and net credit loss releases compared with net credit loss expenses in 2020, partly offset by lower revenues in Global Markets. Global Banking Global Banking revenues increased by USD 780 million, or 33%, to USD 3,158 million, driven by Capital Markets and Advisory revenues, and compared with an overall global fee pool increase of 39%. Advisory revenues increased by USD 354 million, or 56%, to USD 988 million, largely due to higher revenues from an increased number of merger and acquisition transactions that closed in 2021, and compared with a 64% increase in the global fee pool. Capital Markets revenues increased by USD 426 million, or 24%, to USD 2,170 million, mainly reflecting a USD 358 million, or 52%, increase in Equity Capital Markets (ECM) revenues, compared with an increase in the global ECM fee pool of 34%. Global Markets Global Markets revenues decreased by USD 845 million, or 12%, to USD 6,296 million, driven by lower revenues in our Financing and Derivatives & Solutions businesses, partly offset by higher revenues in Execution Services. Execution Services revenues increased by USD 37 million, or 2%, to USD 1,894 million. Revenue increases in cash equities were partly offset by decreases from other products. Derivatives & Solutions revenues decreased by USD 187 million, or 5%, to USD 3,422 million, mainly due to the third quarter of 2020 including a USD 215 million gain from the sale of intellectual property rights associated with the Bloomberg Commodity Index family. Excluding that gain, revenues increased by USD 28 million, or 1%. Financing revenues decreased by USD 695 million, or 42%, to USD 979 million, predominantly due to an USD 861 million loss incurred in the first half of 2021 on the default of a US-based client of our prime brokerage business. Excluding that loss, revenues increased by USD 166 million, or 10%. › Refer to “Note 21 Fair value measurement” in the “Consolidated financial statements” section of this report for more information about the loss in the prime brokerage business 92 93 93 Financial and operating performance Financial and operating performance | Group Functions Group Functions Group Functions1 USD million, except where indicated Results TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx of which: Group Treasury of which: Non-core and Legacy Portfolio of which: Group Services As of or for the year ended 3311..1122..2211 31.12.20 % change from 31.12.20 ((336600)) 333300 ((668899)) ((444466)) ((7799)) ((116655)) (494) 567 (1,060) (341) (269) (450) (27) (42) (35) 31 (71) (63) Additional information Risk-weighted assets (USD billion)2 Leverage ratio denominator (USD billion)2,3 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 33 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 110044..00 96.2 28.7 3300..11 5 8 Non-core and Legacy Portfolio The Non-core and Legacy Portfolio result was negative USD 79 million, compared with negative USD 269 million. This result was partly due to valuation gains of USD 58 million on our USD 1.6 billion portfolio of auction rate securities (ARS), compared with valuation losses of USD 9 million in 2020. Our remaining exposures to ARS were all rated investment grade as of 31 December 2021. In addition, 2021 included income of USD 51 million related to a legacy bankruptcy claim, while 2020 included a credit loss expense of USD 42 million on an energy-related exposure. Group Services The Group Services result was negative USD 165 million, compared with negative USD 450 million. There were lower expenses relating to our legal entity transformation program and decreased funding costs on deferred tax assets. Also, 2020 included real estate costs of USD 72 million related to early lease terminations and associated provisions, an impairment of internally generated software of USD 67 million, and expenses of USD 54 million related to the modification of certain outstanding deferred compensation awards. › Refer to the “Group performance” section and “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Consolidated financial statements” section of this report for more information about the modification of deferred compensation awards 2021 compared with 2020 Results Group Functions recorded a loss before tax of USD 689 million, compared with a loss of USD 1,060 million. Group Treasury The Group Treasury result was negative USD 446 million, compared with negative USD 341 million. Income from accounting asymmetries, including hedge accounting ineffectiveness, was net negative USD 341 million, compared with net positive of USD 6 million. related Revenues to centralized Group Treasury risk management services were negative USD 63 million, compared with negative USD 279 million. The increased expense in 2020 was driven by additional liquidity costs related to COVID-19 market stress in the first half of that year. Operating expenses decreased by USD 30 million to USD 42 million. 94 94 Financial and operating performance | Group Functions Group Functions Group Functions1 USD million, except where indicated Results TToottaall ooppeerraattiinngg iinnccoommee TToottaall ooppeerraattiinngg eexxppeennsseess OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx of which: Group Treasury of which: Non-core and Legacy Portfolio of which: Group Services Additional information Risk-weighted assets (USD billion)2 Leverage ratio denominator (USD billion)2,3 As of or for the year ended % change from 3311..1122..2211 31.12.20 31.12.20 ((336600)) 333300 ((668899)) ((444466)) ((7799)) ((116655)) 3300..11 110044..00 (494) 567 (1,060) (341) (269) (450) 28.7 96.2 (27) (42) (35) 31 (71) (63) 5 8 11 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 22 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 33 The leverage ratio denominator calculated as of the respective date in 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 2021 compared with 2020 Results Non-core and Legacy Portfolio The Non-core and Legacy Portfolio result was negative USD 79 million, compared with negative USD 269 million. This result was partly due to valuation gains of USD 58 million on our USD 1.6 Group Functions recorded a loss before tax of USD 689 million, billion portfolio of auction rate securities (ARS), compared with compared with a loss of USD 1,060 million. Group Treasury valuation losses of USD 9 million in 2020. Our remaining exposures to ARS were all rated investment grade as of 31 December 2021. In addition, 2021 included income of USD 51 The Group Treasury result was negative USD 446 million, million related to a legacy bankruptcy claim, while 2020 included compared with negative USD 341 million. a credit loss expense of USD 42 million on an energy-related Income from accounting asymmetries, including hedge exposure. accounting ineffectiveness, was net negative USD 341 million, compared with net positive of USD 6 million. Group Services Revenues related to centralized Group Treasury risk The Group Services result was negative USD 165 million, management services were negative USD 63 million, compared compared with negative USD 450 million. There were lower with negative USD 279 million. The increased expense in 2020 expenses relating to our legal entity transformation program and was driven by additional liquidity costs related to COVID-19 decreased funding costs on deferred tax assets. Also, 2020 market stress in the first half of that year. included real estate costs of USD 72 million related to early lease Operating expenses decreased by USD 30 million to USD 42 terminations and associated provisions, an impairment of million. Selected financial information of our business divisions and Group Functions Performance of our business divisions and Group Functions1 USD million Operating income of which: gain from the sale of UBS’s domestic wealth management business in Austria Operating expenses of which: net restructuring expenses 2 FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 PPeerrssoonnaall && CCoorrppoorraattee BBaannkkiinngg 44,,334499 AAsssseett MMaannaaggee-- mmeenntt 22,,661166 IInnvveessttmmeenntt BBaannkk 99,,448888 GGrroouupp FFuunnccttiioonnss ((336600)) TToottaall 3355,,554422 110000 GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt 1199,,444499 110000 1144,,666655 22,,661188 11,,558866 8877 1177 1177 66,,885588 7744 333300 2211 2266,,005588 221166 OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx 44,,778833 11,,773311 11,,003300 22,,663300 ((668899)) 99,,448844 For the year ended 31.12.20 USD million Operating income of which: net gain from the sale of a majority stake in Fondcenter AG of which: gain on the sale of intellectual property rights of which: net gains from properties sold or held for sale Global Wealth Management 17,045 60 Personal & Corporate Banking 3,651 Asset Manage- ment 2,974 571 of which: valuation gain on auction rate securities in the fourth quarter of 2020 3 of which: gain related to investment in associates of which: gain on the sale of equity investment measured at fair value through profit or loss 6 4 19 18 Investment Bank 9,214 Group Functions (494) Total 32,390 215 64 134 631 215 64 134 26 22 Operating expenses 13,026 2,392 1,519 6,732 567 24,235 of which: acceleration of expenses in relation to outstanding deferred compensation awards in the third quarter of 2020 4 of which: expenses associated with terminated real estate leases of which: impairment of internally generated software 5 of which: net restructuring expenses 46 3 22 229 72 5 6 24 58 72 67 0 359 72 67 107 OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx 44,,001199 11,,225599 11,,445555 22,,448822 ((11,,006600)) 88,,115555 internally generated software of USD 67 million, and expenses of USD 54 million related to the modification of certain outstanding deferred compensation awards. › Refer to the “Group performance” section and “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Consolidated financial statements” section of this report for more information about the modification of deferred compensation awards USD million Operating income of which: net foreign currency translation losses 6 of which: net losses from properties held for sale Operating expenses of which: impairment of goodwill of which: net restructuring expenses For the year ended 31.12.19 Global Wealth Management 16,353 Personal & Corporate Banking 3,715 Asset Manage- ment 1,938 Investment Bank 7,269 Group Functions (385) 12,955 2,274 1,406 68 17 33 6,485 110 168 Total 28,889 (35) (29) 23,312 110 (35) (29) 192 (2) 284 OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx 33,,339977 11,,444411 553322 778844 ((557777)) 55,,557777 11 The components of operating income and operating expenses disclosed in this table are items that are not recurring or necessarily representative of the underlying business performance for the reporting period specified. 22 Includes curtailment gains of USD 80 million, which represent a reduction in the defined benefit obligation related to the Swiss pension plan resulting from a decrease in headcount following restructuring activities. 33 Reflects a valuation gain recognized in the fourth quarter of 2020 as a result of a recovery in underlying market conditions, following a change in valuation methodology. This gain was more than offset by valuation losses recognized earlier in the year. 44 Reflects the accelerated expense recognized in the third quarter of 2020 when the conditions for continued vesting of certain outstanding deferred compensation awards were modified. This amount includes approximately USD 80 million of accelerated expense that would otherwise have been recognized in the fourth quarter of 2020. The full year effect was an expense of approximately USD 280 million (Global Wealth Management: USD 30 million, Asset Management: USD 10 million, Investment Bank: USD 180 million, Group Functions: USD 60 million). 55 Relates to impairment of internally generated software resulting from a decision in the fourth quarter of 2020 to not proceed with an internal business transfer from UBS Switzerland AG to UBS AG. 66 Relates to the disposal or closure of foreign operations. 94 95 95 Financial and operating performance Risk, capital, liquidity and funding, and balance sheet Management report 3 Audited information according to IFRS 7 and IAS 1 Risk and capital disclosures provided in line with the requirements of International Financial Reporting Standard 7 (IFRS 7), Financial Instruments: Disclosures, and International Accounting Standard 1 (IAS 1), Presentation of Financial Statements, form part of the financial statements included in the “Consolidated financial statements” section of this report and audited by the independent registered public accounting firm Ernst & Young Ltd, Basel. This information is marked as “Audited” within this section of the report. The risk profile of UBS AG consolidated does not differ materially from that of UBS Group AG consolidated. Audited information provided in the “Risk management and control” and “Capital, liquidity and funding, and balance sheet” sections applies to both UBS Group AG consolidated and UBS AG consolidated. Signposts The Audited | signpost that is displayed at the beginning of a section, table or chart indicates that those items have been audited. A triangle symbol –  – indicates the end of the audited section, table or chart. Risk management and control Table of contents 99 100 102 103 105 Overview of risks arising from our business activities Risk categories Top and emerging risks Risk governance Risk appetite framework Internal risk reporting 110 108 109 Model risk management Risk measurement Credit risk 113 131 Market risk Country risk Sustainability and climate risk Non-financial risk 147 140 143 Risk management and control Overview of risks arising from our business activities Table of contents Risk categories Top and emerging risks Risk governance Risk appetite framework Internal risk reporting 109 Model risk management Risk measurement Credit risk 131 Market risk Country risk 99 100 102 103 105 108 110 113 140 143 147 Sustainability and climate risk Non-financial risk Risk management and control Overview of risks arising from our business activities The scale of our activities depends on the capital available to cover risks, the size of our on- and off-balance sheet assets via their contribution to our capital, leverage and liquidity ratios, and our risk appetite. Despite our credit book growing over the course of 2021, our overall credit risk profile was broadly unchanged, and we continued to manage market risks at generally low levels. Operational resilience, conduct and the prevention of financial crime remain key focus topics. Key risks by business division and Group Functions Business divisions and Group Functions Key risks arising from business activities Global Wealth Management Personal & Corporate Banking Credit risk from lending against securities collateral, including derivative trading activity, and lending against residential and commercial real estate collateral, as well as corporate and other lending Market risk from municipal securities and taxable fixed-income securities Credit risk from retail business, mortgages, secured and unsecured corporate lending, commodity trade finance, lending to banks and other regulated clients, as well as a small amount of derivatives trading activity Minimal contribution to market risk Asset Management Small amounts of credit and market risk for on-balance sheet items Investment Bank Group Functions Credit risk from lending (take-and-hold, as well as temporary loan underwriting activities), derivatives trading and securities financing Market risk from primary underwriting activities and secondary trading Credit and market risk arising from management of the Group’s balance sheet, capital, profit or loss and liquidity portfolios Non-financial risks, which include operational, financial crime, compliance, conduct, model, and reputational risks, are an inevitable consequence of being in business and can arise as a result of our past and current business activities across all business divisions and Group Functions. 99 99 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Risk categories We categorize the risk exposures of our business divisions and Group Functions as outlined in the table below. Our risk appetite framework is designed to capture all risk categories. › Refer to “Risk appetite framework” in this section for more information Financial risks Audited | Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its contractual obligations toward UBS. This includes settlement risk, loan underwriting risk and step-in risk. Business management Risk Control Risk managed by Independent oversight by Settlement risk: the risk of loss resulting from transactions that involve exchange of value (e.g., security versus cash) where we must deliver without first being able to determine with certainty that we will receive the countervalue. Loan underwriting risk: the risk of loss arising during the holding period of financing transactions that are intended for further distribution. Step-in risk: the risk that UBS may decide to provide financial support to an unconsolidated entity that is facing stress in the absence of, or in excess of, any contractual obligations to provide such support.  Audited | Market risk (traded and non-traded): the risk of loss resulting from adverse movements in market variables. Market variables include observable variables, such as interest rates, foreign exchange rates, equity prices, credit spreads and commodity (including precious metal) prices, as well as variables that may be unobservable or only indirectly observable, such as volatilities and correlations. Market risk includes issuer risk and investment risk. Issuer risk: the risk of loss from changes in fair value resulting from credit-related events affecting an issuer to which we are exposed through tradable securities or derivatives referencing the issuer. Investment risk: issuer risk associated with positions held as financial investments.  Business management and Group Treasury Risk Control Country risk: the risk of losses resulting from country-specific events. Includes transfer risk, which involves a country’s authorities preventing or restricting the payment of an obligation, as well as systemic risk events arising from country-specific political or macroeconomic developments. Business management Risk Control Sustainability and climate risk (previously known at UBS as environmental and social risk): the risk that UBS is negatively impacted by or negatively impacts climate change, loss of biodiversity, human rights infringements, or other environmental, social or governance (ESG) matters. Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). Sustainability and climate risks may manifest as credit, market, liquidity and operational risks for UBS, resulting in potential adverse financial, liability and reputation impacts. They may also negatively impact the value of investments. Business management Risk Control Treasury risk: the market risks that arise from structural exposures, including pension risks, and the risk of insufficient funding or liquidity. Group Treasury Risk Control Audited | Liquidity risk: the risk that the firm will not be able to efficiently meet both expected and unexpected current and forecast cash flows and collateral needs without affecting either daily operations or the financial condition of the firm.  Audited | Funding risk: the risk that the firm will be unable, on an ongoing basis, to borrow funds in the market on an unsecured (or even secured) basis at an acceptable price to fund actual or proposed commitments; i.e., the risk that UBS’s funding capacity is not sufficient to support the firm’s current business and desired strategy.  Structural foreign exchange risk: the risk of decreases in our capital due to changes in foreign exchange rates with an adverse translation effect on capital held in currencies other than the US dollar. Pension risk: the risk of a negative impact on our capital as a result of deteriorating funded status from decreases in the fair value of assets held in defined benefit pension funds and / or changes in the value of defined benefit pension obligations due to changes in actuarial assumptions (e.g., discount rate, life expectancy, rate of pension increase, etc.) and / or changes to plan designs. Group Treasury and Human Resources Risk Control and Finance Business risk: the potential negative impact on earnings from lower-than-expected business volumes and / or margins, to the extent they are not offset by a decrease in expenses. Business management Finance and Risk Control 100 100 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Risk categories framework is designed to capture all risk categories. › Refer to “Risk appetite framework” in this section for more information We categorize the risk exposures of our business divisions and Group Functions as outlined in the table below. Our risk appetite Non-financial risks Risk managed by Independent oversight by Risk managed by Independent oversight by Operational risk: the risk resulting from inadequate or failed internal processes, people or systems, or from external causes (deliberate, accidental or natural), that have an impact (either financial or non- financial) on UBS, its clients or the markets in which it operates. Events may be direct financial losses or indirect, in the form of revenue forgone as a result of business suspension. They may also result in damage to our reputation and to our franchise that has longer-term financial consequences. Business management Group Compliance, Regulatory & Governance (GCRG) Financial risks Audited | Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its Business management Risk Control contractual obligations toward UBS. This includes settlement risk, loan underwriting risk and step-in risk. Settlement risk: the risk of loss resulting from transactions that involve exchange of value (e.g., security versus cash) where we must deliver without first being able to determine with certainty that we will receive the countervalue. Loan underwriting risk: the risk of loss arising during the holding period of financing transactions that are intended for further distribution. Step-in risk: the risk that UBS may decide to provide financial support to an unconsolidated entity that is facing stress in the absence of, or in excess of, any contractual obligations to provide such support.  Audited | Market risk (traded and non-traded): the risk of loss resulting from adverse movements in Business management Risk Control market variables. Market variables include observable variables, such as interest rates, foreign exchange and Group Treasury rates, equity prices, credit spreads and commodity (including precious metal) prices, as well as variables that may be unobservable or only indirectly observable, such as volatilities and correlations. Market risk includes issuer risk and investment risk. Issuer risk: the risk of loss from changes in fair value resulting from credit-related events affecting an issuer to which we are exposed through tradable securities or derivatives referencing the issuer. Investment risk: issuer risk associated with positions held as financial investments.  Country risk: the risk of losses resulting from country-specific events. Includes transfer risk, which Business management Risk Control involves a country’s authorities preventing or restricting the payment of an obligation, as well as systemic risk events arising from country-specific political or macroeconomic developments. Sustainability and climate risk (previously known at UBS as environmental and social risk): the risk Business management Risk Control that UBS is negatively impacted by or negatively impacts climate change, loss of biodiversity, human rights infringements, or other environmental, social or governance (ESG) matters. Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). Sustainability and climate risks may manifest as credit, market, liquidity and operational risks for UBS, resulting in potential adverse financial, liability and reputation impacts. They may also negatively impact the value of investments. Treasury risk: the market risks that arise from structural exposures, including pension risks, and the risk Group Treasury Risk Control of insufficient funding or liquidity. Audited | Liquidity risk: the risk that the firm will not be able to efficiently meet both expected and unexpected current and forecast cash flows and collateral needs without affecting either daily operations or the financial condition of the firm.  Audited | Funding risk: the risk that the firm will be unable, on an ongoing basis, to borrow funds in the market on an unsecured (or even secured) basis at an acceptable price to fund actual or proposed commitments; i.e., the risk that UBS’s funding capacity is not sufficient to support the firm’s current business and desired strategy.  Structural foreign exchange risk: the risk of decreases in our capital due to changes in foreign exchange rates with an adverse translation effect on capital held in currencies other than the US dollar. Pension risk: the risk of a negative impact on our capital as a result of deteriorating funded status Group Treasury and from decreases in the fair value of assets held in defined benefit pension funds and / or changes in Human Resources Risk Control and Finance the value of defined benefit pension obligations due to changes in actuarial assumptions (e.g., discount rate, life expectancy, rate of pension increase, etc.) and / or changes to plan designs. Business risk: the potential negative impact on earnings from lower-than-expected business volumes Business management Finance and Risk Control and / or margins, to the extent they are not offset by a decrease in expenses. Legal risk: the financial or reputational implications resulting from the risk of: (i) being held liable for a breach of applicable laws, rules or regulations; (ii) being held liable for a breach of contractual or other legal obligations; (iii) an inability or failure to enforce or protect contractual rights or non- contractual rights sufficiently to protect UBS’s interests, including the risk of being party to a claim in respect of any of the above (and the risk of loss of attorney–client privilege in the context of any such claim); (iv) a failure to adequately develop, supervise and resource legal teams or adequately supervise external legal counsel advising on business legal risk and other matters; and (v) a failure to adequately manage any potential, threatened and commenced litigation and legal proceedings, including civil, criminal, arbitration and regulatory proceedings, and / or litigation risk or any dispute or investigation that may lead to litigation or threat of any litigation. Employment risk: the risk incurred by the firm by not adhering to the applicable employment law, regulatory requirements and human resources practices, as well as our own internal standards. Such risk is managed by business management, with independent overview by Human Resources. Legal Human Resources Cybersecurity and information security risk: the risk of a malicious internal or external act leading to a material impact on confidentiality, integrity or availability of UBS data or information systems. Cyberattacks are manifestations of a cyber threat into an act of aggression or criminal activity causing financial, regulatory or reputational harm or loss. Business management and Chief Digital and Information Office (CDIO) GCRG Conduct risk: the risk that the conduct of the firm or its individuals unfairly impacts clients or counterparties, undermines the integrity of the financial system or impairs effective competition to the detriment of consumers. Business management GCRG Compliance risk: the risk incurred by the firm by not adhering to the applicable laws, rules and regulations, and our own internal standards. Business management GCRG Financial crime risk: the risk that UBS fails to detect criminal activities, including internal and external theft and fraud, money laundering, bribery and corruption, and fails to comply with sanctions and embargoes, or fails to report or respond to requests from relevant authorities related to these matters. Model risk: the risk of adverse consequences via financial loss or non-financial impact (e.g., poor business and / or strategic decision making, or damage to the firm’s reputation) resulting from decisions based on incorrect or misused model outputs and reports. Model risk may result from a number of sources: inputs, methodology, implementation or use. Business management, Financial Crime Prevention (FCP), and GCRG COO GCRG Model owner Risk Control Reputational risk: the risk of damage to our reputation from the point of view of our stakeholders, such as clients, shareholders and staff, and the general public. All businesses and functions All control functions 100 101 101 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Top and emerging risks – We are exposed to substantial changes in the regulation of our businesses that could have a material adverse effect on our business, as discussed legal developments” section of this report and in “Regulatory and legal risks” in the “Risk factors” section of this report. the “Regulatory and in – As a global financial services firm, we are subject to many different legal, tax and regulatory regimes and extensive regulatory oversight. We are exposed to significant liability risk, and we are subject to various claims, disputes, legal proceedings and government investigations, as noted in “Regulatory and legal risks” in the “Risk factors” section of this report. Information about litigation, regulatory and similar matters we consider significant is disclosed in “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report. – Cyber threats continue to evolve at pace, not least due to the Russian invasion of Ukraine, and can impact the industry, as well as critical infrastructure which it relies on. More recently, ransomware attacks with a possible widespread impact have increased significantly. Additionally, as a result of the operational complexity of all our businesses, we are continually exposed to operational resilience scenarios such as process error, failed execution, system failures and fraud. – Conduct risks are inherent in our businesses. Achieving fair outcomes for our clients, upholding market integrity and cultivating the highest standards of employee conduct are of critical importance to UBS. Management of conduct risks is an integral part of our risk management framework. – Financial crime – including money laundering, terrorist financing, sanctions violations, fraud, bribery and corruption – presents significant risk. Heightened regulatory expectations and attention require investment in people and systems, while emerging technologies and changing geopolitical risks further increase the complexity of identifying and preventing financial crime. Refer to “Non-financial risk” in this section and “Strategy, management and operational risks” in the “Risk factors” section of this report for more information. – Environmental, social and governance (ESG) risks are a growing area of focus for regulators and other stakeholders, in particular climate risks and concerns about greenwashing, where UBS may be subject to reputational risk if not fully aligned with the stated purpose of the firm. New standards and rules are developing in several jurisdictions with the risk of divergent rules increasing and leading to an increased risk that UBS may not comply with all relevant regulations. Refer to “Non-financial risk” in this section. The top and emerging risks disclosed below reflect those that we currently think have the potential to materialize within one year and which could significantly affect the Group. Investors should also carefully review all information set out in the “Risk factors” section of this report, where we discuss these and other material risks that we consider could have an effect on our ability to execute our strategy and may affect our business activities, financial condition, results of operations and business prospects. – The COVID-19 pandemic, and impact on growth, employment, debt dynamics and supply chains, remains an important driver of risk, and we expect this to be the case for at least the near future. The Omicron variant continues to spread, and there is uncertainty about when restrictions introduced in many countries will be eased. its – There continue to be concerns regarding a resurgence in global inflation, and the timing and extent of central bank policy responses (i.e., interest rate hikes and the tapering of quantitative easing) will be an area of focus in the coming months. There are related concerns about increasing energy and other commodity prices in a number of countries, while mounting global supply chain stresses and tight labor markets are creating negative pressure on growth. China is facing several challenges, including a slowing economy following the post-pandemic boom. – We remain watchful of a range of geopolitical developments in Europe and Asia and political changes in a number of countries. Our current focus is on the Russian invasion of Ukraine. Our current direct exposure to Russia, Ukraine and Belarus is limited, as is our exposure to peripheral European countries. However, market closures, the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures. In addition, we have significant country risk exposure to major economies, which could also be affected, including the US, China, Switzerland, Germany, the UK and France. – We are exposed to a number of macroeconomic issues, as well as general market conditions. As noted in “Market, credit and macroeconomic risks” in the “Risk factors” section of this report, these external pressures may have a significant adverse effect on our business activities and related financial results, primarily through reduced margins and revenues, asset impairments and other valuation adjustments. Accordingly, the these macroeconomic development of stress testing scenarios for our ongoing risk management activities. factors are considered in 102 102 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Top and emerging risks Risk governance Our risk governance framework operates along three lines of defense. measurement, aggregation and reporting, protecting against non-compliance with applicable laws and regulations. Our first line of defense, business management, owns its risk exposures and is accountable for maintaining effective processes and systems to manage its risks in compliance with applicable laws, external regulations and internal requirements, including identifying control weaknesses and inadequate processes. Our second line of defense, control functions, is separate from the business and reports directly to the Group CEO. Control functions provide independent oversight, challenge financial and non-financial risks arising from the firm’s business activities, and risk assessment, frameworks establish independent for Our third line of defense, Group Internal Audit, reports to the Chairman and to the Audit Committee. This function assesses the design and operating effectiveness and sustainability of processes to define risk appetite, governance, risk management, internal controls, remediation activities and processes to comply with legal and internal governance requirements. requirements and regulatory The key roles and responsibilities for risk management and control are shown in the chart below and described on the following pages. Audited | Risk governance Risk Committee Audit Committee Corporate Culture and Responsibility Committee Governance and Nominating Committee Compensation Committee Board of Directors Group Internal Audit (third line of defense) Group Executive Board (acting as risk council) Group Chief Executive Ofﬁcer s e e t t i m m o c y t i l i b a i l d n a t e s s a d n a k s i R First line of defense (business and Group Functions management) Divisional, regional, legal entity Presidents Group function heads Second line of defense (Group Functions – control functions) Group Risk Control Group Compliance, Regulatory & Governance (GCRG) Group Finance Group General Counsel Group Human Resources Group Chief Risk Ofﬁcer Group Chief Compliance and Governance Ofﬁcer Group Chief Financial Ofﬁcer Group General Counsel Head Human Resources Group Functions Market and Treasury CRO Group Treasury* / Non-core and Legacy Portfolio Divisional Presidents Central Risk functions Central GCRG functions Central Finance functions Central Legal functions HR functions Divisional CROs Divisional heads Com- pliance & Operational Risk Control (C&ORC) Divisional CFOs Divisional General Counsels HR Business Partners (by business division) Regional / legal entity Presidents Regional / legal entity CROs Regional / legal entity heads C&ORC Regional / legal entity CFOs Regional / legal entity General Counsels HR regions * Part of Group Finance ▲ 103 103 The top and emerging risks disclosed below reflect those that we – We are exposed to substantial changes in the regulation of our currently think have the potential to materialize within one year businesses that could have a material adverse effect on our and which could significantly affect the Group. Investors should business, as discussed in the “Regulatory and legal also carefully review all information set out in the “Risk factors” developments” section of this report and in “Regulatory and section of this report, where we discuss these and other material legal risks” in the “Risk factors” section of this report. risks that we consider could have an effect on our ability to – As a global financial services firm, we are subject to many execute our strategy and may affect our business activities, different legal, tax and regulatory regimes and extensive financial condition, results of operations and business prospects. regulatory oversight. We are exposed to significant liability risk, – The COVID-19 pandemic, and its impact on growth, and we are subject to various claims, disputes, legal employment, debt dynamics and supply chains, remains an proceedings and government investigations, as noted in important driver of risk, and we expect this to be the case for “Regulatory and legal risks” in the “Risk factors” section of at least the near future. The Omicron variant continues to this report. Information about litigation, regulatory and similar spread, and there is uncertainty about when restrictions matters we consider significant is disclosed in “Note 18 introduced in many countries will be eased. Provisions and contingent liabilities” in the “Consolidated – There continue to be concerns regarding a resurgence in global financial statements” section of this report. inflation, and the timing and extent of central bank policy – Cyber threats continue to evolve at pace, not least due to the responses (i.e., interest rate hikes and the tapering of Russian invasion of Ukraine, and can impact the industry, as quantitative easing) will be an area of focus in the coming well as critical infrastructure which it relies on. More recently, months. There are related concerns about increasing energy ransomware attacks with a possible widespread impact have and other commodity prices in a number of countries, while increased significantly. Additionally, as a result of the mounting global supply chain stresses and tight labor markets operational complexity of all our businesses, we are continually are creating negative pressure on growth. China is facing exposed to operational resilience scenarios such as process several challenges, including a slowing economy following the error, failed execution, system failures and fraud. post-pandemic boom. – Conduct risks are inherent in our businesses. Achieving fair – We remain watchful of a range of geopolitical developments outcomes for our clients, upholding market integrity and in Europe and Asia and political changes in a number of cultivating the highest standards of employee conduct are of countries. Our current focus is on the Russian invasion of critical importance to UBS. Management of conduct risks is an Ukraine. Our current direct exposure to Russia, Ukraine and integral part of our risk management framework. Belarus is limited, as is our exposure to peripheral European – Financial crime – including money laundering, terrorist countries. However, market closures, the imposition of financing, sanctions violations, fraud, bribery and corruption – exchange controls, sanctions or other measures may limit our presents significant risk. Heightened regulatory expectations ability to settle existing transactions or to realize on collateral, and attention require investment in people and systems, while which may result in unexpected increases in exposures. In emerging technologies and changing geopolitical risks further addition, we have significant country risk exposure to major increase the complexity of identifying and preventing financial economies, which could also be affected, including the US, crime. Refer to “Non-financial risk” in this section and China, Switzerland, Germany, the UK and France. “Strategy, management and operational risks” in the “Risk – We are exposed to a number of macroeconomic issues, as well factors” section of this report for more information. as general market conditions. As noted in “Market, credit and – Environmental, social and governance (ESG) risks are a growing macroeconomic risks” in the “Risk factors” section of this area of focus for regulators and other stakeholders, in report, these external pressures may have a significant adverse particular climate risks and concerns about greenwashing, effect on our business activities and related financial results, where UBS may be subject to reputational risk if not fully primarily through reduced margins and revenues, asset aligned with the stated purpose of the firm. New standards impairments and other valuation adjustments. Accordingly, and rules are developing in several jurisdictions with the risk of these macroeconomic factors are considered in the divergent rules increasing and leading to an increased risk that development of stress testing scenarios for our ongoing risk UBS may not comply with all relevant regulations. Refer to management activities. “Non-financial risk” in this section. 102 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Risk management and control sets the general for developing the Group’s operational requirements is The Group Chief Compliance and Governance Officer risk responsible framework, which for identification, management, assessment and mitigation of operational risk, and for ensuring that all non-financial risks are identified, owned and managed according to the operational risk appetite objectives, supported by an effective control framework. for transparency in assessing the financial performance of the Group and the business divisions, and for managing the Group’s financial accounting, controlling, forecasting, planning and reporting. Additional responsibilities include managing UBS’s tax affairs, as well as treasury and capital management, including funding and liquidity risk and UBS’s regulatory capital ratios. The Group Chief Financial Officer responsible is The Group General Counsel is responsible for managing the Group’s legal affairs (including litigation involving UBS), ensuring effective and timely assessment of legal matters impacting the Group or its businesses, and managing and reporting all litigation matters. The Head of Human Resources is responsible for independent oversight and challenge of employment-related risks. (GIA) Group Internal Audit independently assesses the effectiveness of processes to define strategy and risk appetite and overall adherence to the approved strategy. It also assesses the effectiveness of governance processes and risk management, including compliance with legal and regulatory requirements and internal governance documents. The Head GIA reports to the Chairman of the BoD. GIA also has a functional reporting line to the BoD Audit Committee. Some of these roles and responsibilities are replicated for certain significant legal entities of the Group. The legal entity risk officers are responsible for independent oversight and control of financial and non-financial risks for certain significant legal entities of the Group as part of the legal entity control framework, which complements the Group’s risk management and control framework.  Audited | The Board of Directors (the BoD) approves the risk management and control framework of the Group, including the Group and business division overall risk appetite. The BoD is supported by its Risk Committee, which monitors and oversees the Group’s risk profile and the implementation of the risk framework approved by the BoD, and approves the Group’s risk appetite methodology. The Corporate Culture and Responsibility Committee (the CCRC) helps the BoD meet its duty to safeguard and advance UBS’s reputation for responsible and sustainable conduct, reviewing stakeholder concerns and expectations pertaining to UBS’s societal contribution and corporate culture. The Audit Committee assists the BoD with its oversight duty relating to financial reporting and internal controls over financial reporting, and the effectiveness of whistleblowing procedures and the external and internal audit functions. The Group Executive Board (the GEB) has overall responsibility for establishing and implementing a risk management and control framework in the Group, managing the risk profile of the Group as a whole. The Group Chief Executive Officer has responsibility and accountability for the management and performance of the Group, has risk authority over transactions, positions and exposures, and allocates business divisions and Group Functions risk limits approved by the BoD. The business division Presidents and Group function heads are responsible for the operation and management of their business divisions, including controlling the dedicated financial resources and risk appetite of the business division. The regional Presidents are responsible for cross-divisional collaboration in their regions and are mandated to inform the GEB about any activities / issues that may give rise to actual or potentially material regulatory or reputational concerns. The Group Chief Risk Officer (the Group CRO) is responsible for developing the Group’s risk management and control framework (including risk principles and risk appetite) for credit, market, country, treasury, model and sustainability and climate risks. This includes risk measurement and aggregation, portfolio controls and risk reporting. The Group CRO sets risk limits and approves credit and market risk transactions and exposures. Risk Control is also the central function for model risk management and control for all models used in UBS. A framework of policies and authorities support the risk control process. 104 104 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Audited | The Board of Directors (the BoD) approves the risk The Group Chief Compliance and Governance Officer is management and control framework of the Group, including the responsible for developing the Group’s operational Group and business division overall risk appetite. The BoD is framework, which sets the general requirements risk for supported by its Risk Committee, which monitors and oversees identification, management, assessment and mitigation of the Group’s risk profile and the implementation of the risk operational risk, and for ensuring that all non-financial risks are framework approved by the BoD, and approves the Group’s risk identified, owned and managed according to the operational risk appetite methodology. The Corporate Culture and Responsibility appetite objectives, supported by an effective control framework. Committee (the CCRC) helps the BoD meet its duty to safeguard The Group Chief Financial Officer is responsible for and advance UBS’s reputation for responsible and sustainable transparency in assessing the financial performance of the Group conduct, reviewing stakeholder concerns and expectations and the business divisions, and for managing the Group’s pertaining to UBS’s societal contribution and corporate culture. financial accounting, controlling, forecasting, planning and The Audit Committee assists the BoD with its oversight duty reporting. Additional responsibilities include managing UBS’s tax relating to financial reporting and internal controls over financial affairs, as well as treasury and capital management, including reporting, and the effectiveness of whistleblowing procedures funding and liquidity risk and UBS’s regulatory capital ratios. and the external and internal audit functions. The Group General Counsel is responsible for managing the The Group Executive Board (the GEB) has overall responsibility Group’s legal affairs (including litigation involving UBS), ensuring for establishing and implementing a risk management and control effective and timely assessment of legal matters impacting the Group framework in the Group, managing the risk profile of the Group or its businesses, and managing and reporting all litigation matters. as a whole. The Head of Human Resources is responsible for independent The Group Chief Executive Officer has responsibility and oversight and challenge of employment-related risks. accountability for the management and performance of the Group, Group Internal Audit (GIA) independently assesses the has risk authority over transactions, positions and exposures, and effectiveness of processes to define strategy and risk appetite and allocates business divisions and Group Functions risk limits overall adherence to the approved strategy. It also assesses the approved by the BoD. effectiveness of governance processes and risk management, The business division Presidents and Group function heads are including compliance with legal and regulatory requirements and responsible for the operation and management of their business internal governance documents. The Head GIA reports to the divisions, including controlling the dedicated financial resources Chairman of the BoD. GIA also has a functional reporting line to and risk appetite of the business division. the BoD Audit Committee. The regional Presidents are responsible for cross-divisional Some of these roles and responsibilities are replicated for collaboration in their regions and are mandated to inform the GEB certain significant legal entities of the Group. The legal entity risk about any activities / issues that may give rise to actual or officers are responsible for independent oversight and control of potentially material regulatory or reputational concerns. financial and non-financial risks for certain significant legal The Group Chief Risk Officer (the Group CRO) is responsible entities of the Group as part of the legal entity control framework, for developing the Group’s risk management and control which complements the Group’s risk management and control framework (including risk principles and risk appetite) for credit, framework.  market, country, treasury, model and sustainability and climate risks. This includes risk measurement and aggregation, portfolio controls and risk reporting. The Group CRO sets risk limits and approves credit and market risk transactions and exposures. Risk Control is also the central function for model risk management and control for all models used in UBS. A framework of policies and authorities support the risk control process. Risk appetite framework We have a defined Group-level risk appetite, covering all financial and non-financial risk types, via a complementary set of qualitative and quantitative risk appetite statements. This is reviewed and recalibrated annually and presented to the BoD for approval. Our risk appetite is defined at the aggregate Group level and reflects the types of risk that we are willing to accept or avoid. It is set via complementary qualitative and quantitative risk appetite statements defined at a firm-wide level and is embedded throughout our business divisions and legal entities by Group, business division and legal entity policies, limits and authorities. We are subject to consolidated supervision by the Swiss Financial Market Supervisory Authority (FINMA) and related ordinances, which impose, among other requirements, minimum standards for capital, liquidity, risk concentration and internal organization. Our risk appetite is reviewed and recalibrated annually, with the aim of ensuring that risk-taking at every level of the organization is in line with our strategic priorities, our capital and liquidity plans, our Pillars, Principles and Behaviors, and minimum regulatory requirements. The “Risk appetite framework” chart below shows the key elements of the framework, described in detail in this section. Qualitative risk appetite statements aim to ensure we maintain the desired risk culture. Quantitative risk appetite objectives are designed to enhance UBS’s resilience against the effects of potential severe adverse economic or geopolitical events. These risk appetite objectives cover UBS’s minimum capital and leverage ratios, solvency, earnings, liquidity, and funding, and are subject to periodic review, including the yearly business planning process. These objectives are complemented by operational risk appetite objectives, which are set for each of our non-financial risk categories, including market conduct, theft, fraud, data confidentiality and technology risks. A standardized financial firm- wide operational risk appetite has been established at Group level and is embedded throughout our business divisions. Operational risk events exceeding predetermined risk tolerances, expressed as percentages of UBS’s operating income, must be escalated as per the firm-wide escalation framework to the respective business division President or higher, as appropriate. The quantitative risk appetite objectives are supported by a comprehensive suite of risk limits set at a portfolio level to monitor specific portfolios and to control potential risk concentrations. The status of risk appetite objectives is evaluated each month and reported to the BoD and the GEB. As our risk appetite may change over time, portfolio limits and associated approval authorities are subject to periodic reviews and changes, particularly in the context of our annual business planning process. Our risk appetite framework is governed by a single overarching policy and conforms to the Financial Stability Board’s Principles for an Effective Risk Appetite Framework. › Refer to “Risk principles and risk culture” and “Quantitative risk appetite objectives” on the following pages for more information (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:14)(cid:2)(cid:73)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:14)(cid:2)(cid:84)(cid:81)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:14)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:85) (cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85) (cid:115)(cid:2)(cid:37)(cid:81)(cid:70)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:81)(cid:80)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:39)(cid:86)(cid:74)(cid:75)(cid:69)(cid:85) (cid:115)(cid:2)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:52)(cid:71)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:50)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85) (cid:115)(cid:2)(cid:49)(cid:84)(cid:73)(cid:67)(cid:80)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:17)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:75)(cid:71)(cid:85) (cid:115)(cid:2)(cid:52)(cid:81)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85) (cid:115)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:115)(cid:2)(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:85) (cid:115)(cid:2)(cid:35)(cid:87)(cid:86)(cid:74)(cid:81)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:85)(cid:2) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:14)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73) 104 105 105 Risk, capital, liquidity and funding, and balance sheet(cid:20)(cid:18)(cid:20)(cid:19)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:53)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:71)(cid:71)(cid:86)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:71)(cid:71)(cid:86)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:82)(cid:78)(cid:87)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2) (cid:52)(cid:57)(cid:35)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2) (cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2) (cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:68)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2) (cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:78)(cid:81)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2) (cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2) (cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:16) (cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:40)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:46)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:70)(cid:81)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:74)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:2) (cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2) (cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2) (cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2) (cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:14)(cid:2)(cid:86)(cid:81)(cid:2)(cid:85)(cid:87)(cid:84)(cid:88)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:2) (cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:71)(cid:15)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:2)(cid:75)(cid:70)(cid:75)(cid:81)(cid:85)(cid:91)(cid:80)(cid:69)(cid:84)(cid:67)(cid:86)(cid:75)(cid:69)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2) (cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:29)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2) (cid:72)(cid:81)(cid:84)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:71)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2) (cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2) (cid:79)(cid:81)(cid:80)(cid:71)(cid:86)(cid:75)(cid:92)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:84)(cid:71)(cid:85)(cid:71)(cid:84)(cid:88)(cid:71)(cid:85)(cid:16) (cid:78)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:72)(cid:84)(cid:67)(cid:80)(cid:69)(cid:74)(cid:75)(cid:85)(cid:71)(cid:2) (cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2) (cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:16) (cid:50)(cid:84)(cid:81)(cid:76)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85) (cid:53)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85) (cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:67)(cid:82)(cid:67)(cid:69)(cid:75)(cid:86)(cid:91) (cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2) (cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78) (cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2) (cid:75)(cid:79)(cid:82)(cid:67)(cid:69)(cid:86)(cid:2)(cid:81)(cid:80)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15) (cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)(cid:2)(cid:71)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85) (cid:53)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85) (cid:69)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:50)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2) (cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:67)(cid:78)(cid:2)(cid:72)(cid:81)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:15) (cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:48)(cid:81)(cid:80)(cid:15)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:41)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) Risk, capital, liquidity and funding, and balance sheet | Risk management and control Risk principles and risk culture Maintaining a strong risk culture is a prerequisite for success in today’s highly complex operating environment and a source of sustainable competitive advantage. Placing prudent and disciplined risk-taking at the center of every decision has three principal goals: delivering unrivaled client satisfaction; creating long-term value for stakeholders; and making UBS one of the world’s most attractive companies to work for. Our risk appetite framework combines all the important elements of our risk culture, expressed in our Pillars, Principles and Behaviors, our risk management and control principles, our Code of Conduct and Ethics, and our Total Reward Principles. Together, these aim to align our decisions with the Group’s strategy, principles and risk appetite. They help create a solid foundation for promoting risk awareness, leading to appropriate risk-taking Risk management and control principles and the establishing of robust risk management and control processes. These principles are supported by a range of initiatives covering employees at all levels, for example the UBS House View on Leadership, which is a set of explicit expectations for leaders that establishes consistent leadership standards across UBS. Another example is our Principles of Good Supervision, which establish clear expectations of managers and employees regarding supervisory take responsibility; to know and organize their business; to know their employees and what they do; to create a good risk culture; and to respond to and resolve issues. responsibilities, specifically: to › Refer to the foldout pages of this report for more information about our Pillars, Principles and Behaviors › Refer to the Code of Conduct and Ethics of UBS at ubs.com/code for more information Protection of financial strength Protection of reputation Business management accountability Independent controls Risk disclosure Protecting UBS’s financial strength by controlling our risk exposure and avoiding potential risk concentrations at individual exposure levels, at specific portfolio levels and at an aggregate firm-wide level across all risk types Protecting our reputation through a sound risk culture characterized by a holistic and integrated view of risk, performance and reward, and through full compliance with our standards and principles, particularly our Code of Conduct and Ethics Maintaining management accountability, whereby business management owns all risks assumed throughout the Group and is responsible for the continuous and active management of all risk exposures to provide for balanced risk and return Independent control functions that monitor the effectiveness of the businesses’ risk management and oversee risk-taking activities Disclosure of risks to senior management, the BoD, investors, regulators, credit rating agencies and other stakeholders with an appropriate level of comprehensiveness and transparency Whistleblowing policies and procedures exist to support an environment where staff are comfortable raising concerns. There are multiple channels via which individuals may, either openly or anonymously, escalate suspected breaches of laws, regulations, rules and other legal requirements, our Code of Conduct and Ethics, policies, or relevant professional standards. Our program is designed to ensure that whistleblowing concerns are investigated and that appropriate and consistent action is taken. We are committed for and communication to staff and legal entity representatives are available on an ongoing basis, including with regard to new regulatory requirements. to ensuring appropriate training Mandatory training programs cover various compliance and risk-related topics, including operational risk and anti-money laundering. Additional specialized training is provided depending on employees’ specific roles and responsibilities, e.g., credit risk and market risk training for those working in trading areas. Failure to complete mandatory training sessions within an appropriate timeframe can lead to consequences, including disciplinary action. Our operational risk and conduct risk frameworks aim to identify and manage financial, regulatory and reputational risks, as well as risks to clients and markets. 106 106 Quantitative risk appetite objectives Our quantitative risk appetite objectives aim to ensure that our aggregate risk exposure remains within desired risk capacity, based on capital and business plans. The specific definition of risk capacity for each objective is aimed at ensuring we have sufficient capital, earnings, funding and liquidity to protect our businesses and exceed minimum regulatory requirements under a severe stress event. The risk appetite objectives are evaluated during the annual business planning process and approved by the BoD. The comparison of risk exposure with risk capacity is a key consideration in decisions on potential adjustments to the business strategy and risk profile of UBS and capital returns to shareholders. The annual business planning process reviews UBS’s business strategy, assesses the risk profile our operations and activities result in, and stress tests that risk profile. We use both scenario- based stress tests and statistical risk measurement techniques to assess effects of severe stress events at a firm-wide level. These complementary frameworks capture exposures to all material risks across our business divisions and Group Functions. › Refer to “Risk measurement” in this section for more information about our stress testing and statistical stress frameworks Risk, capital, liquidity and funding, and balance sheet | Risk management and control Risk principles and risk culture and the establishing of robust risk management and control processes. These principles are supported by a range of initiatives Maintaining a strong risk culture is a prerequisite for success in covering employees at all levels, for example the UBS House View today’s highly complex operating environment and a source of on Leadership, which is a set of explicit expectations for leaders sustainable competitive advantage. Placing prudent and that establishes consistent leadership standards across UBS. disciplined risk-taking at the center of every decision has three Another example is our Principles of Good Supervision, which principal goals: delivering unrivaled client satisfaction; creating establish clear expectations of managers and employees long-term value for stakeholders; and making UBS one of the regarding supervisory responsibilities, specifically: to take world’s most attractive companies to work for. responsibility; to know and organize their business; to know their Our risk appetite framework combines all the important employees and what they do; to create a good risk culture; and elements of our risk culture, expressed in our Pillars, Principles and to respond to and resolve issues. Behaviors, our risk management and control principles, our Code of Conduct and Ethics, and our Total Reward Principles. Together, these aim to align our decisions with the Group’s strategy, › Refer to the foldout pages of this report for more information about our Pillars, Principles and Behaviors › Refer to the Code of Conduct and Ethics of UBS at ubs.com/code principles and risk appetite. They help create a solid foundation for more information for promoting risk awareness, leading to appropriate risk-taking Risk management and control principles Protection of financial strength Protecting UBS’s financial strength by controlling our risk exposure and avoiding potential risk concentrations at individual exposure levels, at specific portfolio levels and at an aggregate firm-wide Business management accountability Maintaining management accountability, whereby business management owns all risks assumed throughout the Group and is responsible for the continuous and active management of all risk exposures to provide for balanced risk and return Independent controls Independent control functions that monitor the effectiveness of the businesses’ risk management and oversee risk-taking activities Risk disclosure Disclosure of risks to senior management, the BoD, investors, regulators, credit rating agencies and other stakeholders with an appropriate level of comprehensiveness and transparency Whistleblowing policies and procedures exist to support an Quantitative risk appetite objectives environment where staff are comfortable raising concerns. There are multiple channels via which individuals may, either openly or Our quantitative risk appetite objectives aim to ensure that our anonymously, escalate suspected breaches of laws, regulations, aggregate risk exposure remains within desired risk capacity, rules and other legal requirements, our Code of Conduct and based on capital and business plans. The specific definition of risk Ethics, policies, or relevant professional standards. Our program is capacity for each objective is aimed at ensuring we have sufficient designed to ensure that whistleblowing concerns are investigated capital, earnings, funding and liquidity to protect our businesses and that appropriate and consistent action is taken. We are and exceed minimum regulatory requirements under a severe committed to ensuring appropriate training for and stress event. The risk appetite objectives are evaluated during the communication to staff and legal entity representatives are annual business planning process and approved by the BoD. The available on an ongoing basis, including with regard to new comparison of risk exposure with risk capacity is a key regulatory requirements. consideration in decisions on potential adjustments to the Mandatory training programs cover various compliance and business strategy and risk profile of UBS and capital returns to risk-related topics, including operational risk and anti-money shareholders. laundering. Additional specialized training is provided depending The annual business planning process reviews UBS’s business on employees’ specific roles and responsibilities, e.g., credit risk strategy, assesses the risk profile our operations and activities and market risk training for those working in trading areas. Failure result in, and stress tests that risk profile. We use both scenario- to complete mandatory training sessions within an appropriate based stress tests and statistical risk measurement techniques to timeframe can lead to consequences, including disciplinary action. assess effects of severe stress events at a firm-wide level. These Our operational risk and conduct risk frameworks aim to identify complementary frameworks capture exposures to all material risks and manage financial, regulatory and reputational risks, as well as across our business divisions and Group Functions. risks to clients and markets. › Refer to “Risk measurement” in this section for more information about our stress testing and statistical stress frameworks (cid:20)(cid:18)(cid:20)(cid:19)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:53)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:71)(cid:71)(cid:86)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2) (cid:52)(cid:57)(cid:35)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2) (cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:71)(cid:71)(cid:86)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2) (cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2) (cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:82)(cid:78)(cid:87)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2) (cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:68)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2) (cid:78)(cid:81)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2) (cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2) (cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:16) (cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:40)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85) (cid:46)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:70)(cid:81)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:74)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:2) (cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2) (cid:86)(cid:81)(cid:2)(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)(cid:16) (cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2) (cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:14)(cid:2)(cid:86)(cid:81)(cid:2)(cid:85)(cid:87)(cid:84)(cid:88)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:2) (cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:71)(cid:15)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:2)(cid:75)(cid:70)(cid:75)(cid:81)(cid:85)(cid:91)(cid:80)(cid:69)(cid:84)(cid:67)(cid:86)(cid:75)(cid:69)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2) (cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:29)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2) (cid:72)(cid:81)(cid:84)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:71)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2) (cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2) (cid:79)(cid:81)(cid:80)(cid:71)(cid:86)(cid:75)(cid:92)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:111)(cid:85)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:84)(cid:71)(cid:85)(cid:71)(cid:84)(cid:88)(cid:71)(cid:85)(cid:16) (cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2) (cid:78)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:72)(cid:84)(cid:67)(cid:80)(cid:69)(cid:74)(cid:75)(cid:85)(cid:71)(cid:2) (cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2) (cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:16) Protection of reputation Protecting our reputation through a sound risk culture characterized by a holistic and integrated view of risk, performance and reward, and through full compliance with our standards and principles, particularly (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:67)(cid:82)(cid:67)(cid:69)(cid:75)(cid:86)(cid:91) (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71) (cid:50)(cid:84)(cid:81)(cid:76)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85) (cid:53)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85) level across all risk types our Code of Conduct and Ethics (cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2) (cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78) (cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2) (cid:75)(cid:79)(cid:82)(cid:67)(cid:69)(cid:86)(cid:2)(cid:81)(cid:80)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15) (cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)(cid:2)(cid:71)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85) (cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78) (cid:53)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85) (cid:69)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2) (cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:50)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:48)(cid:81)(cid:80)(cid:15)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:67)(cid:78)(cid:2)(cid:72)(cid:81)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:15) (cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77) (cid:41)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77) Our risk capacity is underpinned by performance targets and capital guidance as per our business plan. When determining our risk capacity in case of a severe stress event, we estimate projected earnings under stress, factoring in lower expected income and also lower expenses. We also consider capital impacts under stress from deferred tax assets, pension plan assets and liabilities, and accruals for capital returns to shareholders. Risk appetite objectives define the aggregate risk exposure acceptable at the firm-wide level, given our risk capacity. The maximum acceptable risk exposure is supported by a full set of risk limits, triggers and targets, which are cascaded to businesses and portfolios. These limits, triggers and targets aim to ensure that our total risks remain in line with risk appetite. Risk appetite statements at the business division level are derived from the firm-wide risk appetite. They may also include division-specific strategic goals related to that division’s activities and risks. Risk appetite statements are also set for certain legal entities, which must be consistent with the firm-wide risk appetite framework and approved in accordance with Group and legal entity regulations. Differences may exist that reflect the specific nature, size, complexity and regulations applicable to the relevant legal entity. 106 107 107 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Internal risk reporting Comprehensive and transparent reporting of risks is central to our risk governance framework’s control and oversight responsibilities and required by our risk management and control principles. Accordingly, risks are reported at a frequency and level of detail commensurate with the extent and variability of the risk and the needs of the various governance bodies, regulators and risk authority holders. The Group Risk Report provides a detailed qualitative and quantitative monthly overview of developments in financial and non-financial risks at the firm-wide level, along with breakdowns of risks at the divisional level, including the status of our risk appetite objectives and the results of firm-wide stress testing. The Group Risk Report is distributed internally to the BoD and the GEB, and senior members of Risk Control, GIA, Finance and Legal. Risk reports are also produced for significant Group entities (entities subject to enhanced standards of corporate governance) and significant branches. Granular divisional risk reports are provided to the respective business division CROs and business division Presidents. This monthly reporting is supplemented with daily or weekly reports, at various levels of granularity, covering market and credit risks for the business divisions to enable risk officers and senior management to monitor and control the Group’s risk profile. Our internal risk reporting covers financial and non-financial risks and is supported by risk data and measurement systems that are also used for external disclosure and regulatory reporting. Dedicated units within Risk Control assume responsibility for measurement, analysis and reporting of risk and for overseeing the quality and integrity of risk-related data. Our risk data and measurement systems are subject to periodic review by GIA, following a risk-based audit approach. 108 108 risk governance framework’s control and oversight responsibilities business division CROs and business division Presidents. This and required by our risk management and control principles. monthly reporting is supplemented with daily or weekly reports, Accordingly, risks are reported at a frequency and level of detail at various levels of granularity, covering market and credit risks commensurate with the extent and variability of the risk and the for the business divisions to enable risk officers and senior needs of the various governance bodies, regulators and risk management to monitor and control the Group’s risk profile. authority holders. Our internal risk reporting covers financial and non-financial risks The Group Risk Report provides a detailed qualitative and and is supported by risk data and measurement systems that are quantitative monthly overview of developments in financial and also used for external disclosure and regulatory reporting. non-financial risks at the firm-wide level, along with breakdowns Dedicated units within Risk Control assume responsibility for of risks at the divisional level, including the status of our risk measurement, analysis and reporting of risk and for overseeing the appetite objectives and the results of firm-wide stress testing. The quality and integrity of risk-related data. Our risk data and Group Risk Report is distributed internally to the BoD and the GEB, measurement systems are subject to periodic review by GIA, reports are also produced for significant Group entities (entities subject to enhanced standards of corporate governance) and significant branches. Risk, capital, liquidity and funding, and balance sheet | Risk management and control Internal risk reporting Model risk management Comprehensive and transparent reporting of risks is central to our Granular divisional risk reports are provided to the respective Introduction and senior members of Risk Control, GIA, Finance and Legal. Risk following a risk-based audit approach. Model governance framework We rely on models to derive risk management and control decisions, to measure risks or exposures, value instruments or positions, conduct stress testing, assess adequacy of capital, and manage clients’ assets and our own assets. Models may also be used to measure and monitor compliance with rules and regulations, for surveillance activities, or to meet financial or regulatory reporting requirements. Model risk is defined as the risk of adverse consequences (e.g., financial losses or reputational damage) resulting from incorrect models. Our model governance framework establishes requirements for identifying, measuring, monitoring, reporting, controlling and mitigating model risks. All the models that we use are subject to governance and controls throughout their life cycles. This is designed to ensure that risks arising from model use are identified, understood, managed, monitored, controlled and reported on both a model-specific and an aggregated level. Before they can be granted approval for use from the model sponsor, all our models are independently validated across four model risk dimensions: (i) model input; (ii) model methodology; (iii) model implementation; and (iv) model use. Once validated and approved for use, a model is subject to ongoing model performance monitoring and annual model confirmation, ensuring that the model is only used if it continues to be found fit for purpose. All models are subject to periodic model re-validation, with rigor, depth and frequency determined by the model’s materiality and complexity. Our model risk governance framework follows our overarching risk governance framework, with the three lines of defense (LoD) assigned as follows. – First LoD: model sponsors, model owners, model developers, and model users – Second LoD: Chief Model Risk Officer, Model Risk Management & Control – Third LoD: Group Internal Audit An important difference as compared with how LoD are usually defined in financial and non-financial risk is that some models are owned by traditionally second LoD functions, such as risk control, finance or compliance. Model risk appetite framework and statement The model risk appetite framework sets out the model risk appetite statement, defines the relevant metrics and lays out how appropriate adherence is assessed. Model oversight Model oversight committees and forums ensure that model risk is overseen at different levels of the organization, appropriate model risk management and control actions are taken and, where necessary, escalated to the next level. The Group Model Governance Committee is our most senior oversight and escalation body for all models in scope of our model governance framework. It is co-chaired by the Group CRO and the Group CFO and is responsible for: (i) reviewing and approving changes to the framework; (ii) approving the model risk appetite statement; (iii) overseeing adherence to the UBS model risk governance framework; and (iv) monitoring model risk at a firm- wide level. 108 109 109 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Risk measurement Audited | We apply a variety of methodologies and measurements to quantify the risks of our portfolios and potential risk concentrations. Risks that are not fully reflected within standard measures are subject to additional controls, which may include preapproval of specific transactions and the application of specific restrictions. Models to quantify risk are generally developed by dedicated units within control functions and are subject to independent validation.  › Refer to “Credit risk,” “Market risk” and “Non-financial risk” in this section for more information about model confirmation Our Enterprise-wide Stress Forum (the ESF) aims to ensure the consistency and adequacy of the assumptions and scenarios used for firm-wide stress measures. As part of its responsibilities, the ESF with input from the Think Tank, a panel of senior representatives from the business divisions, Risk Control and economic research, seeks to ensure that the set of stress scenarios adequately reflects current and potential developments in the macroeconomic and geopolitical environment, current and planned business activities, and actual or potential risk concentrations and vulnerabilities in our portfolios. in changes assumed Each scenario captures a wide range of macroeconomic variables, including GDP, equity prices, interest rates, foreign rates, commodity prices, property prices and exchange these unemployment. We use macroeconomic and market variables in each scenario to stress the key risk drivers of our portfolios. For example, lower GDP growth and rising interest rates may reduce the income of clients we have lent money to, which changes the credit risk parameters for probability of default, loss given default and exposure at default, and results in higher predicted credit losses within the stress scenario. We also capture the business risk resulting from lower fee, interest and trading income net of lower expenses. These effects are measured for all businesses and material risk types to calculate the aggregate estimated effect of the scenario on profit or loss, other comprehensive income, RWA, LRD and, ultimately, capital and leverage ratios. The assumed changes in macroeconomic variables are updated periodically to account for changes in the current and possible future market environment. In 2021, the binding scenario for CST was the internal Global Crisis scenario, which is characterized by a deterioration of global economic conditions leading to sovereign defaults in Europe and a global recession. The scenario was updated over the course of 2021 to incorporate current risks related to COVID-19, in particular macroeconomic assumptions, such as deteriorating GDP and rising unemployment. Continued weakness in economic data and tensions between European countries about debt mutualization undermines market confidence in the sustainability of peripheral debt, leading to a sharp spike in bond yields. Italy, Spain, Portugal and Cyprus receive bailout packages, on the condition of substantial debt restructuring, while Greece leaves the Eurozone. In addition to the effects of COVID-19, the macroeconomic impact is severe, as is the immediate market impact. Weak consumer and business confidence and a fall in global trade as a result of protectionism lead to a global recession. China is hit severely by trade protectionism and a confidence shock, which lead to a hard landing. procedures Stress testing We perform stress testing to estimate losses that could result from extreme yet plausible macroeconomic and geopolitical stress events to identify, better understand and manage our potential vulnerabilities and risk concentrations. Stress testing has a key role in our limits framework at the firm-wide, business division, legal entity and portfolio levels. Stress test results are regularly reported to the BoD and the GEB. As described in “Risk appetite framework,” stress testing, along with statistical loss measures, has a central role in our risk appetite and business planning processes. Our stress testing framework has three pillars: (i) combined stress tests; (ii) an extensive set of portfolio- and risk type-specific stress tests; and (iii) reverse stress testing. Our combined stress testing (CST) framework is scenario-based and aims to quantify overall firm-wide losses that could result from various potential global systemic events. The framework captures all material risks, as covered in “Risk categories.” Scenarios are forward-looking and encompass macroeconomic and geopolitical stress events calibrated to different levels of severity. We implement each scenario through the expected evolution of market indicators and economic variables under that scenario and then estimate the overall loss and capital implications were the scenario to occur. At least once a year, the Risk Committee approves the most relevant scenario, known as the binding scenario, for use as the main scenario for regular CST reporting and for monitoring risk exposure against our minimum capital, earnings and leverage ratio objectives in our risk appetite framework. We provide detailed stress loss analyses to FINMA and regulators of our legal entities in accordance with their requirements. 110 110 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Risk measurement Audited | We apply a variety of methodologies and measurements Our Enterprise-wide Stress Forum (the ESF) aims to ensure the to quantify the risks of our portfolios and potential risk consistency and adequacy of the assumptions and scenarios used concentrations. Risks that are not fully reflected within standard for firm-wide stress measures. As part of its responsibilities, the measures are subject to additional controls, which may include ESF with input from the Think Tank, a panel of senior preapproval of specific transactions and the application of specific representatives from the business divisions, Risk Control and restrictions. Models to quantify risk are generally developed by economic research, seeks to ensure that the set of stress scenarios dedicated units within control functions and are subject to adequately reflects current and potential developments in the independent validation.  › Refer to “Credit risk,” “Market risk” and “Non-financial risk” in this section for more information about model confirmation procedures Stress testing macroeconomic and geopolitical environment, current and planned business activities, and actual or potential risk concentrations and vulnerabilities in our portfolios. Each scenario captures a wide range of macroeconomic variables, including GDP, equity prices, interest rates, foreign exchange rates, commodity prices, property prices and unemployment. We use assumed changes in these We perform stress testing to estimate losses that could result from macroeconomic and market variables in each scenario to stress extreme yet plausible macroeconomic and geopolitical stress the key risk drivers of our portfolios. For example, lower GDP events to identify, better understand and manage our potential growth and rising interest rates may reduce the income of clients vulnerabilities and risk concentrations. Stress testing has a key role we have lent money to, which changes the credit risk parameters in our limits framework at the firm-wide, business division, legal for probability of default, loss given default and exposure at entity and portfolio levels. Stress test results are regularly reported default, and results in higher predicted credit losses within the to the BoD and the GEB. As described in “Risk appetite stress scenario. We also capture the business risk resulting from framework,” stress testing, along with statistical loss measures, lower fee, interest and trading income net of lower expenses. has a central role in our risk appetite and business planning These effects are measured for all businesses and material risk processes. types to calculate the aggregate estimated effect of the scenario Our stress testing framework has three pillars: (i) combined on profit or loss, other comprehensive income, RWA, LRD and, stress tests; (ii) an extensive set of portfolio- and risk type-specific ultimately, capital and leverage ratios. The assumed changes in stress tests; and (iii) reverse stress testing. macroeconomic variables are updated periodically to account for Our combined stress testing (CST) framework is scenario-based changes in the current and possible future market environment. and aims to quantify overall firm-wide losses that could result In 2021, the binding scenario for CST was the internal Global from various potential global systemic events. The framework Crisis scenario, which is characterized by a deterioration of global captures all material risks, as covered in “Risk categories.” economic conditions leading to sovereign defaults in Europe and Scenarios are forward-looking and encompass macroeconomic a global recession. The scenario was updated over the course of and geopolitical stress events calibrated to different levels of 2021 to incorporate current risks related to COVID-19, in severity. We implement each scenario through the expected particular macroeconomic assumptions, such as deteriorating evolution of market indicators and economic variables under that GDP and rising unemployment. Continued weakness in economic scenario and then estimate the overall loss and capital implications data and tensions between European countries about debt were the scenario to occur. At least once a year, the Risk mutualization undermines market confidence in the sustainability Committee approves the most relevant scenario, known as the of peripheral debt, leading to a sharp spike in bond yields. Italy, binding scenario, for use as the main scenario for regular CST Spain, Portugal and Cyprus receive bailout packages, on the reporting and for monitoring risk exposure against our minimum condition of substantial debt restructuring, while Greece leaves capital, earnings and leverage ratio objectives in our risk appetite the Eurozone. In addition to the effects of COVID-19, the We provide detailed stress loss analyses to FINMA and impact. Weak consumer and business confidence and a fall in regulators of our legal entities in accordance with their global trade as a result of protectionism lead to a global recession. macroeconomic impact is severe, as is the immediate market framework. requirements. China is hit severely by trade protectionism and a confidence shock, which lead to a hard landing. As part of the CST framework, we routinely monitored three additional stress scenarios throughout 2021: – The US Monetary Crisis scenario explores a loss of confidence in the US, which leads to a sell-off of US dollar-denominated assets, sparking an abrupt and substantial depreciation of the US dollar. The US economy is hit hard, financial markets enter a period of high volatility and other industrialized countries replicate the cyclical pattern of the US. Regional inflation trends diverge as the US experiences significant inflationary pressures while other developed markets experience deflation. – The Severe Global Interest Rate Steepening scenario explores a sharp and persistent rise in inflation leading to a significant rise in long-term interest rates and a period of market turbulence. Economic activity slows across the globe as both business and household sentiment collapse, while credit conditions deteriorate. Despite weakness in activity, inflation remains stubbornly high, forcing central banks to begin hiking their policy rates and thereby prolonging the weakness in economic activity and asset prices. – The Extreme Coronavirus scenario explores a resurgence of COVID-19 and subsequent containment policies, which lead to a severe global downturn with long-term scarring impacts. The lack of adherence to containment measures leads to rapid resurgences in the number of cases and fatalities, which force countries to enforce increasingly stringent lockdown policies. Vaccines prove to be ineffective in the near term, due to either logistical constraints of vaccine distribution, vaccine hesitancy or virus variants undermining the efficacy of current vaccines. We have updated the binding stress scenario in our CST framework for 2022. The updated Global Crisis scenario reflects the weaker fiscal conditions resulting from the COVID-19 pandemic, which leads to sovereign defaults in several emerging markets. The scenario continues to assume a Eurozone crisis and a hard landing in China. Portfolio-specific stress tests are measures tailored to the risks of specific portfolios. Our portfolio stress loss measures are derived from data on past events, but also include forward- looking elements (e.g., we derive the expected market movements in our liquidity-adjusted stress metric using a combination of historical market behavior, based on an analysis of historical events, and forward-looking analysis, including consideration of defined scenarios not modeled on any historical events). Results of portfolio-specific stress tests may be subject to limits to explicitly control risk-taking or may be monitored without limits to identify vulnerabilities. Reverse stress testing starts from a defined stress outcome (e.g., a specified loss amount, reputational damage, a liquidity shortfall or a breach of regulatory capital ratios) and works backward to identify economic or financial scenarios that could result in such an outcome. As such, reverse stress testing is intended to complement scenario-based stress tests by assuming “what if” outcomes that could extend beyond the range normally considered, and thereby potentially challenge assumptions regarding severity and plausibility. We also routinely analyze the effect of increases or decreases in interest rates and changes in the structure of yield curves. Within Group Treasury, we also perform stress testing to determine the optimum asset and liability structure, enabling us to maintain an appropriately balanced liquidity and funding position under various scenarios. These scenarios differ from those outlined above, because they focus on specific situations that could generate liquidity and funding stress, as opposed to the scenarios used in the CST framework, which focus on the effect on profit or loss and capital. › Refer to “Credit risk” and “Market risk” in this section for more information about stress loss measures › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about stress testing Statistical measures We complement the scenario-based CST measures with our statistical stress framework to calculate and aggregate risks using statistical techniques to derive stress events at chosen confidence levels. This framework is used to derive a loss distribution, considering effects on both income and expenses, based on the simulation of historically observed financial and economic risk factors in combination with the firm’s actual earnings and relevant risk exposures. From that, we determine earnings-at-risk (EaR), measuring the potential shortfall in earnings (i.e., the deviation from forecast earnings) at a 95% confidence level and evaluated over a one-year horizon. EaR is used for the assessment of the earnings objectives in our risk appetite framework. We extend the EaR measure, incorporating the effects of gains and losses recognized through other comprehensive income, to derive a distribution of potential effects of stress events on common equity tier 1 capital. From this distribution, we derive our capital-at-risk (CaR) buffer measure at a 95% confidence level to assess our capital and leverage ratio risk appetite objectives, and derive our CaR solvency measure at a 99.9% confidence level to assess our solvency risk appetite objective. We use the CaR solvency measure as a basis for deriving the contributions of the business divisions to risk-based capital (RBC), which is a component of our equity attribution framework. RBC measures the potential capital impairment from an extreme stress event at a 99.9% confidence level. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the equity attribution framework 110 111 111 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Portfolio and position limits Risk concentrations UBS maintains a comprehensive set of risk limits across its major risk portfolios. These portfolio limits are set based on our risk appetite and periodically reviewed and adjusted as part of the business planning process. Firm-wide stress and statistical metrics are complemented by more granular portfolio and position limits, triggers and targets. Combining these measures provides a comprehensive control framework to apply to our business divisions, as well as the significant legal entities, as relevant to the key risks arising from their businesses. We apply limits to a variety of exposures at portfolio level, using statistical and stress-based measures, such as value-at-risk, liquidity-adjusted stress, loan underwriting limits, economic value sensitivity and portfolio default simulations for loan books. These are complemented with a set of controls for net interest income sensitivity, mark-to-market losses on available-for-sale portfolios, and the effect of foreign exchange movements on capital and capital ratios. Portfolio measures are supplemented with position-level controls. Risk measures for position controls are based on market risk sensitivities and counterparty-level credit risk exposures. Market risk sensitivities include sensitivities to changes in general market risk factors (e.g., equity indices, foreign exchange rates and interest rates) and sensitivities to issuer-specific factors (e.g., changes in an issuer’s credit spread or default risk). We monitor numerous market and treasury risk controls on a daily basis. Counterparty measures capture the current and potential future exposure to an individual counterparty, considering collateral and legally enforceable netting agreements. › Refer to “Credit risk” in this section for more information about counterparty limits Audited | Risk concentrations may exist where one or several positions within or across different risk categories could result in significant losses relative to UBS’s financial strength. Identifying such risk concentrations and assessing their potential impact is a critical component of our risk management and control process. For financial risks, we consider a number of elements, such as shared characteristics of positions, the size of the portfolio and the sensitivity of positions to changes in the underlying risk factors. Also important in our assessment is the liquidity of the markets where the positions are traded, as well as the availability and effectiveness of hedges or other potential risk-mitigating factors. This includes an assessment of the provider of the hedge and market liquidity where the hedge might be traded. Particular attention is given to identification of wrong-way risk and risk on risk. Wrong-way risk is defined as a positive correlation between the size of the exposure and the likelihood of a loss. Risk on risk is when a position and its risk mitigation can be impacted by the same event. For non-financial risks, risk concentrations may result from, for example, a single operational risk issue that is large on its own (i.e., has the potential to produce a single high-impact loss or a number of losses that together are high impact) or related risk issues that may link together to create a high impact. Risk concentrations are subject to increased oversight by Group Risk Control and Group Compliance, Regulatory & Governance, and assessed to determine whether they should be reduced or mitigated, depending on the available means to do so. It is possible that material losses could occur on financial or non- financial risks, particularly if the correlations that emerge in a stressed environment differ markedly from those envisaged by risk models.  › Refer to “Risk appetite framework” in this section for more › Refer to “Credit risk” and “Market risk” in this section for more information about the risk appetite framework information about the composition of our portfolios › Refer to the “Risk factors” section of this report for more information 112 112 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Portfolio and position limits Risk concentrations UBS maintains a comprehensive set of risk limits across its major Audited | Risk concentrations may exist where one or several risk portfolios. These portfolio limits are set based on our risk positions within or across different risk categories could result in appetite and periodically reviewed and adjusted as part of the significant losses relative to UBS’s financial strength. Identifying business planning process. such risk concentrations and assessing their potential impact is a Firm-wide stress and statistical metrics are complemented by critical component of our risk management and control process. more granular portfolio and position limits, triggers and targets. For financial risks, we consider a number of elements, such as Combining these measures provides a comprehensive control shared characteristics of positions, the size of the portfolio and framework to apply to our business divisions, as well as the the sensitivity of positions to changes in the underlying risk significant legal entities, as relevant to the key risks arising from factors. Also important in our assessment is the liquidity of the their businesses. markets where the positions are traded, as well as the availability We apply limits to a variety of exposures at portfolio level, and effectiveness of hedges or other potential risk-mitigating using statistical and stress-based measures, such as value-at-risk, factors. This includes an assessment of the provider of the hedge liquidity-adjusted stress, loan underwriting limits, economic value and market liquidity where the hedge might be traded. Particular sensitivity and portfolio default simulations for loan books. These attention is given to identification of wrong-way risk and risk on are complemented with a set of controls for net interest income risk. Wrong-way risk is defined as a positive correlation between sensitivity, mark-to-market losses on available-for-sale portfolios, the size of the exposure and the likelihood of a loss. Risk on risk and the effect of foreign exchange movements on capital and is when a position and its risk mitigation can be impacted by the capital ratios. same event. Portfolio measures are supplemented with position-level For non-financial risks, risk concentrations may result from, for controls. Risk measures for position controls are based on market example, a single operational risk issue that is large on its own risk sensitivities and counterparty-level credit risk exposures. (i.e., has the potential to produce a single high-impact loss or a Market risk sensitivities include sensitivities to changes in general number of losses that together are high impact) or related risk market risk factors (e.g., equity indices, foreign exchange rates issues that may link together to create a high impact. and interest rates) and sensitivities to issuer-specific factors (e.g., Risk concentrations are subject to increased oversight by Group changes in an issuer’s credit spread or default risk). We monitor Risk Control and Group Compliance, Regulatory & Governance, numerous market and treasury risk controls on a daily basis. and assessed to determine whether they should be reduced or Counterparty measures capture the current and potential future mitigated, depending on the available means to do so. It is exposure to an individual counterparty, considering collateral and possible that material losses could occur on financial or non- legally enforceable netting agreements. › Refer to “Credit risk” in this section for more information about financial risks, particularly if the correlations that emerge in a stressed environment differ markedly from those envisaged by risk counterparty limits models.  › Refer to “Risk appetite framework” in this section for more › Refer to “Credit risk” and “Market risk” in this section for more information about the risk appetite framework information about the composition of our portfolios › Refer to the “Risk factors” section of this report for more information 112 Credit risk Key developments In Global Wealth Management, the Lombard and mortgage books showed significant growth primarily in the Americas over the course of 2021, while keeping a stable risk profile with regard to concentrations and with no material losses. Across the firm, our lending portfolios performed well, with credit loss expenses below expectations. Nevertheless, we continue to be exposed to the development of the global economy and the effects of the ongoing and highly uncertain COVID-19 pandemic. We incurred a loss of USD 861 million in the first half of 2021 on the default of a US-based client of our prime brokerage business. We have conducted a thorough review and put in place appropriate measures relevant client onboarding and risk management and control processes. Across the items identified for remediation and beyond, we have made changes to our organization to drive wider improvements in both first and second lines of defense. Our prime brokerage business remains a strategic element of UBS’s offering. to strengthen our Credit loss expense / release Total net credit loss releases were USD 148 million in 2021, compared with net credit loss expenses of USD 694 million in the prior year, reflecting net releases of USD 123 million related to stage 1 and 2 positions and net releases of USD 25 million related to credit-impaired (stage 3) positions. Stage 1 and 2 net credit loss releases of USD 123 million in 2021 included a partial net release of a post-model adjustment of in USD 68 million, due to the continued positive trend macroeconomic scenario input data during the year, a USD 45 Credit loss (expense) / release million net release from a number of model and methodology changes, a from residual USD 10 million net remeasurements within the loan book, and derecognized transactions, partially offset by expenses from new transactions. Stage 3 net releases of USD 25 million were recognized across a number of defaulted positions, primarily corporate lending positions in Personal & Corporate Banking. release › Refer to “Note 1 Summary of material accounting policies,” “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about IFRS 9 and expected credit losses Audited | Main sources of credit risk – Global Wealth Management predominantly conducts securities-based (Lombard) lending and mortgage lending. – A substantial portion of lending exposure arises from Personal & Corporate Banking, which offers mortgage loans, secured mainly by residential properties and income-producing real estate, as well as corporate loans, and therefore depends on the performance of the Swiss economy. – The Investment Bank’s credit exposure arises mainly from lending, derivatives financing. trading and Derivatives trading and securities financing are mainly investment grade. Loan underwriting activity can be lower rated and give rise to temporary concentrated exposure. securities – Credit risk within Non-core and Legacy Portfolio relates to derivative transactions and securitized positions.  USD million FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2200 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..1199 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions 2288 11 2299 (48) (40) ((8888)) 3 (23) ((2200)) 6622 2244 8866 (129) (128) ((225577)) 23 (44) ((2211)) 00 ((11)) ((11)) 0 (2) ((22)) 0 0 00 3344 00 3344 (88) (217) ((330055)) (4) (26) ((3300)) 00 00 00 0 (42) ((4422)) 0 (7) ((77)) Total 112233 2255 114488 (266) (429) ((669944)) 22 (100) ((7788)) 113 113 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Risk management and control Audited | Overview of measurement, monitoring and management techniques Credit risk profile of the Group The exposures detailed in this section are based on management’s view of credit risk, which differs in certain respects from the expected credit loss (ECL) measurement requirements of IFRS. include drawn loans, guarantees and Internally, we put credit risk exposures into two broad categories: banking products and traded products. Banking products loan commitments, amounts due from banks, balances at central banks, and other financial assets at amortized cost. Traded products include over-the-counter (OTC) derivatives, exchange- traded derivatives (ETDs) and securities financing transactions (SFTs), consisting of securities borrowing and lending, and repurchase and reverse repurchase agreements. Banking products Breakdowns of banking products exposures in the “Banking and traded products exposure in our business divisions and Group Functions” table on the next page reflect the total exposures within the scope of ECL requirements and are gross before allowances and provisions for ECL and credit hedges. Guarantees and loan commitments are shown on a notional basis, without applying credit conversion factors. › Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for more information about our accounting policy for allowances and provisions for ECL › Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about ECL measurement requirements under IFRS › Refer to “Note 14a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this report for more details – Credit risk from transactions with individual counterparties is based on our estimates of probability of default (PD), exposure at default (EAD) and loss given default (LGD). Limits are established for individual counterparties and groups of related counterparties covering banking and traded products, and for settlement amounts. Risk authorities are approved by the BoD and are delegated to the Group CEO, the Group CRO and divisional CROs, based on risk exposure amounts, internal credit rating and potential for losses. – Limits apply not only to the current outstanding amount but also to contingent commitments and the potential future exposure of traded products. – The Investment Bank monitoring, measurement and limit framework distinguishes between exposures intended to be held to maturity (take-and-hold exposures) and those intended for distribution or risk transfer (temporary exposures). – We use models to derive portfolio credit risk measures of expected loss, statistical loss and stress loss at Group-wide and business division levels, and to establish portfolio limits. – Credit risk concentrations can arise if clients are engaged in similar activities, located in the same geographical region or have comparable economic characteristics, e.g., if their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. To avoid credit risk concentrations, we establish limits / operational controls that constrain risk concentrations at portfolio and sub- portfolio levels for sector exposure, country risk and specific product exposures.  114 114 Risk, capital, liquidity and funding, and balance sheet | Risk management and control management techniques The exposures detailed in this section are based on management’s – Credit risk from transactions with individual counterparties is view of credit risk, which differs in certain respects from the based on our estimates of probability of default (PD), exposure expected credit loss (ECL) measurement requirements of IFRS. at default (EAD) and loss given default (LGD). Limits are Internally, we put credit risk exposures into two broad established for individual counterparties and groups of related categories: banking products and traded products. Banking counterparties covering banking and traded products, and for products include drawn loans, guarantees and loan settlement amounts. Risk authorities are approved by the BoD commitments, amounts due from banks, balances at central and are delegated to the Group CEO, the Group CRO and banks, and other financial assets at amortized cost. Traded divisional CROs, based on risk exposure amounts, internal products include over-the-counter (OTC) derivatives, exchange- credit rating and potential for losses. traded derivatives (ETDs) and securities financing transactions – Limits apply not only to the current outstanding amount but (SFTs), consisting of securities borrowing and lending, and also to contingent commitments and the potential future repurchase and reverse repurchase agreements. exposure of traded products. – The Investment Bank monitoring, measurement and limit Banking products framework distinguishes between exposures intended to be held to maturity (take-and-hold exposures) and those intended Breakdowns of banking products exposures in the “Banking and for distribution or risk transfer (temporary exposures). traded products exposure in our business divisions and Group – We use models to derive portfolio credit risk measures of Functions” table on the next page reflect the total exposures expected loss, statistical loss and stress loss at Group-wide and within the scope of ECL requirements and are gross before business division levels, and to establish portfolio limits. allowances and provisions for ECL and credit hedges. Guarantees – Credit risk concentrations can arise if clients are engaged in and loan commitments are shown on a notional basis, without similar activities, located in the same geographical region or applying credit conversion factors. have comparable economic characteristics, e.g., if their ability › Refer to “Note 1 Summary of material accounting policies” in the to meet contractual obligations would be similarly affected by “Consolidated financial statements” section of this report for changes in economic, political or other conditions. To avoid more information about our accounting policy for allowances credit risk concentrations, we establish limits / operational and provisions for ECL controls that constrain risk concentrations at portfolio and sub- › Refer to “Note 9 Financial assets at amortized cost and other portfolio levels for sector exposure, country risk and specific positions in scope of expected credit loss measurement” and product exposures.  “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about ECL measurement requirements under IFRS › Refer to “Note 14a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this report for more details Audited | Overview of measurement, monitoring and Credit risk profile of the Group Banking and traded products exposure in our business divisions and Group Functions USD million BBaannkkiinngg pprroodduuccttss11,,22 Gross exposure of which: loans and advances to customers (on-balance sheet) of which: guarantees and loan commitments (off-balance sheet) TTrraaddeedd pprroodduuccttss22,,33 Gross exposure of which: over-the-counter derivatives of which: securities financing transactions of which: exchange-traded derivatives OOtthheerr ccrreeddiitt lliinneess,, ggrroossss44 Total credit-impaired exposure, gross (stage 3)1 Total allowances and provisions for expected credit losses (stages 1 to 3) of which: stage 1 of which: stage 2 of which: stage 3 (allowances and provisions for credit-impaired exposures) USD million BBaannkkiinngg pprroodduuccttss11,,22 Gross exposure of which: loans and advances to customers (on-balance sheet) of which: guarantees and loan commitments (off-balance sheet) TTrraaddeedd pprroodduuccttss22,,33 Gross exposure of which: over-the-counter derivatives of which: securities financing transactions of which: exchange-traded derivatives OOtthheerr ccrreeddiitt lliinneess,, ggrroossss44 GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt 333377,,226666 222288,,559988 1100,,777722 99,,558822 77,,118866 00 22,,339966 1122,,994477 772299 226644 8899 4411 113355 PPeerrssoonnaall && CCoorrppoorraattee BBaannkkiinngg 222299,,333344 115522,,884477 2299,,773377 778833 776666 00 1177 2244,,117744 11,,661177 770099 112266 114466 443388 3311..1122..2211 AAsssseett MMaannaaggeemmeenntt IInnvveessttmmeenntt BBaannkk GGrroouupp FFuunnccttiioonnss 11,,552200 00 00 5599,,335522 1133,,772200 1144,,999944 6655,,551144 33,,444455 44,,994477 00 00 00 00 00 00 00 00 00 00 3355,,995500 99,,776677 1188,,556666 77,,661177 33,,662299 226644 118888 6644 3344 9900 2288 00 44 44 00 00 Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions 31.12.20 300,368 208,324 10,153 9,919 6,946 0 2,973 12,201 227,139 153,975 28,814 1,201 1,182 0 19 24,950 3,374 1 0 56,237 13,964 15,936 52,199 4,324 3,550 0 0 0 0 0 40,215 11,236 21,753 7,227 2,952 31 TToottaall 669922,,998855 339988,,661111 6600,,445500 4466,,331144 1177,,771199 1188,,556666 1100,,003300 4400,,777788 22,,661100 11,,116655 228822 222200 666622 Total 639,317 380,589 58,453 51,335 19,364 21,753 10,218 40,134 Total credit-impaired exposure, gross (stage 3)1 Total allowances and provisions for expected credit losses (stages 1 to 3) of which: stage 1 of which: stage 2 of which: stage 3 (allowances and provisions for credit-impaired exposures) 3,778 1,468 306 333 829 11 ECL gross exposure including other financial assets at amortized cost, but excluding cash, receivables from securities financing transactions, cash collateral receivables on derivative instruments, financial assets at FVOCI, irrevocable committed prolongation of existing loans and unconditionally revocable committed credit lines and forward starting reverse repurchase and securities borrowing agreements. 22 Internal management view of credit risk, which differs in certain respects from IFRS. 33 As counterparty risk for traded products is managed at counterparty level, no further split between exposures in the Investment Bank and Group Functions is provided. 44 Unconditionally revocable committed credit lines. 1,997 842 130 216 497 1,324 318 103 54 160 450 298 70 63 165 7 10 3 0 6 0 1 0 0 1 Global Wealth Management Gross banking products exposure within Global Wealth Management increased to USD 337 billion from USD 300 billion. Our Global Wealth Management loan portfolio is mainly secured by securities (Lombard loans) and by residential real estate. Most Lombard loans were of high quality, with 93% rated as investment grade based on our internal ratings, and are typically short term in nature, with an average loan-to-value (LTV) of 46%. Moreover, Lombard loans can be canceled immediately if the collateral quality deteriorates and margin calls are not met. In 2021, the Lombard book, including traded products, increased approximately 10%, while keeping a stable risk profile with regard to collateral concentrations with no material losses. The increase was mainly driven by higher loan volumes in the US that are collateralized by highly liquid and diversified securities. The share of non-standard Lombard loans, for example with less liquid or concentrated collateral, was stable at approximately 4% of the total Lombard book. The mortgage book increased by approximately 8%, driven by higher volumes of mortgage loans in the US residential real estate portfolios (average LTV 51%). Other financings and non-standard represent approximately 3% of the total banking products exposures and are consolidated in a corporate and other portfolio that increased approximately 57% in 2021, mainly driven by private equity subscription facilities in the US, which are mostly investment grade rated. loans 114 115 115 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Global Wealth Management and Personal & Corporate Banking loans and advances to customers, gross1 USD million Secured by residential real estate Secured by commercial / industrial real estate Secured by cash Secured by securities Secured by guarantees and other collateral Unsecured loans and advances to customers Global Wealth Management Personal & Corporate Banking 3311..1122..2211 5588,,665555 33,,333388 3344,,117755 111155,,990011 1144,,113388 22,,339911 31.12.20 60,021 3,273 22,722 104,652 15,605 2,051 3311..1122..2211 111100,,004411 1188,,887788 33,,111144 22,,221144 77,,443355 1111,,116666 31.12.20 111,554 19,623 2,860 2,003 6,942 10,994 TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, ggrroossss AAlllloowwaanncceess TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, nneett ooff aalllloowwaanncceess 11 Collateral arrangements generally incorporate a range of collateral, including cash, securities, real estate and other collateral. UBS applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. In 2021, the collateral allocation was refined to reflect additional cash collateral and custody accounts that are also available as security for certain on-balance sheet lending. This resulted in an increase in loans secured by cash, with an offsetting reduction in loans secured by residential real estate and loans secured by securities. 115522,,884477 ((557744)) 115522,,227733 208,324 (190) 208,134 222288,,559988 ((116688)) 222288,,443311 153,975 (676) 153,299 Personal & Corporate Banking Gross banking products exposure (excluding exposure re- allocated from Group Treasury) within Personal & Corporate Banking was largely unchanged in our reporting currency at USD 186 billion (CHF 170 billion), compared with USD 187 billion (CHF 165 billion). Net banking products exposure was USD 186 billion (CHF 169 billion), compared with USD 186 billion (CHF 165 billion), of which approximately 65% was classified as investment grade, unchanged from 2020. Around 50% of the exposure is categorized in the lowest LGD bucket, i.e., 0–25%, similar to 2020. Personal & Corporate Banking’s gross loan portfolio was USD 153 billion (CHF 139 billion) compared with USD 154 billion (CHF 136 billion) in 2020. This portfolio is predominantly denominated in Swiss francs and the increase in Swiss franc terms was more than offset by the effect of the US dollar appreciating. As of 31 December 2021, 93% of this portfolio was secured by collateral, mainly residential and commercial property. Of the total unsecured amount, 83% related to cash flow-based lending to corporate counterparties and 4% related to lending to public authorities. Based on our internal ratings, 50% of the unsecured loan portfolio was rated as investment grade, compared with 45% in 2020. The improved macroeconomic environment for most industries along with the supporting measures of the Swiss Government and Cantons, such as COVID-19 loans, short-time work compensation and subsidies, as well as our careful risk management, led to numerous credit loss releases during 2021. Our Swiss corporate banking products portfolio, which was USD 36 billion (CHF 33 billion) compared with USD 35 billion (CHF 31 billion) in 2020, consists of loans, guarantees and loan commitments to multi-national and domestic counterparties. The small and medium-sized entity (SME) portfolio, in particular, is well diversified across industries. However, such companies are reliant on the domestic economy and the economies to which they export, in particular the EU and the US. In addition, the change in the EUR / CHF exchange rate is an important risk factor for Swiss corporate clients. Our commodity trade finance portfolio focuses on energy and base-metal trading companies, where the related commodity price risk is hedged to a large extent by the commodity trader. The majority of limits in this business are uncommitted, transactional and short-term in nature. Our portfolio size was USD 8 billion (CHF 7 billion) as of 31 December 2021, compared with USD 6 billion (CHF 5 billion) in 2020, with the increase in exposure mainly driven by the strong appreciation of commodity prices in 2021. Our exposure to banks consists primarily of contingent claims and was USD 6 billion (CHF 5 billion), unchanged compared with 2020. The delinquency ratio was 0.3% for the corporate portfolio, compared with 0.4% at the end of 2020. › Refer to “Credit risk models” in this section for more information about loss given default, rating grades and rating agency mappings Swiss mortgage loan portfolio Our Swiss mortgage loan portfolio secured by residential and commercial real estate in Switzerland continues to be our largest loan portfolio. These mortgage loans, totaling USD 167 billion (CHF 152 billion), mainly originate from Personal & Corporate Banking, but also from Global Wealth Management Region Switzerland. Of these mortgage loans, USD 152 billion (CHF 138 billion) related to residential properties that the borrower was either occupying or renting out, with full recourse to the borrower. Of this USD 152 billion (CHF 138 billion), USD 110 billion (CHF 100 billion) is related to properties occupied by the borrower, with an average LTV ratio of 52%, compared with 54% as of 31 December 2020. The average LTV for newly originated loans for this portfolio was 64%, compared with 67% in 2020. The remaining USD 42 billion (CHF 38 billion) of the Swiss residential mortgage loan portfolio related to properties rented out by the borrower and the average LTV of that portfolio was 52%, compared with 53% as of 31 December 2020. The average LTV for newly originated Swiss residential mortgage loans for properties rented out by the borrower was 55%, compared with 56% in 2020. As illustrated in the “Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loan-to- value (LTV) buckets” table on the following page, more than 99% of the aggregate amount of Swiss residential mortgage loans would continue to be covered by the real estate collateral even if the value assigned to that collateral were to decrease 20%, and more than 98% would remain covered by the real estate collateral even if the value assigned to that collateral were to decrease 30%. In this table, the amount of each mortgage loan is allocated across the LTV buckets to indicate the portion at risk at the various value levels shown; for example, a loan of 75 with an LTV ratio of 75% (i.e., a collateral value of 100) would result in allocations of 30 in the less-than-30% LTV bucket, 20 in the 31–50% bucket, 10 in the 51–60% bucket, 10 in the 61–70% bucket and 5 in the 71– 80% bucket. 116 116 (795) ((667744)) 118855,,660044 185,853 31.12.20 3311..1122..2211 LLGGDD bbuucckkeettss 11,,888888 11,,770066 118811 00 33,,777777 2266––5500%% 5511––7755%% 99,,334477 4411,,773388 7766––110000%% 11,,888899 2255,,330066 1111,,664466 2233,,119955 1100,,551133 22,,111100 11,,333322 11,,113333 225522 Total exposure before deduction of allowances and provisions 118866,,227788 9922,,888800 6688,,337766 2211,,224455 WWeeiigghhtteedd aavveerraaggee LLGGDD ((%%)) 2277 3344 3344 3366 4422 2299 Weighted average LGD (%) 26 33 33 35 41 29 Exposure 121,386 63,266 58,141 5,125 1,997 186,648 Personal & Corporate Banking: distribution of banking products exposure across internal UBS ratings and loss given default (LGD) buckets1 USD million, except where indicated Internal UBS rating2 Investment grade Sub-investment grade of which: 6−9 of which: 10−13 Defaulted / Credit-impaired EExxppoossuurree 112211,,552200 6633,,114411 5577,,995555 55,,118855 11,,661177 00––2255%% 6688,,554477 2244,,330011 2222,,554400 11,,776600 3322 Less: allowances and provisions NNeett bbaannkkiinngg pprroodduuccttss eexxppoossuurree11 11 Excluding balances at central banks and Group Treasury reallocations. 22 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section. Risk, capital, liquidity and funding, and balance sheet | Risk management and control Global Wealth Management and Personal & Corporate Banking loans and advances to customers, gross1 USD million Secured by residential real estate Secured by commercial / industrial real estate Secured by cash Secured by securities Secured by guarantees and other collateral Unsecured loans and advances to customers TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, ggrroossss AAlllloowwaanncceess TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, nneett ooff aalllloowwaanncceess Global Wealth Management Personal & Corporate Banking 3311..1122..2211 31.12.20 5588,,665555 33,,333388 3344,,117755 111155,,990011 1144,,113388 22,,339911 222288,,559988 ((116688)) 222288,,443311 60,021 3,273 22,722 104,652 15,605 2,051 208,324 (190) 208,134 3311..1122..2211 111100,,004411 1188,,887788 33,,111144 22,,221144 77,,443355 1111,,116666 115522,,884477 ((557744)) 115522,,227733 31.12.20 111,554 19,623 2,860 2,003 6,942 10,994 153,975 (676) 153,299 11 Collateral arrangements generally incorporate a range of collateral, including cash, securities, real estate and other collateral. UBS applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. In 2021, the collateral allocation was refined to reflect additional cash collateral and custody accounts that are also available as security for certain on-balance sheet lending. This resulted in an increase in loans secured by cash, with an offsetting reduction in loans secured by residential real estate and loans secured by securities. Personal & Corporate Banking Our exposure to banks consists primarily of contingent claims Gross banking products exposure (excluding exposure re- and was USD 6 billion (CHF 5 billion), unchanged compared with allocated from Group Treasury) within Personal & Corporate 2020. Banking was largely unchanged in our reporting currency at The delinquency ratio was 0.3% for the corporate portfolio, USD 186 billion (CHF 170 billion), compared with USD 187 compared with 0.4% at the end of 2020. billion (CHF 165 billion). Net banking products exposure was USD 186 billion (CHF 169 billion), compared with USD 186 › Refer to “Credit risk models” in this section for more information about loss given default, rating grades and rating agency billion (CHF 165 billion), of which approximately 65% was mappings classified as investment grade, unchanged from 2020. Around 50% of the exposure is categorized in the lowest LGD bucket, Swiss mortgage loan portfolio i.e., 0–25%, similar to 2020. Personal & Corporate Banking’s Our Swiss mortgage loan portfolio secured by residential and gross loan portfolio was USD 153 billion (CHF 139 billion) commercial real estate in Switzerland continues to be our largest compared with USD 154 billion (CHF 136 billion) in 2020. This loan portfolio. These mortgage loans, totaling USD 167 billion portfolio is predominantly denominated in Swiss francs and the (CHF 152 billion), mainly originate from Personal & Corporate increase in Swiss franc terms was more than offset by the effect Banking, but also from Global Wealth Management Region of the US dollar appreciating. As of 31 December 2021, 93% of Switzerland. Of these mortgage loans, USD 152 billion (CHF 138 this portfolio was secured by collateral, mainly residential and billion) related to residential properties that the borrower was commercial property. Of the total unsecured amount, 83% either occupying or renting out, with full recourse to the related to cash flow-based lending to corporate counterparties borrower. Of this USD 152 billion (CHF 138 billion), USD 110 and 4% related to lending to public authorities. Based on our billion (CHF 100 billion) is related to properties occupied by the internal ratings, 50% of the unsecured loan portfolio was rated borrower, with an average LTV ratio of 52%, compared with 54% as investment grade, compared with 45% in 2020. as of 31 December 2020. The average LTV for newly originated The improved macroeconomic environment for most industries loans for this portfolio was 64%, compared with 67% in 2020. along with the supporting measures of the Swiss Government and The remaining USD 42 billion (CHF 38 billion) of the Swiss Cantons, such as COVID-19 loans, short-time work compensation residential mortgage loan portfolio related to properties rented and subsidies, as well as our careful risk management, led to out by the borrower and the average LTV of that portfolio was numerous credit loss releases during 2021. 52%, compared with 53% as of 31 December 2020. The average Our Swiss corporate banking products portfolio, which was LTV for newly originated Swiss residential mortgage loans for USD 36 billion (CHF 33 billion) compared with USD 35 billion properties rented out by the borrower was 55%, compared with (CHF 31 billion) in 2020, consists of loans, guarantees and loan 56% in 2020. commitments to multi-national and domestic counterparties. The As illustrated in the “Swiss mortgages: distribution of net small and medium-sized entity (SME) portfolio, in particular, is exposure at default (EAD) across exposure segments and loan-to- well diversified across industries. However, such companies are value (LTV) buckets” table on the following page, more than 99% reliant on the domestic economy and the economies to which of the aggregate amount of Swiss residential mortgage loans they export, in particular the EU and the US. In addition, the would continue to be covered by the real estate collateral even if change in the EUR / CHF exchange rate is an important risk factor the value assigned to that collateral were to decrease 20%, and for Swiss corporate clients. more than 98% would remain covered by the real estate collateral Our commodity trade finance portfolio focuses on energy and even if the value assigned to that collateral were to decrease 30%. base-metal trading companies, where the related commodity price In this table, the amount of each mortgage loan is allocated across risk is hedged to a large extent by the commodity trader. The the LTV buckets to indicate the portion at risk at the various value majority of limits in this business are uncommitted, transactional levels shown; for example, a loan of 75 with an LTV ratio of 75% and short-term in nature. Our portfolio size was USD 8 billion (i.e., a collateral value of 100) would result in allocations of 30 in (CHF 7 billion) as of 31 December 2021, compared with USD 6 the less-than-30% LTV bucket, 20 in the 31–50% bucket, 10 in billion (CHF 5 billion) in 2020, with the increase in exposure mainly the 51–60% bucket, 10 in the 61–70% bucket and 5 in the 71– driven by the strong appreciation of commodity prices in 2021. 80% bucket. Personal & Corporate Banking: unsecured loans by industry sector Construction Financial institutions Hotels and restaurants Manufacturing Private households Public authorities Real estate and rentals Retail and wholesale Services Other EExxppoossuurree,, ggrroossss 3311..1122..2211 UUSSDD mmiilllliioonn 116666 22,,778866 111199 11,,555555 11,,448888 441199 557744 11,,997711 11,,990088 118800 %% 11..55 2255..00 11..11 1133..99 1133..33 33..88 55..11 1177..77 1177..11 11..66 31.12.20 USD million 157 2,553 133 1,572 1,648 472 498 1,756 1,896 309 % 1.4 23.2 1.2 14.3 15.0 4.3 4.5 16.0 17.3 2.8 1111,,116666 110000..00 10,994 100.0 Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loan-to-value (LTV) buckets USD billion, except where indicated Exposure segment Residential mortgages Income-producing real estate Corporates Other segments MMoorrttggaaggee--ccoovveerreedd eexxppoossuurree Mortgage-covered exposure 31.12.20 3311..1122..2211 LLTTVV bbuucckkeettss 31.12.20 ≤≤3300%% 3311––5500%% 5511––6600%% 6611––7700%% 7711––8800%% 8811––110000%% >>110000%% TToottaall Total Net EAD as a % of row total Net EAD as a % of row total Net EAD as a % of row total Net EAD as a % of row total Net EAD as a % of total Net EAD as a % of total 8899..00 6622 1144..55 6655 77..11 6655 00..66 6688 111111..22 6633 108.8 61 3388..66 1100..22 2277 55..77 2255 22..66 2233 00..22 2200 4477..00 2266 47.3 27 77 11..33 66 00..77 66 00..00 55 1122..22 77 13.0 7 44..66 33 00..55 22 00..44 33 00..00 33 55..55 33 6.4 4 11..22 11 00..22 11 00..22 11 00..00 22 11..55 11 2.0 1 00..22 00 00..00 00 00..11 11 00..00 22 00..33 00 0.5 0 00..11 00 00..00 00 00..00 00 00..00 00 00..11 00 0.2 0 114433..99 143.9 2222..22 22.8 1100..99 10.8 00..99 0.8 117777..99 178.3 178.3 100 Asset Management Gross banking products exposure within Asset Management was USD 1.5 billion as of 31 December 2021, compared with USD 3.4 billion as of 31 December 2020. The reduction was driven by lower allocated balances at central banks. Investment Bank The Investment Bank’s lending activities are largely associated with corporate and non-bank financial institutions. The business is broadly diversified across industry sectors, but concentrated in North America. 116 117 117 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control The gross banking products exposure including balances at central banks and Group Treasury reallocations was USD 59 billion as of 31 December 2021, compared with USD 56 billion as of 31 December 2020. Gross banking products exposure excluding balances at central banks and Group Treasury reallocations decreased to USD 35 billion from USD 37 billion, mostly driven by decreases in irrevocable loan commitments. Based on our internal ratings, 53% of this gross banking products exposure was classified as investment grade. The vast majority of the gross banking products exposure had an estimated LGD below 50%. Our loan underwriting business’s overall ability to distribute risk remained sound. Total mandated temporary loan underwriting exposure ended 2021 at USD 6.6 billion, compared with USD 4.9 billion at the end of the prior year. Loan underwriting exposures are classified as held for trading, with fair values reflecting market conditions at the end of 2021. › Refer to “Credit risk models” in this section for more information about LGD, rating grades and rating agency mappings Investment Bank: distribution of banking products exposure across internal UBS ratings and loss given default (LGD) buckets1 USD million, except where indicated 31.12.20 3311..1122..2211 LLGGDD bbuucckkeettss Internal UBS rating2 Investment grade Sub-investment grade of which: 6−9 of which: 10−13 Defaulted / Credit-impaired EExxppoossuurree 1188,,330022 00––2255%% 66,,448866 2266––5500%% 77,,667733 5511––7755%% 33,,006699 7766––110000%% 11,,007733 1166,,225500 1100,,446677 55,,778833 226644 55,,002222 33,,226699 11,,775533 5588 66,,111111 22,,116633 33,,994488 119966 55,,002200 44,,993388 8822 99 9977 9977 00 00 WWeeiigghhtteedd aavveerraaggee LLGGDD ((%%)) 3366 2200 1144 3311 3333 Weighted average LGD (%) 36 17 11 30 53 Exposure 19,303 16,785 12,030 4,756 450 BBaannkkiinngg pprroodduuccttss eexxppoossuurree11 27 1111,,556666 11 Excluding balances at central banks and Group Treasury reallocations. 22 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section. 36,538 3344,,881155 1133,,998811 88,,009988 11,,117700 2288 Investment Bank: banking products exposure by geographical region1 Asia Pacific Latin America Middle East and Africa North America Switzerland Rest of Europe EExxppoossuurree11 11 Excluding balances at central banks and Group Treasury reallocations. Investment Bank: banking products exposure by industry sector1 Banks Chemicals Electricity, gas, water supply Financial institutions, excluding banks Manufacturing Mining Public authorities Real estate and construction Retail and wholesale Technology and communications Transport and storage Other 3311..1122..2211 UUSSDD mmiilllliioonn 55,,115544 11,,332277 221122 1166,,228822 445533 1111,,338877 3344,,881155 3311..1122..2211 UUSSDD mmiilllliioonn 44,,990088 664455 335599 1133,,335533 11,,669922 11,,002244 661199 11,,558811 22,,779933 33,,773366 441144 33,,669911 %% 1144..88 33..88 00..66 4466..88 11..33 3322..77 110000..00 %% 1144..11 11..99 11..00 3388..44 44..99 22..99 11..88 44..55 88..00 1100..77 11..22 1100..66 31.12.20 USD million 7,216 1,584 428 15,462 720 11,129 36,538 31.12.20 USD million 5,846 876 448 14,570 1,681 1,558 1,273 1,421 2,041 3,443 445 2,937 % 19.7 4.3 1.2 42.3 2.0 30.5 100.0 % 16.0 2.4 1.2 39.9 4.6 4.3 3.5 3.9 5.6 9.4 1.2 8.0 EExxppoossuurree11 11 Excluding balances at central banks and Group Treasury reallocations. Clearing houses are now classified under Financial institutions, excluding banks (31 December 2021: USD 1,196 million; 31 December 2020: USD 1,440 million). 36,538 3344,,881155 100.0 110000..00 118 118 Risk, capital, liquidity and funding, and balance sheet | Risk management and control The gross banking products exposure including balances at Our loan underwriting business’s overall ability to distribute risk central banks and Group Treasury reallocations was USD 59 remained sound. Total mandated temporary loan underwriting billion as of 31 December 2021, compared with USD 56 billion as exposure ended 2021 at USD 6.6 billion, compared with USD 4.9 of 31 December 2020. Gross banking products exposure billion at the end of the prior year. Loan underwriting exposures excluding balances at central banks and Group Treasury are classified as held for trading, with fair values reflecting market reallocations decreased to USD 35 billion from USD 37 billion, conditions at the end of 2021. › Refer to “Credit risk models” in this section for more information about LGD, rating grades and rating agency mappings mostly driven by decreases in irrevocable loan commitments. Based on our internal ratings, 53% of this gross banking products exposure was classified as investment grade. The vast majority of the gross banking products exposure had an estimated LGD below 50%. Investment Bank: distribution of banking products exposure across internal UBS ratings and loss given default (LGD) 3311..1122..2211 LLGGDD bbuucckkeettss EExxppoossuurree 00––2255%% 2266––5500%% 5511––7755%% 7766––110000%% 1188,,330022 1166,,225500 1100,,446677 55,,778833 226644 66,,448866 55,,002222 33,,226699 11,,775533 5588 77,,667733 66,,111111 22,,116633 33,,994488 119966 33,,006699 55,,002200 44,,993388 8822 99 11,,007733 9977 9977 00 00 3344,,881155 1111,,556666 1133,,998811 88,,009988 11,,117700 WWeeiigghhtteedd aavveerraaggee LLGGDD ((%%)) 31.12.20 Weighted average LGD (%) Exposure 19,303 16,785 12,030 4,756 450 36,538 3366 2200 1144 3311 3333 2288 36 17 11 30 53 27 11 Excluding balances at central banks and Group Treasury reallocations. 22 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section. Investment Bank: banking products exposure by geographical region1 3311..1122..2211 UUSSDD mmiilllliioonn 31.12.20 USD million 11 Excluding balances at central banks and Group Treasury reallocations. Investment Bank: banking products exposure by industry sector1 3311..1122..2211 UUSSDD mmiilllliioonn 31.12.20 USD million 55,,115544 11,,332277 221122 1166,,228822 445533 1111,,338877 3344,,881155 44,,990088 664455 335599 1133,,335533 11,,669922 11,,002244 661199 11,,558811 22,,779933 33,,773366 441144 33,,669911 3344,,881155 %% 1144..88 33..88 00..66 4466..88 11..33 3322..77 110000..00 %% 1144..11 11..99 11..00 3388..44 44..99 22..99 11..88 44..55 88..00 1100..77 11..22 1100..66 110000..00 7,216 1,584 428 15,462 720 11,129 36,538 5,846 876 448 14,570 1,681 1,558 1,273 1,421 2,041 3,443 445 2,937 % 19.7 4.3 1.2 42.3 2.0 30.5 100.0 % 16.0 2.4 1.2 39.9 4.6 4.3 3.5 3.9 5.6 9.4 1.2 8.0 buckets1 USD million, except where indicated Internal UBS rating2 Investment grade Sub-investment grade of which: 6−9 of which: 10−13 Defaulted / Credit-impaired BBaannkkiinngg pprroodduuccttss eexxppoossuurree11 Middle East and Africa Asia Pacific Latin America North America Switzerland Rest of Europe EExxppoossuurree11 Electricity, gas, water supply Financial institutions, excluding banks Banks Chemicals Manufacturing Mining Public authorities Real estate and construction Retail and wholesale Technology and communications Transport and storage Other EExxppoossuurree11 USD 1,440 million). 118 11 Excluding balances at central banks and Group Treasury reallocations. Clearing houses are now classified under Financial institutions, excluding banks (31 December 2021: USD 1,196 million; 31 December 2020: 36,538 100.0 Group Functions Gross banking products exposure within Group Functions, which arises primarily in connection with treasury activities, increased by USD 13 billion to USD 66 billion from balances at central banks. The cash inflow was generated mainly from lower funding consumption by the Investment Bank, shifts within the high- quality liquid asset (HQLA) portfolio from securities into cash, and net new issuances of long-term debt issued measured at amortized cost. › Refer to “Balance sheet assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information › Refer to the “Group Functions” section of this report for more information Traded products | Counterparty credit risk (CCR) arising from traded Audited products, which include OTC derivatives, ETD exposures and SFTs, originating in the Investment Bank, Non-core and Legacy Portfolio, and Group Treasury, is generally managed on a close- out basis. This takes into account possible effects of market movements on the exposure and any associated collateral over the time it would take to close out our positions. In the Investment Bank, limits are applied to the potential future exposure per counterparty, with the size of the limit dependent on the counterparty’s creditworthiness (as determined by Risk Control). Limit frameworks are also used to control overall exposure to specific classes or categories of collateral on a portfolio level. Such portfolio to senior management. limits are monitored and reported Trading in OTC derivatives is conducted through central counterparties (CCPs) where practicable. Where CCPs are not used, we have clearly defined policies and processes for trading on a bilateral basis. Trading is typically conducted under bilateral International Swaps and Derivatives Association (ISDA) or similar master netting agreements, which generally allow for close-out and netting of transactions in case of default, subject to applicable law. For most major market participant counterparties, we use two-way collateral agreements under which either party can be required to provide collateral in the form of cash or marketable securities when the exposure exceeds specified levels. This collateral typically consists of well-rated government debt or other collateral permitted by applicable regulations. For certain counterparties, an initial margin is taken to cover some or all of the calculated close-out exposure. This is in addition to the variation margin taken to settle changes in market value of transactions. Regulations on margining uncleared OTC derivatives continue to evolve. These generally expand the scope of bilateral derivatives activity subject to margining. They will also result in greater amounts of initial margin received from, and posted to, certain bilateral trading counterparties than had been required in the past. These changes should result in lower close-out risk over time.  In the tables on the following page, OTC derivatives exposures are generally presented as net positive replacement values after the application of legally enforceable netting agreements and the deduction of cash and marketable securities held as collateral. SFT exposures are reported taking into account collateral received, and ETD exposures take into account collateral margin calls. The “Banking and traded products exposure in our business divisions and Group Functions” table in this section provides information on the split by divisions and products, and the tables on the next page provide information about the OTC derivatives, SFT and ETD exposures of the Investment Bank, Non-core and Legacy Portfolio, and Group Treasury. › Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information about OTC derivatives settled through central counterparties › Refer to “Note 22 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of this report for more information about the effect of netting and collateral arrangements on derivative exposures 119 119 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Investment Bank, Non-core and Legacy Portfolio and Group Treasury: traded products exposure USD million OOTTCC ddeerriivvaattiivveess EETTDDss SSFFTTss 3311..1122..2211 Total exposure, before deduction of credit valuation adjustments and hedges Less: credit valuation adjustments and allowances Less: credit protection bought (credit default swaps, notional) NNeett eexxppoossuurree aafftteerr ccrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss,, aalllloowwaanncceess aanndd hheeddggeess 99,,776677 ((3344)) ((111199)) 99,,661155 1188,,556666 00 00 1188,,556666 77,,661177 00 00 77,,661177 TToottaall 3355,,995500 ((3344)) ((111199)) 3355,,779977 TToottaall 31.12.20 40,215 (54) (126) 40,035 Investment Bank, Non-core and Legacy Portfolio and Group Treasury: distribution of net OTC derivatives and SFT exposure across internal UBS ratings and loss given default (LGD) buckets USD million, except where indicated 31.12.20 Internal UBS rating1 NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree Investment grade Sub-investment grade of which: 6−9 of which: 10−12 of which: 13 and defaulted TToottaall nneett OOTTCC ddeerriivvaattiivveess eexxppoossuurree,, aafftteerr ccrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss aanndd hheeddggeess NNeett SSFFTT eexxppoossuurree Investment grade 3311..1122..2211 LLGGDD bbuucckkeettss EExxppoossuurree 00––2255%% 2266––5500%% 5511––7755%% 7766––110000%% 99,,229977 227722 77,,777700 331177 224499 4466 2222 4444 2255 00 1199 5544 5533 11 00 770044 113311 9900 3399 33 99,,661155 331177 77,,882244 883355 555522 8888 8811 77 00 663399 WWeeiigghhtteedd aavveerraaggee LLGGDD ((%%)) 4477 5599 6622 6644 1144 4488 Weighted average LGD (%) 49 55 55 62 12 49 Exposure 10,436 620 487 114 19 11,056 1177,,993377 115599 1155,,665555 11,,881122 331100 4400 21,155 40 Sub-investment grade TToottaall nneett SSFFTT eexxppoossuurree 11 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section. 662299 1188,,556666 598 21,753 229966 1155,,995511 5500 11,,886622 00 115599 228833 559933 59 40 6699 4411 Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure by geographical region Asia Pacific Latin America Middle East and Africa North America Switzerland Rest of Europe EExxppoossuurree NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree NNeett SSFFTT eexxppoossuurree 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 UUSSDD mmiilllliioonn 11,,558866 111111 111122 11,,883300 668888 55,,228888 99,,661155 %% 1166..55 11..22 11..22 1199..00 77..22 5555..00 110000..00 USD million 2,139 162 263 2,539 667 5,286 11,056 % 19.3 1.5 2.4 23.0 6.0 47.8 100.0 UUSSDD mmiilllliioonn 55,,338800 2200 336600 44,,447733 555599 77,,777744 1188,,556666 %% 2299..00 00..11 11..99 2244..11 33..00 4411..99 110000..00 USD million 5,123 18 939 4,778 1,329 9,566 21,753 Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure by industry sector NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree NNeett SSFFTT eexxppoossuurree 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 Banks1 Chemicals Electricity, gas, water supply Financial institutions, excluding banks1 Manufacturing Mining Public authorities Retail and wholesale Transport, storage and communication Other EExxppoossuurree 11 Clearing houses have been reclassified from Banks to Financial institutions, excluding banks. Prior-period numbers have been restated accordingly USD million 1,877 10 127 6,742 68 12 1,339 44 481 356 11,056 UUSSDD mmiilllliioonn 998866 1144 110033 77,,117744 5500 5511 881100 2222 225555 115500 99,,661155 %% 1100..33 00..11 11..11 7744..66 00..55 00..55 88..44 00..22 22..66 11..66 110000..00 % 17.0 0.1 1.2 61.0 0.6 0.1 12.1 0.4 4.3 3.2 100.0 UUSSDD mmiilllliioonn 11,,665544 00 00 1155,,886666 00 00 992266 00 00 112200 1188,,556666 %% 88..99 00..00 00..00 8855..55 00..00 00..00 55..00 00..00 00..00 00..66 110000..00 USD million 1,653 0 0 18,049 0 0 2,050 0 0 1 21,753 % 23.6 0.1 4.3 22.0 6.1 44.0 100.0 % 7.6 0.0 0.0 83.0 0.0 0.0 9.4 0.0 0.0 0.0 100.0 120 120 Risk, capital, liquidity and funding, and balance sheet | Risk management and control USD million Total exposure, before deduction of credit valuation adjustments and hedges Less: credit valuation adjustments and allowances Less: credit protection bought (credit default swaps, notional) OOTTCC ddeerriivvaattiivveess EETTDDss TToottaall SSFFTTss 3311..1122..2211 99,,776677 ((3344)) ((111199)) 99,,661155 1188,,556666 77,,661177 3355,,995500 00 00 00 00 ((3344)) ((111199)) TToottaall 31.12.20 40,215 (54) (126) NNeett eexxppoossuurree aafftteerr ccrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss,, aalllloowwaanncceess aanndd hheeddggeess 1188,,556666 77,,661177 3355,,779977 40,035 Investment Bank, Non-core and Legacy Portfolio and Group Treasury: distribution of net OTC derivatives and SFT exposure across internal UBS ratings and loss given default (LGD) buckets USD million, except where indicated 3311..1122..2211 LLGGDD bbuucckkeettss WWeeiigghhtteedd aavveerraaggee LLGGDD ((%%)) 31.12.20 Weighted average LGD (%) EExxppoossuurree 00––2255%% 2266––5500%% 5511––7755%% 7766––110000%% TToottaall nneett OOTTCC ddeerriivvaattiivveess eexxppoossuurree,, aafftteerr ccrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss 99,,229977 227722 77,,777700 331177 224499 4466 2222 4444 2255 00 1199 5544 5533 11 00 770044 113311 9900 3399 33 99,,661155 331177 77,,882244 883355 1177,,993377 662299 1188,,556666 115599 00 115599 1155,,665555 229966 1155,,995511 11,,881122 5500 11,,886622 555522 8888 8811 77 00 663399 331100 228833 559933 Exposure 10,436 620 487 114 19 11,056 21,155 598 21,753 4477 5599 6622 6644 1144 4488 4400 6699 4411 11 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section. Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure by geographical region NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree NNeett SSFFTT eexxppoossuurree 3311..1122..2211 UUSSDD mmiilllliioonn 31.12.20 USD million 3311..1122..2211 UUSSDD mmiilllliioonn 31.12.20 USD million Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure 110000..00 21,753 100.0 11,,558866 111111 111122 11,,883300 668888 55,,228888 99,,661155 998866 1144 110033 5500 5511 881100 2222 225555 115500 %% 1166..55 11..22 11..22 1199..00 77..22 5555..00 110000..00 %% 1100..33 00..11 11..11 7744..66 00..55 00..55 88..44 00..22 22..66 11..66 2,139 162 263 2,539 667 5,286 11,056 1,877 10 127 6,742 68 12 1,339 44 481 356 11,056 % 19.3 1.5 2.4 23.0 6.0 47.8 100.0 % 17.0 0.1 1.2 61.0 0.6 0.1 12.1 0.4 4.3 3.2 100.0 55,,338800 2200 336600 44,,447733 555599 77,,777744 1188,,556666 00 00 00 00 00 00 992266 112200 1188,,556666 %% 2299..00 00..11 11..99 2244..11 33..00 4411..99 %% 88..99 00..00 00..00 00..00 00..00 55..00 00..00 00..00 00..66 5,123 18 939 4,778 1,329 9,566 0 0 0 0 0 0 1 2,050 NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree NNeett SSFFTT eexxppoossuurree 3311..1122..2211 UUSSDD mmiilllliioonn 31.12.20 USD million 3311..1122..2211 31.12.20 UUSSDD mmiilllliioonn 11,,665544 USD million 1,653 Financial institutions, excluding banks1 77,,117744 1155,,886666 8855..55 18,049 83.0 11 Clearing houses have been reclassified from Banks to Financial institutions, excluding banks. Prior-period numbers have been restated accordingly 99,,661155 110000..00 110000..00 21,753 100.0 Internal UBS rating1 NNeett OOTTCC ddeerriivvaattiivveess eexxppoossuurree Investment grade Sub-investment grade of which: 6−9 of which: 10−12 of which: 13 and defaulted aanndd hheeddggeess NNeett SSFFTT eexxppoossuurree Investment grade Sub-investment grade TToottaall nneett SSFFTT eexxppoossuurree Middle East and Africa Asia Pacific Latin America North America Switzerland Rest of Europe EExxppoossuurree by industry sector Banks1 Chemicals Electricity, gas, water supply Manufacturing Mining Public authorities Retail and wholesale Other EExxppoossuurree Transport, storage and communication 49 55 55 62 12 49 40 59 40 % 23.6 0.1 4.3 22.0 6.1 44.0 % 7.6 0.0 0.0 0.0 0.0 9.4 0.0 0.0 0.0 Investment Bank, Non-core and Legacy Portfolio and Group Treasury: traded products exposure Credit risk mitigation Audited | We actively manage credit risk in our portfolios by taking collateral against exposures and by utilizing credit hedging.  Lending secured by real estate Audited | We use a scoring model as part of a standardized front- to-back process for credit decisions on originating or modifying Swiss mortgage loans. The model’s two key factors are the LTV ratio and an affordability calculation relative to gross income.  The calculation of affordability takes into account interest payments, minimum amortization requirements, potential property maintenance costs and, for rental properties, the level of rental income. Interest payments are estimated using a predefined framework, which considers the potential for significant interest rates increases over the lifetime of the loan. The interest rate is set at 5% per annum in the context of the current environment. For residential properties occupied by the borrower, the maximum LTV for the standard approval process is 80% and 60% for holiday homes and luxury real estate. For other properties, the maximum LTV allowed within the standard approval process ranges from 30% to 80%, depending on the type and age of the property, and the amount of renovation work needed. Audited | The value we assign to each property is based on the lowest value determined from model-derived valuations, the purchase price, an asset value for income-producing real estate (IPRE), and, in some cases, an additional external valuation for owner-occupied residential properties (ORPs).  Two separate models provided by a market-leading external vendor are used to derive property valuations for ORPs and IPRE. We estimate the current value of an ORP using a regression model (a hedonic model) based on statistical comparison against current transaction data. We derive the value of a property from the characteristics of the real estate itself, as well as those of its location. In addition to the initial valuation, values for ORPs are updated quarterly over the lifetime of the loan using region- specific real estate price indices. The price indices are sourced from an external vendor and subject to internal validation and benchmarking. We use these valuations quarterly to compute indexed LTV for all ORPs. A portfolio-specific monitoring system considers these along with other risk measures (e.g., rating and behavioral information) to identify higher-risk loans and triggers an assessment and reappraisal by client advisors and credit officers as needed. For IPRE, the capitalization rate model is used to determine the property valuation by discounting estimated sustainable future income using a capitalization rate based on various attributes. These attributes consider regional and specific property characteristics, such as market and location data (e.g., vacancy rates), benchmarks (e.g., for running costs) and certain other standardized input parameters (e.g., property condition). Updated information regarding rental income from IPRE is requested from the client at least once every three years. Our portfolio-specific monitoring system alerts us to changes in rental income and other risk measures (e.g., LTV, rating, behavioral information), and triggers an assessment and reappraisal by client advisors and credit officers as needed. To take market developments into account for these models, the external vendor regularly updates the parameters and / or refines the architecture for each model. Model changes and parameter updates are subject to the same validation procedures as our internally developed models. Audited | We similarly apply underwriting guidelines for our Global Wealth Management Region Americas mortgage loan portfolio, taking into account loan affordability and collateral sufficiency. LTV standards are defined for the various mortgage types, such as residential mortgages or investment properties, based on associated risk factors, such as property type, loan size, and purpose. The maximum LTV allowed within the standard approval process ranges from 45% to 80%. In addition to LTV, other credit risk metrics, such as debt-to-income ratios, credit scores and required client reserves, are also part of our underwriting guidelines. A risk limit framework is applied to the Global Wealth Management Region Americas mortgage loan portfolio. Limits are set to govern exposures within LTV categories, geographic concentrations, portfolio growth and high-risk mortgage segments, such as interest-only loans. These limits are monitored by a specialized credit risk monitoring team and reported to senior management. Supplementing this limit framework is a real estate lending policy and procedures framework, set up to govern real estate lending activities. Quality assurance and quality control programs monitor compliance with mortgage underwriting and documentation requirements. For our mortgage loan portfolio in the Global Wealth Management regions of EMEA and Asia Pacific, we apply global underwriting guidelines with regional variations to allow for regulatory and market differentials. As in other regions, the underwriting guidelines take into account affordability and collateral sufficiency. Affordability is assessed at a stressed interest rate using, for residential real estate, the borrowers’ sustainable income and declared liabilities, and for commercial real estate the quality and sustainability of rental income. For interest-only loans, a declared and evidenced repayment strategy must be in place. The applicable LTV for each mortgage is based on the quality and liquidity of the property and assessed against valuations from bank-appointed third-party valuers. Maximum LTV varies from 30% to 70%, depending on the type and location of the property, as well as other factors. Collateral sufficiency is often further supported by personal guarantees from the borrower. The overall portfolio is centrally assessed against a number of stress scenarios to ensure that exposures remain within predefined stress limits.  › Refer to “Swiss mortgage loan portfolio” in this section for more information about LTV in our Swiss mortgage portfolio 120 121 121 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Lombard lending Audited | Lombard loans are secured by pledges of marketable securities, guarantees and other forms of collateral. Eligible financial securities are primarily liquid and actively traded transferable securities (such as bonds and equities), and other transferable securities, such as approved structured products for which regular prices are available and the issuer of the security provides a market. To a lesser degree, less liquid collateral is also used. We derive lending values by applying discounts (haircuts) to the pledged collateral’s market value. Haircuts for marketable securities are calculated to cover possible change in value over a given close-out period and confidence level. Less liquid or more volatile collateral will typically have larger haircuts. We assess concentration and correlation risks across collateral posted at a counterparty level, and at a divisional level across counterparties. We also perform targeted Group-wide reviews of concentration. Concentration of collateral in single securities, issuers or issuer groups, industry sectors, countries, regions or currencies may result in higher risk and reduced liquidity. In such cases, the lending value of the collateral, margin call and close- out levels are adjusted accordingly.  Exposures and collateral values are monitored daily, with the aim of ensuring that the credit exposure is always within the established risk tolerance. A shortfall occurs when the lending value drops below the exposure; if it exceeds a defined trigger level, a margin call is initiated, requiring the client to provide additional collateral, reduce the exposure or take other action to bring exposure in line with the agreed lending value of the collateral. If a shortfall increases and exceeds a further trigger level, or the shortfall is not corrected within the required period, a close-out is initiated, through which collateral is liquidated, open derivative positions are closed and guarantees are called. We conduct stress testing of collateralized exposures to simulate market events that reduce collateral value, increase exposure of traded products, or do both. For certain classes of counterparties, limits on such calculated stress exposures are applied and controlled at a counterparty level. Also, portfolio limits are applied across certain businesses or collateral types. › Refer to “Stress loss” in this section for more information about our stress testing Credit hedging Audited | We use single-name credit default swaps (CDSs), credit- index CDSs, bespoke protection and other instruments to actively manage credit risk in the Investment Bank and Non-core and Legacy Portfolio. The aim is to reduce concentrations of risk from specific counterparties, sectors or portfolios and, for CCR, the profit or loss effect arising from changes in credit valuation adjustments (CVAs). We have strict guidelines with regard to taking credit hedges into account for credit risk mitigation purposes. For example, when monitoring exposures against counterparty limits, we do not usually apply certain credit risk mitigants, such as proxy hedges (credit protection on a correlated but different name) or credit-index CDSs, to reduce counterparty exposures. Buying credit protection also creates credit exposure with regard to the protection provider. We monitor and limit exposures to credit protection providers, and also monitor the effectiveness of credit hedges as part of our overall credit exposures to the relevant counterparties. Trading with such counterparties is typically collateralized. For credit protection purchased to hedge the lending portfolio, this includes monitoring mismatches between the maturity of credit protection purchased and the maturity of the associated loan. Such mismatches result in basis risk and may reduce the effectiveness of the credit protection. Mismatches are routinely reported to credit officers and mitigating actions are taken when necessary.  › Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information Mitigation of settlement risk To mitigate settlement risk, we reduce actual settlement volumes by using multi-lateral and bilateral agreements with counterparties, including payment netting. Foreign exchange transactions are our most significant source of settlement risk. We are a member of Continuous Linked Settlement (CLS), an industry utility that provides a multi-lateral framework to settle transactions on a delivery-versus-payment basis, thus reducing foreign exchange-related settlement risk relative to the volume of business. However, mitigation of settlement risk through CLS and other means does not fully eliminate credit risk in foreign exchange transactions resulting from changes in exchange rates prior to settlement, which is managed as part of our overall credit risk management of OTC derivatives. Credit risk models Basel III – A-IRB credit risk models Audited | We have developed tools and models to estimate future credit losses that may be implicit in our current portfolio. Exposures to individual counterparties are measured using three generally accepted parameters: PD, EAD and LGD. For a given credit facility, the product of these three parameters results in the expected loss. These parameters are the basis for the majority of our internal measures of credit risk, and key inputs for regulatory capital calculation under the advanced internal ratings- based (A-IRB) approach of the Basel III framework. We also use models to derive the portfolio credit risk measures of expected loss, statistical loss and stress loss.  The “Key features of our main credit risk models” table on the next page shows the number and key features of the models we use to derive PD, LGD and EAD for our main portfolios and asset classes, and is followed by more detailed explanations of these models and parameters. › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about the regulatory capital calculation under the advanced internal ratings-based approach 122 122 NNuummbbeerr ooff mmaaiinn mmooddeellss MMaaiinn ddrriivveerrss NNuummbbeerr ooff yyeeaarrss ooff lloossss ddaattaa11 1 Political, institutional and economic indicators >10 Lombard lending credit-index CDSs, to reduce counterparty exposures. Buying Key features of our main credit risk models PPrroobbaabbiilliittyy ooff ddeeffaauulltt PPoorrttffoolliioo iinn ssccooppee Sovereigns and central banks Owner-occupied mortgages in Switzerland and the US Income-producing real estate mortgages AAsssseett ccllaassss Central governments and central banks Retail: residential mortgages Retail: residential mortgages, Corporates: specialized lending MMooddeell aapppprrooaacchh Scorecard Scorecard Scorecard Lombard lending Retail: other Merton type Small and medium-sized enterprises Credit cards in Switzerland Corporates: other lending Scorecard Retail: qualifying revolving retail and other retail, Corporates: other lending Scorecard Banks Commodity traders Banks and securities dealers Corporates: specialized lending Scorecard Scorecard Aircraft financing Corporates: other lending Scorecard Large corporates Corporates: other lending LLoossss ggiivveenn ddeeffaauulltt Other portfolios Owner-occupied mortgages in Switzerland and the US Income-producing real estate mortgages Corporates: other lending, Public-sector entities and multi-lateral development banks Retail: residential mortgages Retail: residential mortgages, Corporates: specialized lending Lombard lending Retail: other Small and medium-sized enterprises Corporates: other lending Investment Bank – all counterparties Across the asset classes EExxppoossuurree aatt ddeeffaauulltt Banking products Across the asset classes Scorecard / market data Scorecard / pooled rating approach / rating template Statistical model Statistical model Statistical model, simulation Statistical model Statistical model Statistical model Risk, capital, liquidity and funding, and balance sheet | Risk management and control Audited | Lombard loans are secured by pledges of marketable credit protection also creates credit exposure with regard to the securities, guarantees and other forms of collateral. Eligible protection provider. We monitor and limit exposures to credit financial securities are primarily liquid and actively traded protection providers, and also monitor the effectiveness of credit transferable securities (such as bonds and equities), and other hedges as part of our overall credit exposures to the relevant transferable securities, such as approved structured products for counterparties. Trading with such counterparties is typically which regular prices are available and the issuer of the security collateralized. For credit protection purchased to hedge the provides a market. To a lesser degree, less liquid collateral is also lending portfolio, this includes monitoring mismatches between used. the maturity of credit protection purchased and the maturity of We derive lending values by applying discounts (haircuts) to the associated loan. Such mismatches result in basis risk and may the pledged collateral’s market value. Haircuts for marketable reduce the effectiveness of the credit protection. Mismatches are securities are calculated to cover possible change in value over a routinely reported to credit officers and mitigating actions are given close-out period and confidence level. Less liquid or more taken when necessary.  volatile collateral will typically have larger haircuts. We assess concentration and correlation risks across collateral posted at a counterparty level, and at a divisional level across › Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information counterparties. We also perform targeted Group-wide reviews of Mitigation of settlement risk concentration. Concentration of collateral in single securities, To mitigate settlement risk, we reduce actual settlement volumes issuers or issuer groups, industry sectors, countries, regions or by using multi-lateral and bilateral agreements with currencies may result in higher risk and reduced liquidity. In such counterparties, including payment netting. cases, the lending value of the collateral, margin call and close- Foreign exchange transactions are our most significant source out levels are adjusted accordingly.  of settlement risk. We are a member of Continuous Linked Exposures and collateral values are monitored daily, with the Settlement (CLS), an industry utility that provides a multi-lateral aim of ensuring that the credit exposure is always within the framework to settle transactions on a delivery-versus-payment established risk tolerance. A shortfall occurs when the lending basis, thus reducing foreign exchange-related settlement risk value drops below the exposure; if it exceeds a defined trigger relative to the volume of business. However, mitigation of level, a margin call is initiated, requiring the client to provide settlement risk through CLS and other means does not fully additional collateral, reduce the exposure or take other action to eliminate credit risk in foreign exchange transactions resulting bring exposure in line with the agreed lending value of the from changes in exchange rates prior to settlement, which is collateral. If a shortfall increases and exceeds a further trigger managed as part of our overall credit risk management of OTC level, or the shortfall is not corrected within the required period, derivatives. a close-out is initiated, through which collateral is liquidated, open derivative positions are closed and guarantees are called. Credit risk models We conduct stress testing of collateralized exposures to simulate market events that reduce collateral value, increase Basel III – A-IRB credit risk models exposure of traded products, or do both. For certain classes of Audited | We have developed tools and models to estimate future counterparties, limits on such calculated stress exposures are credit losses that may be implicit in our current portfolio. applied and controlled at a counterparty level. Also, portfolio Exposures to individual counterparties are measured using limits are applied across certain businesses or collateral types. three generally accepted parameters: PD, EAD and LGD. For a › Refer to “Stress loss” in this section for more information about given credit facility, the product of these three parameters results in the expected loss. These parameters are the basis for the majority of our internal measures of credit risk, and key inputs for regulatory capital calculation under the advanced internal ratings- our stress testing Credit hedging Audited | We use single-name credit default swaps (CDSs), credit- based (A-IRB) approach of the Basel III framework. We also use index CDSs, bespoke protection and other instruments to actively models to derive the portfolio credit risk measures of expected manage credit risk in the Investment Bank and Non-core and loss, statistical loss and stress loss.  Legacy Portfolio. The aim is to reduce concentrations of risk from The “Key features of our main credit risk models” table on the specific counterparties, sectors or portfolios and, for CCR, the next page shows the number and key features of the models we profit or loss effect arising from changes in credit valuation use to derive PD, LGD and EAD for our main portfolios and asset adjustments (CVAs). classes, and is followed by more detailed explanations of these We have strict guidelines with regard to taking credit hedges models and parameters. into account for credit risk mitigation purposes. For example, › Refer to the 31 December 2021 Pillar 3 Report, available under when monitoring exposures against counterparty limits, we do “Pillar 3 disclosures” at ubs.com/investors, for more information not usually apply certain credit risk mitigants, such as proxy about the regulatory capital calculation under the advanced hedges (credit protection on a correlated but different name) or internal ratings-based approach 122 Across the asset classes Statistical model 2 1 For sovereign and Investment Bank PD models, the length of internal portfolio history is shown in “Number of years of loss data.” Traded products Behavioral data, affordability relative to income, property type, loan-to-value. Separate models for mortgages in Switzerland and the US Loan-to-value, debt service coverage, financial data (for large corporates only), behavioral data. Weights of risk drivers differ between corporate and private clients Loan-to-value, historical asset returns, behavioral data Financial data including balance sheet ratios and profit and loss, behavioral data. Weights of risk drivers differ depending on the corporate client sub- segment Client type and characteristics (revolver, transactor, new client, dormant client), and behavioral data Financial data including balance sheet ratios and profit and loss. Separate models for banks – developed markets, banks – emerging markets, broker-dealers and investment banks, and private banks Financial data including balance sheet ratios and profit and loss, as well as non-financial criteria Loan-to-value, AuM, strength of legal framework of source of wealth, and behavioral factors Financial data including balance sheet ratios and profit and loss, and market data. Separate rating tools for corporates with publicly traded and highly liquid stocks (market intelligence tool), private corporates, and leveraged corporates Financial data and/or historical portfolio performance for pooled ratings. Separate models for hedge funds, managed funds, insurance companies, commercial real estate loans, debt REITs, mortgage originators, public-sector entities and multi-lateral development banks / supranationals Loan-to-value, time since last valuation. Separate models for mortgages in Switzerland and the US Loan-to-value, time since last valuation, property type, location indicator 2 1 1 1 1 4 1 1 3 9 2 1 1 Historical observed loss rates 2 2 3 Separate models for mortgage and non-mortgage LGDs. Mortgage models: loan-to-value, time since last valuation, property type, location indicator. Non- mortgage models: historical observed loss rates Counterparty and facility specific, including industry segment, collateral, seniority, legal environment and bankruptcy procedures. Specific model for sovereign LGDs based on econometric modeling of past default events using GDP per capita, government debt, and other quantitative and qualitative factors such as the share of multi-lateral debt service, the size of the banking sector and institutional quality Separate models based on exposure type (committed credit lines, revocable credit lines, contingent products) Product-specific market drivers, e.g., interest rates. Separate models for OTC derivatives, ETDs and SFTs that generate the simulation of risk factors used for the credit exposure measure 27 27 15 27 14 14 23 15 14 14 11 11 13 11–17 5–10 >10 n/a 123 123 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Audited | Internal UBS rating scale and mapping of external ratings IInntteerrnnaall UUBBSS rraattiinngg 00 aanndd 11 22 33 44 55 66 77 88 99 1100 1111 1122 1133 CCoouunntteerrppaarrttyy iiss iinn ddeeffaauulltt 1-year PD range in % 0.00–0.02 0.02–0.05 0.05–0.12 0.12–0.25 0.25–0.50 0.50–0.80 0.80–1.30 1.30–2.10 2.10–3.50 3.50–6.00 6.00–10.00 10.00–17.00 >17 Default Description Investment grade Sub-investment grade Defaulted Moody’s Investors Service mapping Aaa Aa1 to Aa3 A1 to A3 Baa1 to Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 to Caa3 Ca to C S&P mapping AAA AA+ to AA– A+ to A– BBB+ to BBB BBB– BB+ BB BB– B+ B B– CCC to C D Fitch mapping AAA AA+ to AA– A+ to A– BBB+ to BBB BBB– BB+ BB BB– B+ B B– CCC to C D  Probability of default PD estimates the likelihood of a counterparty defaulting on its contractual obligations over the next 12 months. PD ratings are used for credit risk measurement and are an important input for determining credit risk approval authorities. For calculating RWA, a three-basis-point PD floor is applied to banks, corporates and retail exposures, as required under the Basel III framework. We apply an eight-basis-point PD floor for Swiss owner-occupied mortgages and a four-basis-point PD floor for Lombard loans. PD is assessed using rating tools tailored to the various categories of counterparties. Statistically developed scorecards, based on key attributes of the obligor, are used to determine PD for many corporate clients and loans secured by real estate. Where available, market data may also be used to derive the PD for large corporate counterparties. For low-default portfolios, we take into account available relevant external default data when developing rating tools. For Lombard loans, our rating approach uses Merton-type historical return-based model simulations taking into account potential changes in securities collateral value. These categories are also calibrated to our internal credit rating scale (masterscale), designed to ensure a consistent assessment of default probabilities across counterparties. Our masterscale expresses one-year default probabilities determined using our various rating tools by means of distinct classes, with each class incorporating a range of default probabilities. Counterparties move between rating classes as our assessment of their PD changes. The ratings of major credit rating agencies, and their mapping to our masterscale and internal PD bands, are shown in the “Internal UBS rating scale and mapping of external ratings” table above. For Moody’s and S&P, the mapping is based on the long- term average of one-year default rates available from these rating agencies, with Fitch ratings being mapped to the equivalent S&P ratings. For each external rating category, the average default rate is compared with our internal PD bands to derive a mapping to our internal rating scale. Our internal rating of a counterparty may thus diverge from one or more of the correlated external ratings shown in the table. Observed defaults by rating agencies may vary through economic cycles, and we do not necessarily expect the actual number of defaults in our equivalent rating band to equal the rating agencies’ average in any given period. We periodically assess the long-term average default rates of credit rating agencies’ ratings and adjust their mapping to our masterscale as needed to reflect any material changes. Exposure at default EAD is the amount we expect to be owed by a counterparty at the time of possible default. We derive EAD from current exposure to the counterparty and possible future exposure development. The EAD of an on-balance sheet loan is its notional amount. For off-balance sheet commitments that are not drawn, credit conversion factors (CCFs) are used in order to obtain an expected on-balance sheet amount. Such CCFs are based on historical observations. To comply with regulatory guidance, we floor individual observed CCF values at zero in the CCF model; i.e., we assume that the drawn EAD will be no less than the drawn amount one year prior to default. For traded products, we derive EAD by modeling the range of possible exposure outcomes at various points in time using scenario and statistical techniques. We assess the net amount that may be owed to us or that we may owe to others, taking into account the effect of market movements over the potential time it would take to close out positions. For ETDs, calculation of EAD takes into account collateral margin calls. When measuring individual counterparty exposure against credit limits, we consider the maximum likely exposure measured to a high level of confidence. However, when aggregating exposures to different counterparties for portfolio risk measurement purposes, we use the expected exposure to each counterparty at a given time period (usually one year) generated by the same model. 124 124 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Audited | IInntteerrnnaall UUBBSS rraattiinngg 00 aanndd 11 22 33 44 55 66 77 88 99 1100 1111 1122 1133 Internal UBS rating scale and mapping of external ratings 1-year PD range in % Description Investment grade Sub-investment grade 0.00–0.02 0.02–0.05 0.05–0.12 0.12–0.25 0.25–0.50 0.50–0.80 0.80–1.30 1.30–2.10 2.10–3.50 3.50–6.00 6.00–10.00 10.00–17.00 >17 Default Moody’s Investors Service mapping Aaa Aa1 to Aa3 A1 to A3 Baa1 to Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 to Caa3 Ca to C S&P mapping Fitch mapping AAA AA+ to AA– A+ to A– BBB+ to BBB AAA AA+ to AA– A+ to A– BBB+ to BBB BBB– BB+ BB BB– B+ B B– CCC to C D BBB– BB+ BB BB– B+ B B– CCC to C D  CCoouunntteerrppaarrttyy iiss iinn ddeeffaauulltt Defaulted Probability of default our internal rating scale. Our internal rating of a counterparty may PD estimates the likelihood of a counterparty defaulting on its thus diverge from one or more of the correlated external ratings contractual obligations over the next 12 months. PD ratings are shown in the table. Observed defaults by rating agencies may vary used for credit risk measurement and are an important input for through economic cycles, and we do not necessarily expect the determining credit risk approval authorities. For calculating RWA, a actual number of defaults in our equivalent rating band to equal three-basis-point PD floor is applied to banks, corporates and retail the rating agencies’ average in any given period. We periodically exposures, as required under the Basel III framework. We apply an assess the long-term average default rates of credit rating eight-basis-point PD floor for Swiss owner-occupied mortgages and agencies’ ratings and adjust their mapping to our masterscale as a four-basis-point PD floor for Lombard loans. needed to reflect any material changes. PD is assessed using rating tools tailored to the various categories of counterparties. Statistically developed scorecards, Exposure at default based on key attributes of the obligor, are used to determine PD EAD is the amount we expect to be owed by a counterparty at for many corporate clients and loans secured by real estate. the time of possible default. We derive EAD from current exposure Where available, market data may also be used to derive the PD to the counterparty and possible future exposure development. for large corporate counterparties. For low-default portfolios, we The EAD of an on-balance sheet loan is its notional amount. For take into account available relevant external default data when off-balance sheet commitments that are not drawn, credit developing rating tools. For Lombard loans, our rating approach conversion factors (CCFs) are used in order to obtain an expected uses Merton-type historical return-based model simulations on-balance sheet amount. Such CCFs are based on historical taking into account potential changes in securities collateral value. observations. To comply with regulatory guidance, we floor These categories are also calibrated to our internal credit rating individual observed CCF values at zero in the CCF model; i.e., we scale (masterscale), designed to ensure a consistent assessment of assume that the drawn EAD will be no less than the drawn amount default probabilities across counterparties. Our masterscale one year prior to default. expresses one-year default probabilities determined using our For traded products, we derive EAD by modeling the range of various rating tools by means of distinct classes, with each class possible exposure outcomes at various points in time using scenario incorporating a range of default probabilities. Counterparties and statistical techniques. We assess the net amount that may be move between rating classes as our assessment of their PD owed to us or that we may owe to others, taking into account the changes. effect of market movements over the potential time it would take The ratings of major credit rating agencies, and their mapping to close out positions. For ETDs, calculation of EAD takes into to our masterscale and internal PD bands, are shown in the account collateral margin calls. When measuring individual “Internal UBS rating scale and mapping of external ratings” table counterparty exposure against credit limits, we consider the above. For Moody’s and S&P, the mapping is based on the long- maximum likely exposure measured to a high level of confidence. term average of one-year default rates available from these rating However, when aggregating exposures to different counterparties agencies, with Fitch ratings being mapped to the equivalent S&P for portfolio risk measurement purposes, we use the expected ratings. For each external rating category, the average default rate exposure to each counterparty at a given time period (usually one is compared with our internal PD bands to derive a mapping to year) generated by the same model. IFRS 9 – ECL credit risk models Comparison of Basel III EL and IFRS 9 ECL credit risk models The IFRS 9 expected credit loss (ECL) concept has a number of key differences from our standard credit risk models, both in the loss estimation process and the result thereof. Most notably, regulatory Basel III EL parameters are through-the-cycle / downturn estimates, which might include a margin of conservatism, while IFRS 9 ECL parameters are typically point-in- time, reflecting current economic conditions and future outlook. The table on the next page summarizes the main differences. Stage 1 and 2 ECL releases in 2021 were USD 123 million and respective allowances and provisions as of 31 December 2021 were USD 503 million. This includes ECL allowances and provisions of USD 436 million related to positions under the Basel III advanced internal ratings-based approach. Basel III EL for non-defaulted positions increased by USD 34 million to USD 919 million. › Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for more information about our accounting policy for allowances and provisions for ECL including key definitions relevant for the ECL calculation under IFRS 9 Expected credit loss ECL are defined as the difference between contractual cash flows and those UBS expects to receive, discounted at the effective interest rate (EIR). For loan commitments and other credit facilities in scope of ECL requirements, expected cash shortfalls are determined by considering expected future drawdowns. Rather than focusing on an average through-the-cycle expected annual loss, the purpose of ECL is to estimate the amount of losses inherent in a portfolio based on current conditions and future outlook (a point-in-time measure), whereby such a forecast has to include all information available without undue cost and effort, and address multiple scenarios where there is perceived non- linearity between changes in economic conditions and their effect on credit losses. From a credit risk modeling perspective, ECL parameters are generally derivations of the factors assessed for regulatory Basel III EL. We assess exposures where there is a material correlation between the factors driving the credit quality of the counterparty and those driving the potential future value of our traded products exposure (wrong-way risk), and we have established specific controls to mitigate such risks. Loss given default LGD is the magnitude of the likely loss if there is a default. Our LGD estimates, which consider downturn conditions, include loss of principal, interest and other amounts (such as workout costs, including the cost of carrying an impaired position during the workout process) less recovered amounts. We determine LGD based on the likely recovery rate of claims against defaulted counterparties, which depends on the type of counterparty and any credit mitigation due to collateral or guarantees. Our estimates are supported by internal loss data and external information, where available. If we hold collateral, such as marketable securities or a mortgage on a property, LTV ratios are typically a key parameter in determining LGD. For low-default portfolios, where available, we take into account relevant external default data in the rating tool development. In RWA calculation, a regulatory LGD floor of 10% is applied for exposures secured by residential properties. Additionally, we apply a 25% LGD floor for Lombard loans in Global Wealth Management outside Region Americas and a 20% LGD floor for Lombard loans in Global Wealth Management Region Americas. All other LGDs are subject to a 5% floor. Expected loss Credit losses are an inherent cost of doing business and the occurrence and amount of credit losses can be erratic. We use the concept of expected loss to quantify future credit losses that may be implicit in our current portfolio. The expected loss for a given credit facility is a product of the three components described above, i.e., PD, EAD and LGD. We aggregate the expected loss for individual counterparties to derive expected portfolio credit losses. Expected loss (EL) for regulatory and internal risk control purposes is a statistical measure used to estimate the average annual costs we expect to experience from positions that become impaired. EL is the basis for quantifying credit risk in all our portfolios. We use a statistical modeling approach to estimate the loss profile of each of our credit portfolios over a one-year period to a specified level of confidence. The mean value of this loss distribution is the expected loss. EL provides an indication of the level of risk in our portfolio and it may change over time. Some parameters have to be estimated on a conservative basis in order to meet the regulatory requirements for banks applying the internal ratings-based approach to determine RWA. 124 125 125 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control The table below shows the main differences between the two expected loss measures. Basel III EL (advanced internal ratings-based approach) IFRS 9 ECL Scope The Basel III advanced internal ratings-based (A-IRB) approach applies to most credit risk exposures. It includes transactions measured at amortized cost, at fair value through profit or loss and at fair value through OCI, including loan commitments and financial guarantees. The IFRS 9 ECL calculation mainly applies to financial assets measured at amortized cost and debt instruments measured at fair value through OCI, as well as loan commitments and financial guarantees not at fair value through profit or loss. 12-month versus lifetime expected loss The Basel III A-IRB approach takes into account expected losses resulting from expected default events occurring within the next 12 months. Exposure at default (EAD) Probability of default (PD) EAD is the amount we expect a counterparty to owe us at the time of a possible default. For banking products, EAD equals book value as of the reporting date; for traded products, such as securities financing transactions, EAD is modeled. EAD is expected to remain constant over a 12- month period. For loan commitments, a credit conversion factor is applied to model expected future drawdowns over the 12-month period, irrespective of the actual maturity of a particular transaction. The credit conversion factor includes downturn adjustments. PD estimates are determined on a through-the-cycle (TTC) basis. They represent historical average PDs, taking into account observed losses over a prolonged historical period, and therefore are less sensitive to movements in the underlying economy. In the absence of a significant increase in credit risk (SICR), a maximum 12-month ECL is recognized to reflect lifetime cash shortfalls that will result if a default event occurs in the 12 months after the reporting date (or a shorter period if the expected lifetime is less). Once an SICR event has occurred, a lifetime ECL is recognized considering expected default events over the life of the transaction. EAD is generally calculated on the basis of the cash flows that are expected to be outstanding at the individual points in time during the life of the transaction, discounted to the reporting date using the effective interest rate. For loan commitments, a credit conversion factor is applied to model expected future drawdowns over the life of the transaction without including downturn assumptions. In both cases, the time period is capped at 12 months, unless an SICR has occurred. PD estimates will be determined on a point-in-time (PIT) basis, based on current conditions and incorporating forecasts for future economic conditions at the reporting date. Loss given default (LGD) LGD includes prudential adjustments, such as downturn LGD assumptions and floors. Similar to PD, LGD is determined on a TTC basis. LGD should reflect the losses that are reasonably expected and prudential adjustments should therefore not be applied. Similar to PD, LGD is determined on the basis of a PIT approach. Use of scenarios n / a Multiple forward-looking scenarios have to be taken into account to determine a probability-weighted ECL. Further key aspects of credit risk models Stress loss We complement our statistical modeling approach with scenario- based stress loss measures. Stress tests are run regularly to monitor potential effects of extreme, but nevertheless plausible, events on our portfolios, under which key credit risk parameters are assumed to deteriorate substantially. Where we consider it appropriate, we apply limits on this basis. Stress scenarios and methodologies are tailored to portfolios’ natures, ranging from regionally focused to global systemic events, and varying in time horizon. For example, for our loan underwriting portfolio, we apply a global market event under which, simultaneously, the market for loan syndication freezes, market conditions significantly worsen, and credit quality deteriorates. Similarly, for Lombard lending we use a range of scenarios representing instantaneous market shocks to all collateral and exposure positions, taking into consideration liquidity and potential concentration. The portfolio-specific stress test for our mortgage lending business in Switzerland reflects a multi-year event, and the overarching stress test for global wholesale and CCR exposure to corporations uses a one-year global stress event and takes into account exposure concentration to single counterparties. › Refer to “Stress testing” in this section for more information about our stress testing framework 126 126 Risk, capital, liquidity and funding, and balance sheet | Risk management and control The table below shows the main differences between the two expected loss measures. Basel III EL (advanced internal ratings-based approach) IFRS 9 ECL Scope The Basel III advanced internal ratings-based (A-IRB) The IFRS 9 ECL calculation mainly applies to financial assets approach applies to most credit risk exposures. It includes measured at amortized cost and debt instruments measured at fair transactions measured at amortized cost, at fair value value through OCI, as well as loan commitments and financial through profit or loss and at fair value through OCI, guarantees not at fair value through profit or loss. including loan commitments and financial guarantees. 12-month versus lifetime expected loss within the next 12 months. The Basel III A-IRB approach takes into account expected In the absence of a significant increase in credit risk (SICR), a losses resulting from expected default events occurring maximum 12-month ECL is recognized to reflect lifetime cash shortfalls that will result if a default event occurs in the 12 months after the reporting date (or a shorter period if the expected lifetime is less). Once an SICR event has occurred, a lifetime ECL is recognized considering expected default events over the life of the transaction. Exposure at default EAD is the amount we expect a counterparty to owe us at EAD is generally calculated on the basis of the cash flows that are (EAD) the time of a possible default. For banking products, EAD expected to be outstanding at the individual points in time during equals book value as of the reporting date; for traded the life of the transaction, discounted to the reporting date using products, such as securities financing transactions, EAD is the effective interest rate. For loan commitments, a credit modeled. EAD is expected to remain constant over a 12- conversion factor is applied to model expected future drawdowns month period. For loan commitments, a credit conversion over the life of the transaction without including downturn factor is applied to model expected future drawdowns over assumptions. In both cases, the time period is capped at 12 the 12-month period, irrespective of the actual maturity of a months, unless an SICR has occurred. particular transaction. The credit conversion factor includes downturn adjustments. Probability of PD estimates are determined on a through-the-cycle (TTC) PD estimates will be determined on a point-in-time (PIT) basis, default (PD) basis. They represent historical average PDs, taking into based on current conditions and incorporating forecasts for future account observed losses over a prolonged historical period, economic conditions at the reporting date. and therefore are less sensitive to movements in the underlying economy. Loss given default LGD includes prudential adjustments, such as downturn LGD LGD should reflect the losses that are reasonably expected and (LGD) assumptions and floors. Similar to PD, LGD is determined on prudential adjustments should therefore not be applied. Similar to a TTC basis. PD, LGD is determined on the basis of a PIT approach. Use of scenarios n / a Multiple forward-looking scenarios have to be taken into account to determine a probability-weighted ECL. Further key aspects of credit risk models Stress loss market conditions significantly worsen, and credit quality deteriorates. Similarly, for Lombard lending we use a range of scenarios representing instantaneous market shocks to all We complement our statistical modeling approach with scenario- collateral and exposure positions, taking into consideration based stress loss measures. Stress tests are run regularly to liquidity and potential concentration. The portfolio-specific stress monitor potential effects of extreme, but nevertheless plausible, test for our mortgage lending business in Switzerland reflects a events on our portfolios, under which key credit risk parameters multi-year event, and the overarching stress test for global are assumed to deteriorate substantially. Where we consider it wholesale and CCR exposure to corporations uses a one-year appropriate, we apply limits on this basis. global stress event and takes into account exposure concentration Stress scenarios and methodologies are tailored to portfolios’ to single counterparties. natures, ranging from regionally focused to global systemic events, and varying in time horizon. For example, for our loan underwriting portfolio, we apply a global market event under which, simultaneously, the market for loan syndication freezes, › Refer to “Stress testing” in this section for more information about our stress testing framework Credit risk model confirmation Our approach to model confirmation involves both quantitative methods, e.g., monitoring compositional changes in portfolios and results of backtesting, and qualitative assessments, such as feedback from users on model output as a practical indicator of a model’s performance and reliability. Material changes in portfolio composition may invalidate the conceptual soundness of a model. We therefore perform regular analyses of the evolution of portfolios to identify such changes in the structure and credit quality of portfolios. This includes analyses of changes in key attributes, changes in portfolio concentration measures and changes in RWA. › Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures Backtesting We monitor the performance of models by backtesting and benchmarking them, with model outcomes compared with actual results, based on our internal experience and externally observed results. To assess the predictive power of credit exposure models for traded products, such as OTC derivatives and ETD products, we statistically compare predicted future exposure distributions at different forecast horizons with realized values. For PD, we use statistical modeling to derive a predicted distribution of the number of defaults. The observed number of defaults is compared with this distribution, letting us derive a statistical level of confidence in the model conservatism. We also derive a lower and upper limit for the average default rate. If the portfolio average PD lies outside the derived interval, the rating tool is, as a general rule, recalibrated. For LGD, backtesting statistically tests whether the mean difference between the observed and predicted LGD is zero. If the test fails, there is evidence that our predicted LGD is too low. In such cases, and where these differences are outside expectations, models are recalibrated. Main credit risk models backtesting by regulatory asset class Length of time series used for the calibration (in years) Actual rates in % Average of last 5 years1 Min. of last 5 years2 Max. of last 5 years2 Estimated average rates at the start of 2021 in % PPrroobbaabbiilliittyy ooff ddeeffaauulltt33 Central governments and central banks Banks and securities dealers Public-sector entities, multi-lateral development banks Corporates: specialized lending Corporates: other lending Retail: residential mortgages Retail: other LLoossss ggiivveenn ddeeffaauulltt Central governments and central banks Banks and securities dealers Public-sector entities, multi-lateral development banks Corporates: specialized lending Corporates: other lending Retail: residential mortgages Retail: other CCrreeddiitt ccoonnvveerrssiioonn ffaaccttoorrss Corporates >104 >10 >10 >10 >10 >20 >10 >10 >10 >10 >10 >10 >20 >10 >10 0.00 0.13 0.04 0.36 0.27 0.22 0.02 0.19 18.12 0.58 1.77 0.00 0.00 0.00 0.14 0.20 0.16 0.00 0.00 0.46 0.00 0.00 0.00 0.53 0.21 0.60 0.33 0.28 0.10 0.92 27.00 0.92 17.90 21.06 6.93 37.91 0.22 0.69 0.21 1.24 0.46 0.54 0.25 42.49 48.69 24.55 22.77 38.28 21.34 26.64 38.72 11 Average of all observations over the last five years. 22 Minimum / maximum annual average of observations in any single year from the last five years. Yearly averages are only calculated where five or more observations occurred during that year. 33 Average PD estimation is based on all rated clients in the portfolio. 44 Sovereign PD model is calibrated to UBS masterscale, length of time series shows span of internal history for this portfolio. 126 127 127 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control CCFs, used for the calculation of EAD for undrawn facilities with corporate counterparties, are dependent on several credit facility contractual dimensions. We compare the predicted amount drawn with observed historical use of such facilities by defaulted counterparties. If any statistically significant deviation is observed, the relevant CCFs are redefined. The “Main credit risk models backtesting by regulatory asset class” table on the previous page compares the current model calibration for PD, LGD and CCFs with historical observed values over the last five years. Changes to models and model parameters during the period As part of our continuous efforts to enhance models to reflect market developments and newly available data, we updated several models in 2021. In Personal & Corporate Banking, we introduced a new model for credit card exposures, new rating models for the public-sector entities portfolio and a new LGD and CCF model for the industrial goods leasing portfolio. In Global Wealth Management, a new model was introduced for the aircraft financing portfolio. For the income-producing real estate mortgages, we recalibrated the risk parameters and for mortgages in Switzerland, we updated the LGD model. In the Investment Bank, a new LGD model for leveraged finance was introduced and the multi-nationals and financials LGD was recalibrated. In Group Functions, we extended the use of internal Group models to the sovereign portfolio of the Group Liquidity Reserve (GLR). Additionally, further exposures in GLR (e.g., covered bonds) have been moved to the standardized approach. Future credit risk-related regulatory capital developments In December 2017, the Basel Committee on Banking Supervision (the BCBS) announced the finalization of the Basel III framework, with an implementation date of 1 January 2023. We expect the Swiss regulations to come into force in 2024. The updated framework makes a number of revisions to the internal ratings- based (IRB) approaches, namely: (i) removing the option of using the A-IRB approach for certain asset classes (including large and medium-sized corporate clients, and banks and other financial institutions); (ii) placing floors on certain model inputs under the IRB approach, e.g., PD and LGD; and (iii) introducing various requirements to reduce RWA variability (e.g., for LGD). The published framework has a number of requirements that are subject to national discretion. Also, revisions to the credit valuation adjustment (CVA) framework were published, including the removal of the advanced CVA approach. UBS has a close dialogue with FINMA to discuss in detail the implementation objectives and prepare for a smooth transition of the capital regime for credit risk. › Refer to “Capital management objectives, planning and activities” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the development of RWA › Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures › Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information Credit policies for distressed assets For CCR models, we recalibrated the market parameters in the SFT model. The transition from LIBOR required a number of model changes for CCR models, for traded products to be able to consume the new alternative reference rate curves. The “Exposure categorization” chart on the next page shows how we categorize banking products and securities financing transactions as non-performing, defaulted / credit-impaired and purchased or originated credit-impaired. Where required, changes to models and model parameters were approved by FINMA before being made. › Refer to “Risk-weighted assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the effect of the changes to models and model parameters on credit risk RWA to Non-performing Audited | In line with the regulatory definition, we report a claim as non-performing when: (i) it is more than 90 days past due; (ii) it is restructuring proceedings, where preferential subject conditions concerning interest rates, subordination, tenor, etc. have been granted in order to avoid default of the counterparty (forbearance); (iii) the counterparty is subject to bankruptcy / enforced liquidation proceedings in any form, even if there is sufficient collateral to cover the due payment; or (iv) there is other evidence that payment obligations will not be fully met without recourse to collateral. 128 128 (cid:39)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:69)(cid:67)(cid:86)(cid:71)(cid:73)(cid:81)(cid:84)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80) (cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73) (cid:48)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:149) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:19) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:20)(cid:2) (cid:10)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11) (cid:10)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:149)(cid:11)(cid:2) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:21)(cid:2) (cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:80)(cid:81)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2) (cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2) (cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2) (cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2) (cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80) (cid:18)(cid:115)(cid:21)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71) (cid:21)(cid:19)(cid:115)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71) (cid:27)(cid:19)(cid:115)(cid:19)(cid:26)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2) (cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2) (cid:10)(cid:69)(cid:71)(cid:84)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:11) (cid:47)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:10)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2) (cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:19)(cid:26)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:69)(cid:71)(cid:84)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:11) (cid:40)(cid:81)(cid:84)(cid:68)(cid:71)(cid:67)(cid:84)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:17)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:75)(cid:80)(cid:73)(cid:142) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:69)(cid:81)(cid:80)(cid:69)(cid:71)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2) (cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:86)(cid:81)(cid:78)(cid:71)(cid:84)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71) (cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:75)(cid:79)(cid:79)(cid:75)(cid:80)(cid:71)(cid:80)(cid:86)(cid:2) (cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86) (cid:50)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:10)(cid:50)(cid:49)(cid:37)(cid:43)(cid:11) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:50)(cid:49)(cid:37)(cid:43)(cid:2)(cid:67)(cid:86)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2) (cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:85)(cid:75)(cid:86)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:75)(cid:79)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:70) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:81)(cid:72)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2) (cid:70)(cid:81)(cid:87)(cid:68)(cid:86)(cid:72)(cid:87)(cid:78)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:47)(cid:67)(cid:91)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:2)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16) Risk, capital, liquidity and funding, and balance sheet | Risk management and control CCFs, used for the calculation of EAD for undrawn facilities Future credit risk-related regulatory capital developments with corporate counterparties, are dependent on several credit In December 2017, the Basel Committee on Banking Supervision facility contractual dimensions. We compare the predicted (the BCBS) announced the finalization of the Basel III framework, amount drawn with observed historical use of such facilities by with an implementation date of 1 January 2023. We expect the defaulted counterparties. If any statistically significant deviation is Swiss regulations to come into force in 2024. The updated observed, the relevant CCFs are redefined. framework makes a number of revisions to the internal ratings- The “Main credit risk models backtesting by regulatory asset based (IRB) approaches, namely: (i) removing the option of using class” table on the previous page compares the current model the A-IRB approach for certain asset classes (including large and calibration for PD, LGD and CCFs with historical observed values medium-sized corporate clients, and banks and other financial over the last five years. institutions); (ii) placing floors on certain model inputs under the IRB approach, e.g., PD and LGD; and (iii) introducing various Changes to models and model parameters during the period requirements to reduce RWA variability (e.g., for LGD). As part of our continuous efforts to enhance models to reflect The published framework has a number of requirements that market developments and newly available data, we updated are subject to national discretion. Also, revisions to the credit several models in 2021. valuation adjustment (CVA) framework were published, including In Personal & Corporate Banking, we introduced a new model the removal of the advanced CVA approach. UBS has a close for credit card exposures, new rating models for the public-sector dialogue with FINMA to discuss in detail the implementation entities portfolio and a new LGD and CCF model for the industrial objectives and prepare for a smooth transition of the capital goods leasing portfolio. regime for credit risk. In Global Wealth Management, a new model was introduced for the aircraft financing portfolio. › Refer to “Capital management objectives, planning and activities” in the “Capital, liquidity and funding, and balance For the income-producing real estate mortgages, we sheet” section of this report for more information about the recalibrated the risk parameters and for mortgages in Switzerland, development of RWA we updated the LGD model. In the Investment Bank, a new LGD model for leveraged finance was introduced and the multi-nationals and financials procedures › Refer to “Risk measurement” in this section for more information about our approach to model confirmation LGD was recalibrated. In Group Functions, we extended the use of internal Group models to the sovereign portfolio of the Group Liquidity Reserve › Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information (GLR). Additionally, further exposures in GLR (e.g., covered bonds) Credit policies for distressed assets have been moved to the standardized approach. For CCR models, we recalibrated the market parameters in the The “Exposure categorization” chart on the next page shows how SFT model. The transition from LIBOR required a number of model we categorize banking products and securities financing changes for CCR models, for traded products to be able to transactions as non-performing, defaulted / credit-impaired and consume the new alternative reference rate curves. purchased or originated credit-impaired. Where required, changes to models and model parameters were approved by FINMA before being made. Non-performing › Refer to “Risk-weighted assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the effect of the changes to models and model parameters on credit risk RWA Audited | In line with the regulatory definition, we report a claim as non-performing when: (i) it is more than 90 days past due; (ii) it is subject to restructuring proceedings, where preferential conditions concerning interest rates, subordination, tenor, etc. have been granted in order to avoid default of the counterparty (forbearance); (iii) the counterparty is subject to bankruptcy / enforced liquidation proceedings in any form, even if there is sufficient collateral to cover the due payment; or (iv) there is other evidence that payment obligations will not be fully met without recourse to collateral. Default and credit-impaired UBS uses a single definition of default for classifying assets and determining the PD of its obligors for risk modeling purposes. The definition of default is based on quantitative and qualitative criteria. A counterparty is classified as defaulted when material payments of interest, principal or fees are overdue for more than 90 days, or more than 180 days for certain exposures in relation to loans to private and commercial clients in Personal & Corporate Banking and to private clients of Global Wealth Management Region Switzerland. UBS does not consider the general 90-day presumption for default recognition appropriate for those portfolios, given the cure rates, which show that strict application of the 90-day criterion would not accurately reflect the inherent credit risk. Counterparties are also classified as defaulted when: bankruptcy, insolvency proceedings or enforced liquidation have commenced; obligations have been restructured on preferential terms (forbearance); or there is other evidence that payment obligations will not be fully met without recourse to collateral. The latter may be the case even if, to date, all contractual payments if An is classified as credit-impaired have been made when due. If one claim against a counterparty is defaulted on, generally all claims against the counterparty are treated as defaulted. instrument the counterparty is classified as defaulted and / or the instrument is identified as purchased or originated credit-impaired (POCI). An instrument is POCI if it has been purchased at a deep discount to its carrying amount following a risk event of the issuer or originated with a defaulted counterparty. Once a financial asset is classified as defaulted / credit-impaired (except POCI), it is reported as a stage 3 instrument and remains as such unless all past due amounts have been rectified, additional payments have been made on time, the position is not classified as credit- restructured, and there is general evidence of credit recovery. A three-month probation period is applied before a transfer back to stages 1 or 2 can be triggered. However, most instruments remain in stage 3 for a longer period. As of 31 December 2021, we had no instruments classified as POCI on our books.  (cid:39)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:69)(cid:67)(cid:86)(cid:71)(cid:73)(cid:81)(cid:84)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80) (cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:19) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:80)(cid:81)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2) (cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2) (cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80) (cid:18)(cid:115)(cid:21)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71) (cid:48)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:149) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:21)(cid:2) (cid:10)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:149)(cid:11)(cid:2) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2) (cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2) (cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:20)(cid:2) (cid:10)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2) (cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2) (cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80) (cid:21)(cid:19)(cid:115)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71) (cid:27)(cid:19)(cid:115)(cid:19)(cid:26)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2) (cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2) (cid:10)(cid:69)(cid:71)(cid:84)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:11) (cid:47)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:10)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2) (cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:19)(cid:26)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:69)(cid:71)(cid:84)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:11) (cid:40)(cid:81)(cid:84)(cid:68)(cid:71)(cid:67)(cid:84)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:17)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:75)(cid:80)(cid:73)(cid:142) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:69)(cid:81)(cid:80)(cid:69)(cid:71)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2) (cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:86)(cid:81)(cid:78)(cid:71)(cid:84)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71) (cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:75)(cid:79)(cid:79)(cid:75)(cid:80)(cid:71)(cid:80)(cid:86)(cid:2) (cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86) (cid:50)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:10)(cid:50)(cid:49)(cid:37)(cid:43)(cid:11) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:50)(cid:49)(cid:37)(cid:43)(cid:2)(cid:67)(cid:86)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2) (cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:85)(cid:75)(cid:86)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:75)(cid:79)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:70) (cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:81)(cid:72)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2) (cid:70)(cid:81)(cid:87)(cid:68)(cid:86)(cid:72)(cid:87)(cid:78)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2) (cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:47)(cid:67)(cid:91)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:2)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:84)(cid:75)(cid:73)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16) 128 129 129 Risk, capital, liquidity and funding, and balance sheetThe “Loss history statistics” table below provides a five-year history of credit loss experience for loans and advances to banks and customers, and ratios of those credit losses relative to credit- impaired and non-performing loans and advances to banks and customers. For 2017, the amounts are based on IAS 37 and IAS 39; for 2018 and onward, the amounts are based on IFRS 9. › The majority of the credit-impaired exposure relates to loans and advances in our Swiss domestic business. Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about ECL measurement › Refer to “Note 14a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this report for more details Risk, capital, liquidity and funding, and balance sheet | Risk management and control Forbearance (credit restructuring) Audited | If payment default is imminent or default has already occurred, we may grant concessions to borrowers in financial difficulties that we would otherwise not consider in the normal course of business, such as offering preferential interest rates, extending maturity, modifying the schedule of repayments, debt / equity swap, subordination, etc. When a forbearance measure takes place, each case is considered individually and the exposure is generally classified as defaulted. Forbearance classification remains until the loan is repaid or written off, non-preferential conditions are granted that supersede the preferential conditions, or the counterparty has recovered and the preferential conditions no longer exceed our risk tolerance. Contractual adjustments when there is no evidence of imminent payment default, or where changes to terms and conditions are within our usual risk tolerance, are not considered to be forborne.  Loss history statistics An instrument is classified as credit-impaired if the counterparty has defaulted. This also includes credit-impaired exposures for which no loss has occurred or for which no allowance has been recognized (for example because we expect to fully recover the exposures via collateral held). Loss history statistics USD million, except where indicated Loans and advances to banks and customers (gross) Credit-impaired loans and advances to banks and customers Non-performing loans and advances to banks and customers ECL allowances and provisions for credit losses1,2 of which: allowances for loans and advances to banks and customers 1 Write-offs of which: write-offs for loans and advances to banks and customers 3311..1122..2211 IIFFRRSS 99 441144,,009999 22,,115500 22,,338877 11,,116655 885577 113377 111188 114488 31.12.20 IFRS 9 396,049 2,945 3,176 1,468 1,076 356 348 (694) 31.12.19 IFRS 9 340,003 2,309 2,466 1,029 770 142 122 (78) 31.12.18 IFRS 9 338,000 2,300 2,419 1,054 780 210 192 (118) 31.12.17 IAS 37, IAS 39 342,604 1,104 2,149 712 678 101 101 (131) Credit loss (expense) / release3 RRaattiiooss Credit-impaired loans and advances to banks and customers as a percentage of loans and advances to banks and customers (gross) Non-performing loans and advances to banks and customers as a percentage of loans and advances to banks and customers (gross) ECL allowances for loans and advances to banks and customers as a percentage of loans and advances to banks and customers (gross) Write-offs as a percentage of average loans and advances to banks and customers (gross) outstanding during the period 11 Includes collective loan loss allowances for 31 December 2017. Until 31 December 2017 did not include allowances for other receivables (USD 19 million). 22 Includes provisions for ECL of guarantees and loan commitments and allowances for securities financing transactions. 33 Includes credit loss (expense) / release for other financial assets at amortized cost, guarantees, loan commitments, and securities financing transactions. 00..22 00..66 00..00 00..55 0.6 0.7 0.7 0.2 0.2 0.3 0.7 0.3 0.7 0.7 0.8 0.1 0.0 0.0 0.2 0.1 130 130 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Forbearance (credit restructuring) The “Loss history statistics” table below provides a five-year Audited | If payment default is imminent or default has already history of credit loss experience for loans and advances to banks occurred, we may grant concessions to borrowers in financial and customers, and ratios of those credit losses relative to credit- difficulties that we would otherwise not consider in the normal impaired and non-performing loans and advances to banks and course of business, such as offering preferential interest rates, customers. For 2017, the amounts are based on IAS 37 and extending maturity, modifying the schedule of repayments, debt / IAS 39; for 2018 and onward, the amounts are based on IFRS 9. equity swap, subordination, etc. When a forbearance measure takes place, each case is considered individually and the exposure is generally classified as defaulted. Forbearance classification remains until the loan is repaid or written off, non-preferential conditions are granted that supersede the preferential conditions, or the counterparty has recovered and the preferential conditions › The majority of the credit-impaired exposure relates to loans and advances in our Swiss domestic business. Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about ECL no longer exceed our risk tolerance. measurement Contractual adjustments when there is no evidence of imminent payment default, or where changes to terms and › Refer to “Note 14a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this conditions are within our usual risk tolerance, are not considered report for more details to be forborne.  Loss history statistics An instrument is classified as credit-impaired if the counterparty has defaulted. This also includes credit-impaired exposures for which no loss has occurred or for which no allowance has been recognized (for example because we expect to fully recover the exposures via collateral held). Loss history statistics USD million, except where indicated Loans and advances to banks and customers (gross) Credit-impaired loans and advances to banks and customers Non-performing loans and advances to banks and customers ECL allowances and provisions for credit losses1,2 of which: allowances for loans and advances to banks and customers 1 of which: write-offs for loans and advances to banks and customers Write-offs Credit loss (expense) / release3 RRaattiiooss and customers (gross) and customers (gross) banks and customers (gross) the period transactions. Credit-impaired loans and advances to banks and customers as a percentage of loans and advances to banks Non-performing loans and advances to banks and customers as a percentage of loans and advances to banks ECL allowances for loans and advances to banks and customers as a percentage of loans and advances to Write-offs as a percentage of average loans and advances to banks and customers (gross) outstanding during 3311..1122..2211 31.12.20 31.12.19 31.12.18 31.12.17 IIFFRRSS 99 IFRS 9 IFRS 9 IFRS 9 IAS 37, IAS 39 441144,,009999 396,049 340,003 338,000 342,604 22,,115500 22,,338877 11,,116655 885577 113377 111188 114488 00..55 00..66 00..22 00..00 2,945 3,176 1,468 1,076 356 348 (694) 0.7 0.8 0.3 0.1 2,309 2,466 1,029 770 142 122 (78) 0.7 0.7 0.2 0.0 2,300 2,419 1,054 780 210 192 (118) 0.7 0.7 0.2 0.1 1,104 2,149 712 678 101 101 (131) 0.3 0.6 0.2 0.0 11 Includes collective loan loss allowances for 31 December 2017. Until 31 December 2017 did not include allowances for other receivables (USD 19 million). 22 Includes provisions for ECL of guarantees and loan commitments and allowances for securities financing transactions. 33 Includes credit loss (expense) / release for other financial assets at amortized cost, guarantees, loan commitments, and securities financing Market risk Key developments Market risk remained at low levels as a result of our continued focus on managing tail risks. Average management value-at-risk (VaR) (1-day, 95% confidence level) decreased to USD 11 million from USD 13 million in 2020, mainly as a result of the Investment Bank’s equities trading business. The number of negative backtesting exceptions within a 250-business-day window increased to 4 from 3 by the end of 2021. As these backtesting exceptions remained below 5, the FINMA VaR multiplier for market risk RWA remained unchanged at 3.0 as of 31 December 2021. Audited | Main sources of market risk Market risks arise from both trading and non-trading business activities. – Trading market risks are mainly connected with primary debt and equity underwriting and securities and derivatives trading for market-making and client facilitation in our Investment Bank, as well as the remaining positions in Non-core and Legacy Portfolio in Group Functions and our municipal securities trading business in Global Wealth Management. – Non-trading market risks arise predominantly in the form of interest rate and foreign exchange risks connected with personal banking and lending in our wealth management business, our Swiss personal and corporate banking business, the Investment Bank’s lending business, and treasury activities. – Group Treasury assumes market risks in the process of managing interest rate risk, structural foreign exchange risk and the Group’s liquidity and funding profile, including HQLA. – Equity and debt investments can also give rise to market risks, as can some aspects of employee benefits, such as defined benefit pension schemes.  Audited | Overview of measurement, monitoring and management techniques – Market risk limits are set for the Group, the business divisions, Group Treasury and Non-core and Legacy Portfolio at granular levels in the various business lines, reflecting the nature and magnitude of the market risks. – Management VaR measures exposures under the market risk framework, including trading market risks and some non- trading market risks. Non-trading market risks not included in VaR are also covered in the risks controlled by Market & Treasury Risk Control, as set out below. – Our primary portfolio measures of market risk are liquidity- adjusted stress (LAS) loss and VaR. Both are common to all business divisions and subject to limits that are approved by the Board of Directors (the BoD). – These measures are complemented by concentration and granular limits for general and specific market risk factors. Our trading businesses are subject to multiple market risk limits, which take into account the extent of market liquidity and volatility, available operational capacity, valuation uncertainty and, for our single-name exposures, issuer credit quality. – Trading market risks are managed on an integrated basis at portfolio level. As risk factor sensitivities change due to new transactions, transaction expiries or changes in market levels, risk factors are dynamically rehedged to remain within limits. Thus we do not generally seek to distinguish in the trading portfolio between specific positions and associated hedges. – Issuer risk is controlled by limits applied at business division level based on jump-to-zero measures, which estimate maximum default exposure (the default event loss assuming zero recovery). – Non-trading foreign exchange risks are managed under market risk limits, with the exception of Group Treasury management of consolidated capital activity. Our Market & Treasury Risk Control function applies a holistic risk framework, setting the appetite for treasury-related risk- taking activities across the Group. A key element of the framework is an overarching economic value sensitivity limit, set by the BoD. This limit is linked to the level of Basel III common equity tier 1 (CET1) capital, and takes into account risks arising from interest rates, foreign exchange and credit spreads. Also, the sensitivity of net interest income to changes in interest rates is monitored against targets set by the Group CEO, so as to analyze the outlook and volatility of net interest income based on market- expected interest rates. Limits are also set by the BoD to balance the effect of foreign exchange movements on our CET1 capital and CET1 capital ratio. Non-trading interest rate and foreign exchange risks are included in Group-wide statistical and stress testing metrics, which flow into our risk appetite framework. Equity and debt investments are subject to a range of risk controls, including preapproval of new investments by business management and Risk Control and regular monitoring and reporting. They are also included in Group-wide statistical and stress testing metrics.  › Refer to “Currency management” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about Group Treasury’s management of foreign exchange risks › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the sensitivity of our CET1 capital and CET1 capital ratio to currency movements 130 131 131 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Risk management and control Market risk stress loss We measure and manage market risks through a comprehensive framework of non-statistical measures and related limits, as well as VaR. This includes an extensive set of stress tests and scenario analyses, continuously evaluated to ensure that losses resulting from an extreme yet plausible event do not exceed our risk appetite. Liquidity-adjusted stress LAS is our primary stress loss measure for Group-wide market risk. The LAS framework captures the economic losses that could arise under specified stress scenarios. This is partially done by replacing the standard 1-day and 10-day holding period assumptions used for management and regulatory VaR with liquidity-adjusted holding periods, as explained below. Shocks are applied to positions based on expected market movements in the liquidity- adjusted holding periods resulting from the specified scenario. The holding periods used for LAS are calibrated to reflect the time needed to reduce or hedge the risk of positions in each major risk factor in a stressed environment, assuming maximum utilization of the relevant position limits. We apply minimum holding periods, regardless of observed liquidity levels, as identification of and reaction to a crisis may not always be immediate. The expected market movements are derived using historical market behavior (based on analysis of historical events) and forward-looking analysis including consideration of defined scenarios that have not occurred in the past. LAS-based limits apply at several levels: Group, business division, Group Treasury and Non-core and Legacy Portfolio; business area; and sub-portfolio. LAS is also the core market risk component of our combined stress test framework and therefore integral to our overall risk appetite framework. › Refer to “Risk appetite framework” in this section for more information › Refer to “Stress testing” in this section for more information about our stress testing framework Value-at-risk VaR definition Audited | VaR is a statistical measure of market risk, representing the potential market risk losses over a set time horizon (holding period) at an established level of confidence. VaR assumes no change in the Group’s trading positions over the set time horizon. We calculate VaR daily. The profit or loss distribution VaR is derived from our internally developed VaR model, which simulates returns over the holding period for those risk factors our trading positions are sensitive to, and subsequently quantifies the profit / loss effect of these risk factor returns on trading positions. Risk factor returns associated with general interest rate, foreign exchange and commodities risk factor classes are based on a pure historical simulation approach, using a five-year look-back window. Risk factor returns for selected issuer-based risk factors, e.g., equity price and credit spreads, are split into systematic and residual issuer-specific components using a factor model approach. Systematic returns are based on historical simulation, and residual returns on a Monte Carlo simulation. VaR model profit or loss distribution is derived from the sum of systematic and residual returns in such a way that we consistently capture systematic and residual risk. Correlations among risk factors are implicitly captured via a historical simulation approach. When modeling risk factor returns we consider the stationarity properties of the historical time series of risk factor changes. Depending on the stationarity properties of the risk factors within a given factor class, we model the factor returns using absolute returns or logarithmic returns. Risk factor return distributions are updated fortnightly. Our VaR model does not have full revaluation capability, but we source full revaluation grids and sensitivities from front-office systems, enabling us to capture material non-linear profit or loss effects. We use a single VaR model for both internal management purposes and determining market risk RWA, although we consider different confidence levels and time horizons. For internal management purposes, we establish risk limits and measure exposures using VaR at a 95% confidence level with a 1-day holding period, aligned to the way we consider the risks associated with our trading activities. The regulatory measure of market risk used to underpin the market risk capital requirement under Basel III requires a measure equivalent to a 99% confidence level using a 10-day holding period. To calculate a 10-day holding period VaR, we use 10-day risk factor returns, with all observations equally weighted. Additionally, the portfolio population for management and regulatory VaR is slightly different. The one for regulatory VaR meets regulatory requirements for inclusion in regulatory VaR. Management VaR includes a broader range of positions. For example, regulatory VaR excludes credit spread risks from the securitization portfolio, which are treated instead under the securitization approach for regulatory purposes. 132 132 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Market risk stress loss We calculate VaR daily. The profit or loss distribution VaR is derived from our internally developed VaR model, which simulates We measure and manage market risks through a comprehensive returns over the holding period for those risk factors our trading framework of non-statistical measures and related limits, as well positions are sensitive to, and subsequently quantifies the profit / as VaR. This includes an extensive set of stress tests and scenario loss effect of these risk factor returns on trading positions. Risk analyses, continuously evaluated to ensure that losses resulting factor returns associated with general interest rate, foreign from an extreme yet plausible event do not exceed our risk exchange and commodities risk factor classes are based on a pure appetite. Liquidity-adjusted stress historical simulation approach, using a five-year look-back window. Risk factor returns for selected issuer-based risk factors, e.g., equity price and credit spreads, are split into systematic and LAS is our primary stress loss measure for Group-wide market risk. residual issuer-specific components using a factor model The LAS framework captures the economic losses that could arise approach. Systematic returns are based on historical simulation, under specified stress scenarios. This is partially done by replacing and residual returns on a Monte Carlo simulation. VaR model the standard 1-day and 10-day holding period assumptions used profit or loss distribution is derived from the sum of systematic for management and regulatory VaR with liquidity-adjusted and residual returns in such a way that we consistently capture holding periods, as explained below. Shocks are applied to systematic and residual risk. Correlations among risk factors are positions based on expected market movements in the liquidity- implicitly captured via a historical simulation approach. When adjusted holding periods resulting from the specified scenario. modeling risk factor returns we consider the stationarity The holding periods used for LAS are calibrated to reflect the properties of the historical time series of risk factor changes. time needed to reduce or hedge the risk of positions in each major Depending on the stationarity properties of the risk factors within risk factor in a stressed environment, assuming maximum a given factor class, we model the factor returns using absolute utilization of the relevant position limits. We apply minimum returns or logarithmic returns. Risk factor return distributions are holding periods, regardless of observed liquidity levels, as updated fortnightly. identification of and reaction to a crisis may not always be Our VaR model does not have full revaluation capability, but immediate. we source full revaluation grids and sensitivities from front-office The expected market movements are derived using historical systems, enabling us to capture material non-linear profit or loss market behavior (based on analysis of historical events) and effects. forward-looking analysis including consideration of defined We use a single VaR model for both internal management scenarios that have not occurred in the past. purposes and determining market risk RWA, although we LAS-based limits apply at several levels: Group, business consider different confidence levels and time horizons. For division, Group Treasury and Non-core and Legacy Portfolio; internal management purposes, we establish risk limits and business area; and sub-portfolio. LAS is also the core market risk measure exposures using VaR at a 95% confidence level with a component of our combined stress test framework and therefore 1-day holding period, aligned to the way we consider the risks integral to our overall risk appetite framework. › Refer to “Risk appetite framework” in this section for more information › Refer to “Stress testing” in this section for more information about our stress testing framework associated with our trading activities. The regulatory measure of market risk used to underpin the market risk capital requirement under Basel III requires a measure equivalent to a 99% confidence level using a 10-day holding period. To calculate a 10-day holding period VaR, we use 10-day risk factor returns, with all Value-at-risk VaR definition observations equally weighted. Additionally, the portfolio population for management and regulatory VaR is slightly different. The one for regulatory VaR meets regulatory requirements for inclusion in regulatory VaR. Audited | VaR is a statistical measure of market risk, representing the Management VaR includes a broader range of positions. For potential market risk losses over a set time horizon (holding example, regulatory VaR excludes credit spread risks from the period) at an established level of confidence. VaR assumes no securitization portfolio, which are treated instead under the change in the Group’s trading positions over the set time horizon. securitization approach for regulatory purposes. 132 We also use stressed VaR (SVaR) for the calculation of market risk RWA. SVaR uses broadly the same methodology as regulatory VaR and is calculated using the same population, holding period (10-day) and confidence level (99%). Unlike regulatory VaR, the historical data set for SVaR is not limited to five years, instead covering from 1 January 2007 to the present. In deriving SVaR, we seek the largest 10-day holding period VaR for the current Group portfolio across all one-year look-back windows from 1 January 2007 to the present. SVaR is computed weekly.  › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about the regulatory capital calculation under the advanced internal ratings-based approach Management VaR for the period The tables below show minimum, maximum, average and period- end management VaR by business division and Group Functions, and by general market risk type. We continued to maintain management VaR at low levels, with average VaR decreasing to USD 11 million from USD 13 million in 2020. Audited | Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of our business divisions and Group Functions by general market risk type1 FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 USD million TToottaall mmaannaaggeemmeenntt VVaaRR,, GGrroouupp Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions Diversification effect2,3 USD million MMiinn.. 44 11 00 00 33 44 Min. MMaaxx.. AAvveerraaggee 3366 33 00 00 3366 88 3311..1122..2211 1122 22 00 00 1111 44 ((55)) 1111 11 00 00 1111 55 ((66)) EEqquuiittyy 11 3355 77 88 00 00 00 77 00 00 IInntteerreesstt rraatteess 77 1133 99 1111 CCrreeddiitt sspprreeaaddss 55 1111 77 77 AAvveerraaggee ((ppeerr bbuussiinneessss ddiivviissiioonn aanndd rriisskk ttyyppee)) FFoorreeiiggnn eexxcchhaannggee 11 99 33 66 CCoommmmooddiittiieess 22 55 33 33 11 00 00 99 44 ((55)) 22 00 00 77 44 ((55)) 00 00 00 33 11 ((11)) 00 00 00 33 00 00 For the year ended 31.12.20 Max. Average 31.12.20 11 Equity 3 29 10 6 Interest rates 6 11 8 8 Credit spreads 5 11 7 8 Average (per business division and risk type) Foreign exchange 2 7 4 3 Commodities 2 6 4 3 8 31 13 TToottaall mmaannaaggeemmeenntt VVaaRR,, GGrroouupp Global Wealth Management 0 Personal & Corporate Banking 0 Asset Management 0 Investment Bank 4 Group Functions 0 Diversification effect2,3 0 11 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise, the VaR for each business line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time series, rendering invalid the simple summation of figures to arrive at the aggregate total. 22 Difference between the sum of the standalone VaR for the business divisions and Group Functions and the VaR for the Group as a whole. 33 As the minima and maxima for different business divisions and Group Functions occur on different days, it is not meaningful to calculate a portfolio diversification effect. 0 0 0 4 1 (1) 1 0 0 6 3 (4) 1 0 0 7 4 (4) 0 0 0 10 0 0 1 0 0 12 5 (5) 1 0 0 10 6 (8) 2 0 0 32 7 0 0 0 7 4  133 133 Risk, capital, liquidity and funding, and balance sheet150 125 100 75 50 0 150 -25 125 -50 100 75 50 0 -25 -50 Risk, capital, liquidity and funding, and balance sheet | Risk management and control VaR limitations Audited | Actual realized market risk losses may differ from those implied by VaR for a variety of reasons. – VaR is calibrated to a specified level of confidence and may not financial crisis is no longer contained in the historical five-year period used for management and regulatory VaR, SVaR continues to use that data. This approach aims to reduce the procyclicality of the regulatory capital requirements for market risks. indicate potential losses beyond this confidence level. – The 1-day time horizon used for VaR for internal management purposes (10-day for regulatory VaR) may not fully capture market risk of positions that cannot be closed out or hedged within the specified period. – In some cases, VaR calculations approximate the effect of changes in risk factors on the values of positions and portfolios. This may happen due to the number of risk factors included in the VaR model needing to be limited. – Effects of extreme market movements are subject to estimation errors, which may result from non-linear risk sensitivities, and the potential for actual volatility and correlation levels to differ from assumptions implicit in VaR calculations. – Using a five-year window means sudden increases in market volatility will tend not to increase VaR as quickly as the use of shorter historical observation periods, but such increases will affect VaR for a longer period of time. Similarly, after periods of increased volatility, as markets stabilize, VaR predictions will remain more conservative for a period of time influenced by the length of the historical observation period. SVaR is subject to the limitations noted for VaR above, but the use of one-year data sets avoids the smoothing effect of the five- year data set used for VaR and the absence of the five-year window gives a longer history of potential loss events. Therefore, although the significant period of stress during the 2007–2009 We recognize that no single measure can encompass all risks associated with a position or portfolio. Thus we use a set of metrics with both overlapping and complementary characteristics to create a holistic framework that aims to ensure material completeness of risk identification and measurement. As a statistical aggregate risk measure, VaR supplements our liquidity- adjusted stress and comprehensive stress testing frameworks. We also have a framework to identify and quantify potential risks not fully captured by our VaR model and refer to such risks as risks not in VaR. The framework underpins these potential risks with regulatory capital, calculated as a multiple of regulatory VaR and stressed VaR.  Backtesting of VaR VaR backtesting is a performance measurement process in which a 1-day VaR prediction is compared with the realized 1-day profit or loss (P&L). We compute backtesting VaR using a 99% confidence level and 1-day holding period for the regulatory VaR population. Since 99% VaR at UBS is defined as a risk measure that operates on the lower tail of the P&L distribution, 99% backtesting VaR is a negative number. Backtesting revenues exclude non-trading revenues, such as valuation reserves, fees and commissions, and revenues from intraday trading, to provide for a like-for-like comparison. A backtesting exception occurs when backtesting revenues are lower than the previous day’s backtesting VaR. (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:28)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:149)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:142)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:143) (cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:11) (cid:55)(cid:53)(cid:38)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80) (cid:44)(cid:67)(cid:80) (cid:40)(cid:71)(cid:68) (cid:47)(cid:67)(cid:84) (cid:35)(cid:82)(cid:84) (cid:47)(cid:67)(cid:91) (cid:44)(cid:87)(cid:80) (cid:44)(cid:87)(cid:78) (cid:35)(cid:87)(cid:73) (cid:53)(cid:71)(cid:82) (cid:49)(cid:69)(cid:86) (cid:48)(cid:81)(cid:88) (cid:38)(cid:71)(cid:69) (cid:20)(cid:18)(cid:18) (cid:19)(cid:25)(cid:23) (cid:19)(cid:23)(cid:18) (cid:19)(cid:20)(cid:23) (cid:19)(cid:18)(cid:18) (cid:25)(cid:23) (cid:23)(cid:18) (cid:20)(cid:23) (cid:18) (cid:10)(cid:20)(cid:23)(cid:11) (cid:10)(cid:23)(cid:18)(cid:11) (cid:10)(cid:25)(cid:23)(cid:11) (cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85) (cid:27)(cid:27)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:35)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85) (cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:31)(cid:2)(cid:19)(cid:7)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:11) (cid:19) (cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:71)(cid:84)(cid:88)(cid:71)(cid:85)(cid:14)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20) (cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2) (cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:56)(cid:67)(cid:52)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:85)(cid:87)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:78)(cid:81)(cid:80)(cid:71)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:16) 134 134 150 150 125 125 100 100 75 75 50 50 0 0 -25 -25 -50 -50 25 25 25 25 150 125 100 75 50 0 150 -25 125 -50 100 75 50 0 -25 -50 Risk, capital, liquidity and funding, and balance sheet | Risk management and control VaR limitations financial crisis is no longer contained in the historical five-year Audited | Actual realized market risk losses may differ from those period used for management and regulatory VaR, SVaR continues implied by VaR for a variety of reasons. to use that data. This approach aims to reduce the procyclicality – VaR is calibrated to a specified level of confidence and may not of the regulatory capital requirements for market risks. indicate potential losses beyond this confidence level. We recognize that no single measure can encompass all risks – The 1-day time horizon used for VaR for internal management associated with a position or portfolio. Thus we use a set of purposes (10-day for regulatory VaR) may not fully capture metrics with both overlapping and complementary characteristics market risk of positions that cannot be closed out or hedged to create a holistic framework that aims to ensure material within the specified period. completeness of risk identification and measurement. As a – In some cases, VaR calculations approximate the effect of statistical aggregate risk measure, VaR supplements our liquidity- changes in risk factors on the values of positions and portfolios. adjusted stress and comprehensive stress testing frameworks. This may happen due to the number of risk factors included in We also have a framework to identify and quantify potential the VaR model needing to be limited. risks not fully captured by our VaR model and refer to such risks – Effects of extreme market movements are subject to estimation as risks not in VaR. The framework underpins these potential risks errors, which may result from non-linear risk sensitivities, and with regulatory capital, calculated as a multiple of regulatory VaR the potential for actual volatility and correlation levels to differ and stressed VaR.  from assumptions implicit in VaR calculations. – Using a five-year window means sudden increases in market Backtesting of VaR volatility will tend not to increase VaR as quickly as the use of VaR backtesting is a performance measurement process in which shorter historical observation periods, but such increases will a 1-day VaR prediction is compared with the realized 1-day profit affect VaR for a longer period of time. Similarly, after periods or loss (P&L). We compute backtesting VaR using a 99% remain more conservative for a period of time influenced by population. Since 99% VaR at UBS is defined as a risk measure the length of the historical observation period. that operates on the lower tail of the P&L distribution, 99% backtesting VaR is a negative number. Backtesting revenues SVaR is subject to the limitations noted for VaR above, but the exclude non-trading revenues, such as valuation reserves, fees use of one-year data sets avoids the smoothing effect of the five- and commissions, and revenues from intraday trading, to provide year data set used for VaR and the absence of the five-year for a like-for-like comparison. A backtesting exception occurs window gives a longer history of potential loss events. Therefore, when backtesting revenues are lower than the previous day’s although the significant period of stress during the 2007–2009 backtesting VaR. (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:28)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:149)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:142)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:143) (cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:11) (cid:55)(cid:53)(cid:38)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80) (cid:44)(cid:67)(cid:80) (cid:40)(cid:71)(cid:68) (cid:47)(cid:67)(cid:84) (cid:35)(cid:82)(cid:84) (cid:47)(cid:67)(cid:91) (cid:44)(cid:87)(cid:80) (cid:44)(cid:87)(cid:78) (cid:35)(cid:87)(cid:73) (cid:53)(cid:71)(cid:82) (cid:49)(cid:69)(cid:86) (cid:48)(cid:81)(cid:88) (cid:38)(cid:71)(cid:69) (cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85) (cid:27)(cid:27)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80) (cid:35)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85) (cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:31)(cid:2)(cid:19)(cid:7)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:11) (cid:19) (cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:71)(cid:84)(cid:88)(cid:71)(cid:85)(cid:14)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20) (cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2) (cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:56)(cid:67)(cid:52)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:85)(cid:87)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:78)(cid:81)(cid:80)(cid:71)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:16) (cid:20)(cid:18)(cid:18) (cid:19)(cid:25)(cid:23) (cid:19)(cid:23)(cid:18) (cid:19)(cid:20)(cid:23) (cid:19)(cid:18)(cid:18) (cid:25)(cid:23) (cid:23)(cid:18) (cid:20)(cid:23) (cid:18) (cid:10)(cid:20)(cid:23)(cid:11) (cid:10)(cid:23)(cid:18)(cid:11) (cid:10)(cid:25)(cid:23)(cid:11) 134 Statistically, given the 99% confidence level, 2 or 3 backtesting exceptions a year can be expected. More than 4 exceptions could indicate that the VaR model is not performing appropriately, as could too few exceptions over a long period. However, as noted for VaR limitations above, a sudden increase (or decrease) in market volatility relative to the five-year window could lead to a higher (or lower) number of exceptions. Therefore, Group-level backtesting exceptions are investigated, as are exceptional positive backtesting revenues, with the results reported to senior business management, the Group CRO and the Group Chief Market & Treasury Risk Officer. Internal and external auditors and relevant regulators are also informed of backtesting exceptions. The “Group: development of regulatory backtesting revenues and actual trading revenues against backtesting VaR” chart on the previous page shows the 12-month development of backtesting VaR against the Group’s backtesting revenues and actual trading revenues for 2021. The chart shows both the 99% and the 1% backtesting VaR. The asymmetry between the negative and positive tails is due to the long gamma risk profile historically run in the Investment Bank. The actual trading revenues include backtesting and intraday of increased volatility, as markets stabilize, VaR predictions will confidence level and 1-day holding period for the regulatory VaR revenues. The number of negative backtesting exceptions within a 250- business-day window increased to 4 from 3 by the end of the year. As these backtesting exceptions remained below 5, the FINMA VaR multiplier for market risk RWA remained unchanged at 3.0 as of 31 December 2021. Key elements of the revised market risk framework include: (i) changes to the internal model-based approach, including changes to the model approval and performance measurement process; (ii) changes to the standardized approach with the aim of it being a credible fallback method for an internal model-based approach; and (iii) a revised boundary between trading book and banking book. UBS maintains a close dialogue with FINMA to discuss the implementation objectives in more detail and to provide a smooth transition of the capital regime for market risk. In September 2021 FINMA mandated UBS to hold an RWA add-on for the omission of time decay in regulatory VaR and SVaR. The add-on reflects the outcome of discussions with FINMA regarding our regulatory VaR model, which started in late 2019. The integration of time decay into the regulatory VaR model, which would replace the add-on, is subject to further discussions between FINMA and UBS. › Refer to “Risk-weighted assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the development of RWA including the regulatory add-on › Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures › Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information Interest rate risk in the banking book VaR model confirmation As well as for regulatory-purposes backtesting described above, we conduct extended backtesting for internal model confirmation purposes. This includes observing model performance across the entire P&L distribution (not just the tails), and at multiple levels within the business division hierarchies. › Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures Interest rate risk in the banking book disclosure Our financial reports’ interest rate risk in the banking book (IRRBB) disclosure is aligned to the Pillar 3 requirements set by FINMA Circular “2019/2 Interest Rate Risk – Banks,” which sets minimum standards for measuring, managing, monitoring and controlling IRRBB. In particular, the economic value of equity (EVE) sensitivity is assessed under the six regulatory rate-shock scenarios set in the FINMA circular, which are currency-specific and not subject to flooring. VaR model developments in 2021 Audited | There were no material changes to the VaR model in 2021.  Future market risk-related regulatory capital developments In January 2019, the Basel Committee on Banking Supervision (the BCBS) published the final standards on the minimum capital requirements for market risk (the Fundamental Review of the Trading Book). We do not expect these standards to become mandatory in Switzerland until after the BCBS target effective date of 1 July 2024. Sources of interest rate risk in the banking book Audited | IRRBB arises from balance sheet positions such as Loans and advances to banks, Loans and advances to customers, Financial assets at fair value not held for trading, Financial assets measured at amortized cost, Customer deposits, Debt issued measured at amortized cost, and derivatives, including those subject to hedge accounting. Fair value changes to these positions may affect other comprehensive income (OCI) or the income statement, depending on their accounting treatment. 150 150 125 125 100 100 75 75 50 50 0 0 -25 -25 -50 -50 135 135 25 25 25 25 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Our largest banking book interest rate exposures arise from customer deposits and lending products in Global Wealth Management and Personal & Corporate Banking. The inherent interest rate risks are generally transferred from Global Wealth Management and Personal & Corporate Banking to Group Treasury, to manage them centrally. This enables the netting of interest rate risks across different sources, while leaving the originating businesses with commercial margin and volume management. The residual interest rate risk is mainly hedged with interest rate swaps, to the vast majority of which we apply hedge accounting. Short-term exposures and high-quality liquid assets classified as Financial assets at fair value not held for trading are hedged with derivatives accounted for on a mark-to-market basis. Long-term fixed-rate debt issued is hedged with interest rate swaps designated in fair value hedge accounting relationships. Risk management and governance IRRBB is measured using several metrics, the most relevant of which are the following. – Interest rate sensitivities to changes in yield curves are calculated as changes in the present value of future cash flows irrespective of accounting treatment. These are also the key risk factors for statistical and stress-based measures, e.g., value-at-risk and stress scenarios (including EVE sensitivity), and are measured and reported daily. EVE sensitivity is the exposure arising from the most adverse regulatory interest rate scenario after netting across currencies. As well as the regulatory measure, we apply an internal EVE sensitivity metric that includes additional tier 1 (AT1) capital instruments and modeled interest rate duration assigned to equity, goodwill and real estate. – Net interest income (NII) sensitivity assesses NII change over a set time horizon compared with baseline NII, which we internally calculate by assuming interest rates in all currencies develop according to their market-implied forward rates and assuming constant business volumes and no specific management actions. This internally calculated NII sensitivity, which, unlike the FINMA Pillar 3 disclosure requirements, includes the contribution from cash held at central banks, is measured and reported monthly. We actively manage IRRBB, aiming to reduce the volatility of NII, while keeping the EVE sensitivity within set internal risk limits. EVE and NII sensitivity are monitored against limits and triggers, at consolidated and significant legal entity levels. We also assess the sensitivity of EVE and NII under stressed market conditions by applying a suite of parallel and non-parallel interest rate scenarios, as well as specific economic scenarios. The Group Asset and Liability Committee (ALCO) and, where relevant, ALCOs at a legal entity level perform independent oversight over the management of IRRBB, which is also subject to Group Internal Audit and model governance. › Refer to “Group Internal Audit” in the “Corporate governance” section of this report and to “Risk measurement” in this section for more information Key modeling assumptions The cash flows from customer deposits and lending products used in calculation of EVE sensitivity exclude commercial margins and other spread components, are aggregated by daily time buckets and are discounted using risk-free rates. Our external issuances are discounted using UBS’s senior debt curve, and capital instruments are modeled to the first call date. NII sensitivity, which includes commercial margins, is calculated over a one-year time horizon, assuming constant balance sheet structure and volumes, and considers the flooring effect of embedded interest rate options. The average repricing maturity of non-maturing deposits and loans is determined via replication portfolio strategies designed to protect product margin. Optimal replicating portfolios are determined at granular currency- and product-specific levels by simulating and applying a real-world market rate model to historically calibrated client rate and volume models. We use an econometric prepayment model to forecast prepayment rates on US mortgage loans in UBS Bank USA and agency mortgage-backed securities (MBSs) held in various liquidity portfolios of UBS Americas Holding LLC consolidated. These prepayment rates are used to forecast both mortgage loan and MBS balances under various macroeconomic scenarios. The prepayment model is used for a variety of purposes, including risk management and regulatory stress testing. Swiss mortgages and fixed-term deposits generally do not carry similar optionality, due to prepayment and early redemption penalties.  136 136 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Our largest banking book interest rate exposures arise from We actively manage IRRBB, aiming to reduce the volatility of customer deposits and lending products in Global Wealth NII, while keeping the EVE sensitivity within set internal risk limits. Management and Personal & Corporate Banking. The inherent EVE and NII sensitivity are monitored against limits and triggers, interest rate risks are generally transferred from Global Wealth at consolidated and significant legal entity levels. We also assess Management and Personal & Corporate Banking to Group the sensitivity of EVE and NII under stressed market conditions by Treasury, to manage them centrally. This enables the netting of applying a suite of parallel and non-parallel interest rate scenarios, interest rate risks across different sources, while leaving the as well as specific economic scenarios. originating businesses with commercial margin and volume The Group Asset and Liability Committee (ALCO) and, where management. The residual interest rate risk is mainly hedged with relevant, ALCOs at a legal entity level perform independent interest rate swaps, to the vast majority of which we apply hedge oversight over the management of IRRBB, which is also subject to accounting. Short-term exposures and high-quality liquid assets Group Internal Audit and model governance. classified as Financial assets at fair value not held for trading are hedged with derivatives accounted for on a mark-to-market basis. › Refer to “Group Internal Audit” in the “Corporate governance” section of this report and to “Risk measurement” in this section Long-term fixed-rate debt issued is hedged with interest rate for more information swaps designated in fair value hedge accounting relationships. Key modeling assumptions Risk management and governance The cash flows from customer deposits and lending products used IRRBB is measured using several metrics, the most relevant of in calculation of EVE sensitivity exclude commercial margins and which are the following. other spread components, are aggregated by daily time buckets – Interest rate sensitivities to changes in yield curves are and are discounted using risk-free rates. Our external issuances calculated as changes in the present value of future cash flows are discounted using UBS’s senior debt curve, and capital irrespective of accounting treatment. These are also the key instruments are modeled to the first call date. NII sensitivity, which risk factors for statistical and stress-based measures, e.g., includes commercial margins, is calculated over a one-year time value-at-risk and stress scenarios (including EVE sensitivity), horizon, assuming constant balance sheet structure and volumes, and are measured and reported daily. EVE sensitivity is the and considers the flooring effect of embedded interest rate exposure arising from the most adverse regulatory interest rate options. scenario after netting across currencies. As well as the The average repricing maturity of non-maturing deposits and regulatory measure, we apply an internal EVE sensitivity metric loans is determined via replication portfolio strategies designed to that includes additional tier 1 (AT1) capital instruments and protect product margin. Optimal replicating portfolios are modeled interest rate duration assigned to equity, goodwill determined at granular currency- and product-specific levels by and real estate. simulating and applying a real-world market rate model to – Net interest income (NII) sensitivity assesses NII change over a historically calibrated client rate and volume models. set time horizon compared with baseline NII, which we We use an econometric prepayment model to forecast internally calculate by assuming interest rates in all currencies prepayment rates on US mortgage loans in UBS Bank USA and develop according to their market-implied forward rates and agency mortgage-backed securities (MBSs) held in various assuming constant business volumes and no specific liquidity portfolios of UBS Americas Holding LLC consolidated. management actions. This internally calculated NII sensitivity, These prepayment rates are used to forecast both mortgage loan which, unlike the FINMA Pillar 3 disclosure requirements, and MBS balances under various macroeconomic scenarios. The includes the contribution from cash held at central banks, is prepayment model is used for a variety of purposes, including risk measured and reported monthly. management and regulatory stress testing. Swiss mortgages and fixed-term deposits generally do not carry similar optionality, due to prepayment and early redemption penalties.  Effect of interest rate changes on shareholders’ equity and CET1 capital The “Accounting and capital effect of changes in interest rates” table below shows the effects on shareholders’ equity and CET1 capital of gains and losses from changes in interest rates in the main banking book positions. For instruments held at fair value, changes in interest rates result in an immediate fair value gain or loss, recognized either in the income statement or through OCI. Typically, increases in interest rates would lead to immediate reductions in the value of our long-term assets held at fair value, but we would expect such reductions to be offset over time through higher NII on core banking products. For assets and liabilities measured at amortized cost, changes in interest rates do not result in changes in the carrying amount of the instruments, but could affect the amount of interest income or expense recognized over time in the income statement. In addition to the differing accounting treatments, banking book positions have different sensitivities to different points on yield curves. For example, portfolios of debt securities, whether Accounting and capital effect of changes in interest rates1 measured at amortized cost or at fair value, and interest rate swaps, whether designated as cash flow hedges or transacted as economic hedges, are generally more sensitive to changes in longer-duration interest rates, whereas deposits and a significant portion of loans contributing to NII are more sensitive to short- term rates. These factors are important, as yield curves may not shift on a parallel basis and could, for example, exhibit an initial steepening followed by a flattening over time. Due to the accounting treatment and yield curve sensitivities outlined above, in a rising rate scenario we would expect to have an initial decrease in shareholders’ equity, as a result of fair value losses recognized in OCI. This would be compensated over time by increased NII, as increases in interest rates affect the shorter end of the yield curve in particular. The effect on CET1 capital would be less pronounced, as gains and losses on interest rate swaps designated as cash flow hedges are not recognized for regulatory capital purposes. Fair value losses on instruments designated at fair value should be offset by economic hedges. Loans and deposits at amortized cost2,3 Other financial assets and liabilities measured at amortized cost2 Debt issued measured at amortized cost2,3 Receivables and payables from securities financing transactions2 Financial assets at fair value not held for trading Financial assets at fair value through other comprehensive income Derivatives designated as cash flow hedges Derivatives designated as fair value hedges5 Derivatives transacted as economic hedges RReeccooggnniittiioonn SShhaarreehhoollddeerrss’’ eeqquuiittyy CCEETT11 ccaappiittaall TTiimmiinngg Gradual Gradual Gradual Gradual Immediate Immediate Immediate Immediate Immediate IInnccoommee ssttaatteemmeenntt // OOCCII Income statement Income statement Income statement Income statement Income statement OCI OCI4 Income statement Income statement Gains          Losses          Gains        Losses         11 Refer to the “Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital” table in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the differences between shareholders’ equity and CET1 capital. 22 For fixed-rate financial instruments, changes in interest rates affect the income statement when these instruments roll over and reprice. 33 For hedge accounted items, a fair value adjustment is applied in line with the treatment of the hedging derivatives. 44 Excluding hedge ineffectiveness that is recognized in the income statement in accordance with IFRS. 55 The fair value of the derivatives is offset by the fair value adjustment of the hedged items. Under the fair value hedge program applied to cross-currency swaps and foreign currency debt, the foreign currency basis spread is excluded from the hedge designation and accounted for through OCI, which is included in CET1. Net interest income sensitivity The NII sensitivity of Global Wealth Management and Personal & Corporate Banking is assessed using a number of scenarios assuming parallel and non-parallel shifts in yield curves, with various degrees of severity. The results are compared with a baseline NII, calculated assuming that interest rates in all currencies develop according to their market-implied forward rates and under the assumption of constant business volumes and no specific management actions. In addition to the above scenario analysis, we monitor NII sensitivity to immediate parallel shocks of –200 and +200 basis points against the defined thresholds, under the assumption of constant balance sheet volume and structure. As of 31 December 2021, the projected NII was approximately 14% lower than the baseline NII under a parallel shock of –200 basis points, whereas under a parallel +200-basis-point shock it was approximately 57% higher than the baseline NII. To shelter our NII level from the persistently low and negative interest rate environment, in particular in Swiss francs, we rely on self-funding our lending businesses through our deposit base in Global Wealth Management and Personal & Corporate Banking, along with appropriate additional adjustments to our interest low and negative Moreover, should the rate-linked product pricing. The loss of such equilibrium on the balance sheet, for example due to unattractive pricing relative to peers for either mortgages or deposits, could lead to our NII decreasing in a persistently low and negative interest rate environment. As we assume constant business volumes, these risks do not appear in the aforementioned interest rate scenarios. interest rate environment worsen, our NII could come under additional pressure and we could face additional costs for holding our Swiss franc HQLA portfolio. A reduction of the Swiss National Bank’s deposit exemption threshold for banks would also reduce our NII, as we might not be able to offset higher costs for our cash holdings, for example by passing on some of the costs to our depositors. Should euro interest rates also decline further, that could likewise increase liquidity costs and put NII generated from euro-denominated loans and deposits under pressure. Depending on the overall economic and market environment, sustained and significant negative rates could also lead to Global Wealth Management and Personal & Corporate Banking clients paying down their loans, along with reducing any excess cash they hold with us as deposits. That would reduce the underlying business volume and lower our NII accordingly. 136 137 137 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control The NII impact of a net decrease in deposits would depend on various factors, including the currency, its interest rate level and the balance sheet situation, as the impact could be offset by a reduction in negative-yielding liquidity portfolios or require alternative funding. If funding were required, the cost would also significantly depend on term and nature of replacement funding, whether such funding is raised in wholesale markets or from swapping with available other currency-denominated funding. Furthermore, imbalances leading to an excess deposit position could require additional investments at negative yields, which our excess deposit balance charging mechanisms might not be able to sufficiently compensate for. Economic value sensitivity Audited | Interest rate risk in the banking book is subject to a regulatory EVE sensitivity threshold of 15% of tier 1 capital. The exposure is calculated as the theoretical change in the present value of the banking book under the most adverse of the six FINMA interest rate scenarios. As of 31 December 2021, the interest rate sensitivity of our banking book to a +1-basis-point parallel shift in yield curves was negative USD 29.9 million, compared with negative USD 27.2 million as of 31 December 2020. The change in the interest rate sensitivity was driven by the execution of transactions in the first quarter of 2021 that were aimed at protecting our net interest income should interest rates decrease. The reported interest rate sensitivity excludes the AT1 capital instruments, as per FINMA Pillar 3 disclosure requirements, with a sensitivity of USD 4.5 million per basis point, and our equity, goodwill and real estate, with a modeled sensitivity of USD 22.1 million per basis point, of which USD 15.6 million and USD 5.5 million are attributable to the US dollar and the Swiss franc portfolios, respectively. The most adverse of the six FINMA interest rate scenarios would be the “Parallel up” scenario, which would result in a change in the economic value of equity of negative USD 6.0 billion, representing a pro forma reduction of 10.0% of tier 1 capital, which would be well below the regulatory outlier test of 15% of tier 1 capital. The immediate effect of the “Parallel up” scenario on tier 1 capital as of 31 December 2021 would be a reduction of 1.8%, or USD 1.1 billion, arising from the part of our banking book that is measured at fair value through profit or loss and from Financial assets measured at fair value through other comprehensive income. Over time this scenario would have a positive effect on net interest income.  › Refer to “Note 11 Financial assets measured at fair value through other comprehensive income” in the “Consolidated financial statements” section of this report for more information › Refer to the “Group performance” section of this report for more information about sensitivity to interest rate movements Audited | Interest rate risk – banking book USD million CHF EUR GBP USD Other TToottaall eeffffeecctt oonn eeccoonnoommiicc vvaalluuee ooff eeqquuiittyy aass ppeerr PPiillllaarr 33 rreeqquuiirreemmeenntt aass ooff 3311..1122..2211 Additional tier 1 (AT1) capital instruments TToottaall iinncclluuddiinngg AATT11 ccaappiittaall iinnssttrruummeennttss aass ooff 3311..1122..2211 ++11 bbpp ((55..11)) ((11..11)) 00..11 ((2233..55)) ((00..44)) ((2299..99)) 44..55 ((2255..44)) PPaarraalllleell uupp11 PPaarraalllleell ddoowwnn11 880066..33 223311..99 ((3322..88)) 44,,112244..22 1199..99 ((772244..11)) ((119966..66)) 3333..33 ((55,,006688..33)) ((8855..88)) SStteeeeppeenneerr22 ((225544..33)) ((6699..00)) ((3311..11)) ((882211..44)) ((33..77)) FFllaatttteenneerr33 SShhoorrtt--tteerrmm uupp44 SShhoorrtt--tteerrmm ddoowwnn55 116622..55 ((115588..77)) 2277..44 ((2244..11)) ((4433..77)) 4455..44 22,,331155..66 ((22,,116655..99)) 33..88 ((5599..66)) 111177..11 3377..44 3355..33 ((336622..33)) ((3344..55)) ((66,,004411..44)) 885533..44 ((55,,118888..00)) 55,,114499..55 ((992288..44)) 44,,222211..11 ((11,,117799..66)) ((99..66)) ((11,,118899..22)) ((220077..00)) 119977..11 ((1100..00)) ((22,,336622..99)) 553311..55 ((11,,883311..44)) 22,,446655..66 ((555533..33)) 11,,991122..33 11 Rates across all tenors move by ±150 bps for Swiss franc, ±200 bps for euro and US dollar and ±250 bps for pound sterling. 22 Short-term rates decrease and long-term rates increase. 33 Short-term rates increase and long-term rates decrease. 44 Short-term rates increase more than long-term rates. 55 Short-term rates decrease more than long-term rates.  Other market risk exposures Own credit We are exposed to changes in UBS’s own credit reflected in the valuation of financial liabilities designated at fair value when UBS’s own credit risk would be considered by market participants, except for fully collateralized liabilities or other obligations for which it is established market practice to not include an own- credit component. › Refer to “Note 21 Fair value measurement” in the “Consolidated financial statements” section of this report for more information about own credit Structural foreign exchange risk in foreign Upon consolidation, assets and operations are translated into US dollars at the closing foreign exchange rate on the balance sheet date. Value changes (in US dollars) of non-US dollar assets or liabilities due to foreign exchange movements are recognized in OCI and therefore affect shareholders’ equity and CET1 capital. liabilities held Group Treasury uses strategies to manage this foreign currency exposure, including matched funding of assets and liabilities and net investment hedging. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about our exposure to and management of structural foreign exchange risk › Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information about our hedges of net investments in foreign operations Equity investments Audited | We make direct investments in a variety of entities and buy equity holdings in both listed and unlisted companies, for a variety of purposes, including investments such as exchange and clearing house memberships held to support our business activities. We may also make investments in funds that we manage in order to fund or seed them at inception or to demonstrate that our interests align with those of investors. We also buy, and are sometimes required by agreement to buy, securities and units from funds that we have sold to clients. 138 138 Risk, capital, liquidity and funding, and balance sheet | Risk management and control The NII impact of a net decrease in deposits would depend on income should interest rates decrease. The reported interest rate various factors, including the currency, its interest rate level and sensitivity excludes the AT1 capital instruments, as per FINMA the balance sheet situation, as the impact could be offset by a Pillar 3 disclosure requirements, with a sensitivity of USD 4.5 reduction in negative-yielding liquidity portfolios or require million per basis point, and our equity, goodwill and real estate, alternative funding. If funding were required, the cost would also with a modeled sensitivity of USD 22.1 million per basis point, of significantly depend on term and nature of replacement funding, which USD 15.6 million and USD 5.5 million are attributable to whether such funding is raised in wholesale markets or from the US dollar and the Swiss franc portfolios, respectively. swapping with available other currency-denominated funding. The most adverse of the six FINMA interest rate scenarios Furthermore, imbalances leading to an excess deposit position would be the “Parallel up” scenario, which would result in a could require additional investments at negative yields, which our change in the economic value of equity of negative USD 6.0 excess deposit balance charging mechanisms might not be able billion, representing a pro forma reduction of 10.0% of tier 1 to sufficiently compensate for. Economic value sensitivity capital, which would be well below the regulatory outlier test of 15% of tier 1 capital. The immediate effect of the “Parallel up” scenario on tier 1 capital as of 31 December 2021 would be a Audited | Interest rate risk in the banking book is subject to a reduction of 1.8%, or USD 1.1 billion, arising from the part of our regulatory EVE sensitivity threshold of 15% of tier 1 capital. The banking book that is measured at fair value through profit or loss exposure is calculated as the theoretical change in the present and from Financial assets measured at fair value through other value of the banking book under the most adverse of the six comprehensive income. Over time this scenario would have a FINMA interest rate scenarios. As of 31 December 2021, the interest rate sensitivity of our banking book to a +1-basis-point parallel shift in yield curves was negative USD 29.9 million, compared with negative USD 27.2 million as of 31 December 2020. The change in the interest rate sensitivity was driven by the execution of transactions in the first positive effect on net interest income.  › Refer to “Note 11 Financial assets measured at fair value through other comprehensive income” in the “Consolidated financial statements” section of this report for more information › Refer to the “Group performance” section of this report for more information about sensitivity to interest rate quarter of 2021 that were aimed at protecting our net interest movements Interest rate risk – banking book Audited | USD million CHF EUR GBP USD Other 3311..1122..2211 TToottaall eeffffeecctt oonn eeccoonnoommiicc vvaalluuee ooff eeqquuiittyy aass ppeerr PPiillllaarr 33 rreeqquuiirreemmeenntt aass ooff Additional tier 1 (AT1) capital instruments TToottaall iinncclluuddiinngg AATT11 ccaappiittaall iinnssttrruummeennttss aass ooff 3311..1122..2211 ++11 bbpp PPaarraalllleell uupp11 PPaarraalllleell ddoowwnn11 SStteeeeppeenneerr22 FFllaatttteenneerr33 SShhoorrtt--tteerrmm uupp44 SShhoorrtt--tteerrmm ddoowwnn55 ((55..11)) ((11..11)) 00..11 ((2233..55)) ((00..44)) ((2299..99)) 44..55 ((2255..44)) ((772244..11)) ((119966..66)) 3333..33 ((55,,006688..33)) ((8855..88)) ((66,,004411..44)) 885533..44 ((55,,118888..00)) ((225544..33)) 111177..11 880066..33 223311..99 ((3322..88)) 44,,112244..22 1199..99 ((6699..00)) ((3311..11)) ((882211..44)) ((33..77)) 55,,114499..55 ((11,,117799..66)) ((992288..44)) ((99..66)) 44,,222211..11 ((11,,118899..22)) 3377..44 3355..33 ((336622..33)) ((3344..55)) ((220077..00)) 119977..11 ((1100..00)) ((115588..77)) ((2244..11)) 4455..44 ((22,,116655..99)) ((5599..66)) ((22,,336622..99)) 553311..55 ((11,,883311..44)) 116622..55 2277..44 ((4433..77)) 22,,331155..66 33..88 22,,446655..66 ((555533..33)) 11,,991122..33  11 Rates across all tenors move by ±150 bps for Swiss franc, ±200 bps for euro and US dollar and ±250 bps for pound sterling. 22 Short-term rates decrease and long-term rates increase. 33 Short-term rates increase and long-term rates decrease. 44 Short-term rates increase more than long-term rates. 55 Short-term rates decrease more than long-term rates. Other market risk exposures Own credit We are exposed to changes in UBS’s own credit reflected in the valuation of financial liabilities designated at fair value when UBS’s own credit risk would be considered by market participants, except for fully collateralized liabilities or other obligations for which it is established market practice to not include an own- credit component. Group Treasury uses strategies to manage this foreign currency exposure, including matched funding of assets and liabilities and net investment hedging. › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about our exposure to and management of structural foreign exchange risk › Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information about our hedges of net investments in foreign operations › Refer to “Note 21 Fair value measurement” in the “Consolidated financial statements” section of this report for more information Equity investments about own credit Structural foreign exchange risk Upon consolidation, assets and liabilities held in foreign operations are translated into US dollars at the closing foreign exchange rate on the balance sheet date. Value changes (in US dollars) of non-US dollar assets or liabilities due to foreign exchange movements are recognized in OCI and therefore affect shareholders’ equity and CET1 capital. Audited | We make direct investments in a variety of entities and buy equity holdings in both listed and unlisted companies, for a variety of purposes, including investments such as exchange and clearing house memberships held to support our business activities. We may also make investments in funds that we manage in order to fund or seed them at inception or to demonstrate that our interests align with those of investors. We also buy, and are sometimes required by agreement to buy, securities and units from funds that we have sold to clients. The fair value of equity investments tends to be influenced by factors specific to the individual investments. Equity investments are generally intended to be held for the medium or long term and may be subject to lock-up agreements. For these reasons, we generally do not control these exposures by using market risk measures applied to trading activities. However, such equity investments are subject to a different range of controls, including preapproval of new investments by business management and Risk Control, portfolio and concentration limits, and regular monitoring and reporting to senior management. They are also included in our Group-wide statistical and stress testing metrics, which flow into our risk appetite framework. As of 31 December 2021, we held equity investments and investment fund units totaling USD 3.0 billion, of which USD 1.8 billion was classified as Financial assets at fair value not held for trading and USD 1.2 billion as Investments in associates.  › Refer to “Note 21 Fair value measurement” and “Note 29 Interests in subsidiaries and other entities” in the “Consolidated financial statements” section of this report for more information › Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for Pension risk We provide a number of pension plans for past and current employees, some classified as defined benefit pension plans under IFRS that can have a material effect on our IFRS equity and CET1 capital. Pension risk is the risk that defined benefit plans’ funded status might decrease, negatively affecting our capital. This can result from falls in the value of a plan’s assets or in the investment returns, increases in defined benefit obligations, or combinations of the above. Important risk factors affecting the fair value of pension plans’ assets include equity market returns, interest rates, bond yields, and real estate prices. Important risk factors affecting the present value of expected future benefit payments include high-grade bond yields, interest rates, inflation rates, and life expectancy. Pension risk is included in our Group-wide statistical and stress testing metrics, which flow into our risk appetite framework. The potential effects are thus captured in the post-stress capital ratio calculations. › Refer to “Note 1 Summary of material accounting policies” and “Note 27 Post-employment benefit plans” in the “Consolidated more information about the classification of financial financial statements” section of this report for more information instruments about defined benefit plans to related UBS own share exposure Group Treasury holds UBS Group AG shares to hedge future share share-based delivery obligations compensation awards, and also holds shares purchased under the share repurchase program. In addition, the Investment Bank holds a limited number of UBS Group AG shares, primarily in its capacity as a market-maker with regard to UBS Group AG shares and related derivatives, and to hedge certain issued structured debt instruments. employee › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information Debt investments Audited | Debt investments classified as Financial assets measured at fair value through OCI as of 31 December 2021 were measured at fair value with changes in fair value recorded through Equity, and can broadly be categorized as money market instruments and debt securities primarily held for statutory, regulatory or liquidity reasons. The risk control framework applied to debt instruments classified as Financial assets measured at fair value through OCI depends on the nature of the instruments and the purpose for which we hold them. Our exposures may be included in market risk limits or be subject to specific monitoring and interest rate sensitivity analysis. They are also included in our Group-wide statistical and stress testing metrics, which flow into our risk appetite framework. Debt instruments classified as Financial assets measured at fair value through OCI had a fair value of USD 8.8 billion as of 31 December 2021 compared with USD 8.3 billion as of 31 December 2020.  › Refer to “Note 21 Fair value measurement” in the “Consolidated financial statements” section of this report for more information › Refer to “Economic value sensitivity” in this section for more information › Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for more information about the classification of financial instruments 138 139 139 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Risk management and control Country risk Country risk framework Country risk exposure Country risk includes all country-specific events occurring in a sovereign jurisdiction that may lead to impairment of UBS’s exposures. It may take the form of: sovereign risk, which is the ability and willingness of a government to honor its financial commitments; transfer risk, which arises if a counterparty or issuer cannot acquire foreign currencies following a moratorium by a central bank on foreign exchange transfers; or “other” country risk. “Other” country risk may manifest itself through, on the one hand, increased and multiple counterparty and issuer default risk (systemic risk) and, on the other hand, events that may affect a country’s standing, such as adverse shocks affecting political stability or institutional and / or legal frameworks. We have a well- established risk control framework to assess the risk profiles of all countries where we have exposure. We assign a country rating to each country, which reflects our view of the country’s creditworthiness and of the probability of a country risk event occurring. Country ratings are mapped to statistically derived default probabilities, described under “Probability of default” in this section. We use this internal analysis to set the credit ratings of governments and central banks, estimate the probability of a transfer event occurring, and establish rules on how aspects of country risk should be incorporated in counterparty ratings of non-sovereign entities domiciled in the respective country. Country ratings are also used to define our risk appetite and risk exposure to foreign countries. A country risk limit (i.e., maximum aggregate exposure) applies to counterparties or issuers of securities and financial investments in the given foreign country. We may limit the extension of credit, transactions in traded products or positions in securities based on a country risk ceiling even if our exposure to a counterparty is otherwise acceptable. to exposures For internal measurement and control of country risk, we also consider the financial effect of market disruptions arising prior to, during and after a country crisis. These may take the form of a severe deterioration in a country’s debt, equity or other asset markets or a sharp depreciation of its currency. We use stress testing to assess potential financial effects of severe country or sovereign crises. This involves the developing of plausible stress scenarios for combined stress testing and the identification of countries that may potentially be subject to a crisis event, determining potential losses and making assumptions about recovery rates depending on the types of credit transactions involved and their economic importance to the affected countries. Our exposures to market risks are subject to regular stress tests covering major global scenarios, which are also used for combined stress testing, where we apply market shock factors to equity indices, interest rates and currency rates in all relevant countries and consider the potential liquidity of the instruments. Country risk exposure measure The presentation of country risk follows our internal risk view, where the basis for measuring exposures depends on the product category in which we classified the exposures. In addition to the classification of exposures into banking products and traded products, covered in “Credit risk profile of the Group” in this section, in the trading inventory we classify issuer risk on securities such as bonds and equities, as well as risk relating to underlying reference assets for derivative positions. As we manage the trading inventory on a net basis, we net the value of long positions against short positions with the same underlying issuer. Net exposures are, however, floored at zero per issuer in the figures presented in the following tables. As a result, we do not recognize potentially offsetting benefits of certain hedges and short positions across issuers. We do not recognize any expected recovery values when reporting country exposures as exposure before hedges, except for risk-reducing effects of master netting agreements and collateral held in either cash or portfolios of diversified marketable securities, which we deduct from the positive exposure values. Within banking products and traded products, risk-reducing effects of credit protection are taken into account on a notional basis when determining the net of hedge exposures. Country risk exposure allocation In general, exposures are shown against the country of domicile of the contractual counterparty or the issuer of the security. For some counterparties whose economic substance in terms of assets or source of revenues is primarily located in a different country, the exposure is allocated to the risk domicile of those assets or revenues. We apply a specific approach for banking products exposures to branches of banks that are located in a country other than the legal entity’s domicile. In such cases, exposures are recorded in full against the country of domicile of the counterparty and additionally in full against the country where the branch is located. In the case of derivatives, we show counterparty risk associated with positive replacement value (PRV) against the counterparty’s country of domicile (presented within traded products). In addition, risk associated with an instantaneous fall in value of underlying reference assets to zero (assuming no recovery) is shown against the country of domicile of the issuer of the reference asset (presented within trading inventory). This approach allows us to capture both counterparty and, where applicable, issuer elements of risk arising from derivatives and applies comprehensively for all derivatives, including single-name credit default swaps (CDSs) and other credit derivatives. 140 140 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Country risk Country risk framework Country risk exposure Country risk includes all country-specific events occurring in a Country risk exposure measure sovereign jurisdiction that may lead to impairment of UBS’s The presentation of country risk follows our internal risk view, exposures. It may take the form of: sovereign risk, which is the where the basis for measuring exposures depends on the product ability and willingness of a government to honor its financial category in which we classified the exposures. In addition to the commitments; transfer risk, which arises if a counterparty or issuer classification of exposures into banking products and traded cannot acquire foreign currencies following a moratorium by a products, covered in “Credit risk profile of the Group” in this central bank on foreign exchange transfers; or “other” country section, in the trading inventory we classify issuer risk on securities risk. “Other” country risk may manifest itself through, on the one such as bonds and equities, as well as risk relating to underlying hand, increased and multiple counterparty and issuer default risk reference assets for derivative positions. (systemic risk) and, on the other hand, events that may affect a As we manage the trading inventory on a net basis, we net the country’s standing, such as adverse shocks affecting political value of long positions against short positions with the same stability or institutional and / or legal frameworks. We have a well- underlying issuer. Net exposures are, however, floored at zero per established risk control framework to assess the risk profiles of all issuer in the figures presented in the following tables. As a result, countries where we have exposure. we do not recognize potentially offsetting benefits of certain We assign a country rating to each country, which reflects our hedges and short positions across issuers. view of the country’s creditworthiness and of the probability of a We do not recognize any expected recovery values when country risk event occurring. Country ratings are mapped to reporting country exposures as exposure before hedges, except statistically derived default probabilities, described under for risk-reducing effects of master netting agreements and “Probability of default” in this section. We use this internal collateral held in either cash or portfolios of diversified marketable analysis to set the credit ratings of governments and central securities, which we deduct from the positive exposure values. banks, estimate the probability of a transfer event occurring, and Within banking products and traded products, risk-reducing establish rules on how aspects of country risk should be effects of credit protection are taken into account on a notional incorporated in counterparty ratings of non-sovereign entities basis when determining the net of hedge exposures. domiciled in the respective country. Country ratings are also used to define our risk appetite and Country risk exposure allocation risk exposure to foreign countries. A country risk limit (i.e., In general, exposures are shown against the country of domicile maximum aggregate exposure) applies to exposures to of the contractual counterparty or the issuer of the security. For counterparties or issuers of securities and financial investments in some counterparties whose economic substance in terms of the given foreign country. We may limit the extension of credit, assets or source of revenues is primarily located in a different transactions in traded products or positions in securities based on country, the exposure is allocated to the risk domicile of those a country risk ceiling even if our exposure to a counterparty is assets or revenues. otherwise acceptable. We apply a specific approach for banking products exposures For internal measurement and control of country risk, we also to branches of banks that are located in a country other than the consider the financial effect of market disruptions arising prior to, legal entity’s domicile. In such cases, exposures are recorded in during and after a country crisis. These may take the form of a full against the country of domicile of the counterparty and severe deterioration in a country’s debt, equity or other asset additionally in full against the country where the branch is markets or a sharp depreciation of its currency. We use stress located. testing to assess potential financial effects of severe country or In the case of derivatives, we show counterparty risk sovereign crises. This involves the developing of plausible stress associated with positive replacement value (PRV) against the scenarios for combined stress testing and the identification of counterparty’s country of domicile (presented within traded countries that may potentially be subject to a crisis event, products). In addition, risk associated with an instantaneous fall determining potential losses and making assumptions about in value of underlying reference assets to zero (assuming no recovery rates depending on the types of credit transactions recovery) is shown against the country of domicile of the issuer involved and their economic importance to the affected countries. of the reference asset (presented within trading inventory). This Our exposures to market risks are subject to regular stress tests approach allows us to capture both counterparty and, where covering major global scenarios, which are also used for applicable, issuer elements of risk arising from derivatives and combined stress testing, where we apply market shock factors to applies comprehensively for all derivatives, including single-name equity indices, interest rates and currency rates in all relevant credit default swaps (CDSs) and other credit derivatives. countries and consider the potential liquidity of the instruments. CDSs are primarily bought and sold in relation to our trading businesses, and, to a much lesser degree, used to hedge credit valuation adjustments (CVAs). Holding CDSs for credit default protection does not necessarily protect the buyer of protection against losses, as contracts only pay out under certain scenarios. The effectiveness of our CDS protection as a hedge of default risk is influenced by a number of factors, including the contractual terms under which a given CDS was written. Generally, only the occurrence of credit events as defined by the CDS contract’s terms (which may include, among other events, failure to pay, restructuring or bankruptcy) results in payments under the purchased credit protection contracts. For CDS contracts on sovereign obligations, repudiation can also be deemed as a default event. The determination as to whether a credit event has occurred is made by the relevant International Swaps and Derivatives Association committees (composed of various ISDA member firms) based on the terms of the CDS and the facts and circumstances surrounding the event. (ISDA) determination Top 20 country risk exposures The table below shows our 20 largest country exposures by product type, excluding our home country, as of 31 December 2021 compared with 31 December 2020. Compared with the prior year, our net exposure to the UK increased by USD 8.8 billion, driven by central bank exposures due to treasury activities. Net exposure to the US increased by USD 6.3 billion, solely driven by banking products, largely related to nostro balances at the Federal Reserve due to treasury activities, mortgages and Investment Bank loans. Those increases in the US were partly offset by tradable assets related to treasury activities. increased by USD 2.9 billion, Net exposure to Australia predominantly driven by trading loan inventory due to underwriting projects and central bank exposures. Net exposure to Germany decreased by USD 2.8 billion, driven by trading inventory due to loan underwriting projects and sovereign issuer risk. Net exposure to China decreased by USD 2.0 billion, predominantly driven by trading inventory across issuer risk and margin loans, as well as banking products. Net exposure to France decreased by USD 1.0 billion, driven by trading inventory due to treasury activities. Based on the sovereign rating categories, as of 31 December 2021, 84% of our emerging market country exposure was rated investment grade, compared with 83% as of 31 December 2020. Russia Our direct country risk exposure to Russia contributed USD 634 million to our total emerging market exposure of USD 20.9 billion as of 31 December 2021. This includes trade finance exposures in Personal & Corporate Banking, a single loan in the Investment Bank with a non-Russian entity with key facilities spread globally including Russia and the Commonwealth of Independent States, Nostro and cash accounts balances, issuer risk on trading inventory within the Investment Bank, and derivatives within the Investment Bank. These exposures have been reduced since year- end 2021. Not included in this figure are net assets held in our Russian subsidiary, with a net asset value of USD 51 million. UBS is also currently monitoring settlement risk on certain open transactions with Russian banks and non-bank counterparties or Russian underlyings, as market closures, the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures. As of 3 March 2022, UBS also had approximately USD 0.2 billion exposure arising from reliance on Russian assets as collateral on Lombard lending and other secured financing in Global Wealth Management. As of 3 March 2022, we identified a small number of Global Wealth Management clients subject to the recently introduced sanctions, with total loans outstanding of under USD 10 million. Our market risk exposure to Russia as of 3 March 2022 was limited. We had no material direct country risk exposures to Ukraine or to Belarus as of 31 December 2021 and no material reliance on Ukrainian or to Belarusian collateral within our Lombard portfolio. 140 141 141 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control Top 20 country risk net exposures by product type Banking products (loans, guarantees, loan commitments) Net of hedges1 Traded products (counterparty risk from derivatives and securities financing) after master netting agreements and net of collateral Net of hedges 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 USD million United States United Kingdom Japan Germany Singapore Australia France China Canada Luxembourg Hong Kong SAR Netherlands South Korea Sweden Thailand Austria Norway India Monaco TToottaall Net of hedges1 3311..1122..2211 111166,,338888 3344,,883377 1144,,776644 1100,,556644 31.12.20 110,041 26,083 14,974 13,336 88,,999933 66,,339977 66,,330011 55,,334444 33,,993333 33,,445533 33,,338888 33,,002200 22,,447799 11,,661177 11,,446699 11,,222200 11,,221155 11,,111199 11,,002222 8,950 3,465 7,344 7,392 3,792 3,292 2,840 3,048 2,259 2,326 1,494 1,664 1,669 903 1,016 7799,,664477 2244,,778888 1100,,557722 33,,339977 33,,111100 22,,667744 11,,335566 11,,882233 11,,119999 22,,443388 11,,991144 11,,118833 446622 664477 220088 226655 2255 999911 998844 62,950 16,154 5,625 2,447 3,875 1,475 1,306 2,553 1,483 2,128 1,498 656 426 657 146 197 22 727 994 Trading inventory (securities and potential benefits / remaining exposure from derivatives) Net long per issuer 3311..1122..2211 2288,,337711 31.12.20 37,305 22,,558855 668844 55,,993344 33,,332266 11,,993377 33,,223355 22,,669911 11,,668899 995588 11,,110077 11,,000077 11,,559999 777766 11,,223355 885588 998833 4411 1100 338877 1,388 6,378 9,672 2,644 661 4,628 3,828 1,477 1,019 946 1,610 1,307 1,410 1,306 851 1,310 90 5 557 88,,337711 77,,446655 33,,550088 11,,223322 22,,555577 11,,778866 11,,771111 883300 11,,004444 5588 336677 883300 441188 119944 2266 9977 220066 8877 2288 4400 9,786 8,541 2,972 1,217 2,431 1,329 1,409 1,010 832 145 395 782 526 260 41 616 337 86 17 88 Brazil TToottaall22 11 Before deduction of IFRS 9 ECL allowances and provisions. 22 Excluding Switzerland, supranationals and global funds. 217,006 113388,,117711 222288,,443388 105,793 1,119 991155 448888 474 Emerging markets¹ net exposure² by internal UBS country rating category USD million Investment grade Sub-investment grade TToottaall 3300,,885533 32,819 5599,,441144 78,394 3311..1122..2211 31.12.20 1177,,660088 33,,226611 2200,,886699 19,580 4,005 23,585 11 We classify countries as emerging markets based on per capita GDP, historical real GDP growth, alignment with international institutions (such as BIS, World Bank, IMF, MSCI) and other factors. 22 Net of credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Before deduction of IFRS 9 ECL allowances and provisions. 142 142 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Banking products commitments) Net of hedges1 Traded products (counterparty risk from derivatives and securities financing) and net of collateral Net of hedges (loans, guarantees, loan after master netting agreements 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 Trading inventory (securities and potential benefits / remaining exposure from derivatives) Net long per issuer 3311..1122..2211 2288,,337711 31.12.20 37,305 TToottaall Net of hedges1 3311..1122..2211 111166,,338888 3344,,883377 1144,,776644 1100,,556644 31.12.20 110,041 26,083 14,974 13,336 88,,999933 66,,339977 66,,330011 55,,334444 33,,993333 33,,445533 33,,338888 33,,002200 22,,447799 11,,661177 11,,446699 11,,222200 11,,221155 11,,111199 11,,002222 991155 8,950 3,465 7,344 7,392 3,792 3,292 2,840 3,048 2,259 2,326 1,494 1,664 1,669 903 1,016 1,119 7799,,664477 2244,,778888 1100,,557722 33,,339977 33,,111100 22,,667744 11,,335566 11,,882233 11,,119999 22,,443388 11,,991144 11,,118833 446622 664477 220088 226655 2255 999911 998844 448888 62,950 16,154 5,625 2,447 3,875 1,475 1,306 2,553 1,483 2,128 1,498 656 426 657 146 197 22 727 994 474 88,,337711 77,,446655 33,,550088 11,,223322 22,,555577 11,,778866 11,,771111 883300 11,,004444 5588 336677 883300 441188 119944 220066 2266 9977 8877 2288 4400 9,786 8,541 2,972 1,217 2,431 1,329 1,409 1,010 832 145 395 782 526 260 41 616 337 86 17 88 22,,558855 668844 55,,993344 33,,332266 11,,993377 33,,223355 22,,669911 11,,668899 995588 11,,110077 11,,000077 11,,559999 777766 11,,223355 885588 998833 4411 1100 338877 1,388 6,378 9,672 2,644 661 4,628 3,828 1,477 1,019 946 1,610 1,307 1,410 1,306 851 1,310 90 5 557 3311..1122..2211 31.12.20 1177,,660088 33,,226611 2200,,886699 19,580 4,005 23,585 11 Before deduction of IFRS 9 ECL allowances and provisions. 22 Excluding Switzerland, supranationals and global funds. 222288,,443388 217,006 113388,,117711 105,793 3300,,885533 32,819 5599,,441144 78,394 Emerging markets¹ net exposure² by internal UBS country rating category USD million United States United Kingdom Japan Germany Singapore Australia France China Canada Luxembourg Hong Kong SAR Netherlands South Korea Sweden Thailand Austria Norway India Monaco Brazil TToottaall22 USD million Investment grade Sub-investment grade TToottaall 11 We classify countries as emerging markets based on per capita GDP, historical real GDP growth, alignment with international institutions (such as BIS, World Bank, IMF, MSCI) and other factors. 22 Net of credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Before deduction of IFRS 9 ECL allowances and provisions. Top 20 country risk net exposures by product type Sustainability and climate risk Sustainability risk Climate risk Sustainability and climate risk (SCR, previously known at UBS as environmental and social risk, or ESR) is defined as the risk that UBS is negatively impacted by or negatively impacts climate change, loss of biodiversity, human rights infringements, or other environmental, social or governance (ESG) matters. Sustainability and climate risks may manifest as credit, market, liquidity or operational risks for UBS and can result in financial or reputational impacts for the firm. They may also negatively impact the value of investments. The management of sustainability and climate risks is gaining importance amid a global drive to meet the Sustainable Development Goals (the SDGs) and transition to net zero, as defined by the Paris Agreement. In addition, regulators across jurisdictions increasingly seek to understand the potential financial impacts of climate change. Our broad and wide-ranging SCR policy framework governs client and supplier relationships, applies firm-wide to all activities, and is integrated in management practices and control principles. The SCR framework is embedded in our standard risk, compliance and operations processes and applied through: – risk identification and measurement; – risk monitoring and appetite setting; – risk management and control; and – risk reporting. The aforementioned processes include client onboarding, transaction due diligence, product development and investment decision processes, own operations, supply chain management, and portfolio reviews. This framework is geared toward identifying clients, transactions or suppliers potentially in breach of our standards or otherwise subject to significant controversies related to sustainability, human rights or climate change. › Refer to “Sustainability and climate risk policy framework” in appendix 6 to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information Climate risk can arise either from changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). The physical and transition risks from a changing climate contribute to a structural change across economies and consequently can affect banks and the financial sector as a whole through financial and non-financial impacts. In order to protect our clients’ assets and our own assets from climate-related risks, we have established a climate risk program to further integrate climate risk into the firm’s risk management framework and standard processes. The program follows a multi- year roadmap to address regulatory expectations and is engaging with stakeholders and experts across the firm and externally to further develop climate risk methodologies, deliver on climate stress test exercises, and build capacity to respond to climate risk management expectations. We currently identify and manage climate risk in our own operations, our balance sheet, client assets and the supply chain. We have continually reduced our exposure to carbon-related assets and advanced our multi-year efforts to develop methodologies that enable robust and transparent disclosure of climate metrics. This work supports our efforts to ensure that we are prepared to respond to increased climate risk-related regulatory requirements, align our disclosure with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (the TCFD) recommendations and collaborate within the financial sector to close gaps. We approach climate risk identification through climate risk heatmaps, developed in collaboration with the United Nations Environment Programme Finance Initiative (UNEP FI) TCFD working group. As part of this effort, we have defined an inventory of climate- sensitive sectors based on elevated climate risk ratings defined by the TCFD, regulators and rating agencies. We initially disclosed our exposure to climate sensitive sectors (transition risks) in our Annual Report 2020. Over the course of 2021, we have refined the disclosure of transition risks and introduced an initial disclosure of physical risks. We summarize our current exposure to climate-sensitive sectors for both risk types in the table on the next page. Exposures may appear either under one or under both of the risk types, as the physical and transition risk methodologies are distinct in their approach and application and should not be added up as one total exposure figure. Climate risk analysis is a novel area of research, and, as the methodologies, tools and data availability improve, we will further develop our risk identification and measurement approaches. › Refer to “Taking action on a net-zero future – our climate report” in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information 142 143 143 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Risk management and control UBS lending to climate-sensitive sectors1 USD million, except where indicated CClliimmaattee--sseennssiittiivvee sseeccttoorr44 Aerospace and defense Automotive Business services Chemicals Constructions and materials Consumer products and retail Entertainment, leisure and services Food and beverage Industrial materials Information technology Machinery and equipment Medical equipment and services Mining Oil and gas Pharmaceuticals/biotechnology Plastic and rubber Primary materials Real estate management Sovereigns and financials Transportation and equipment Utilities TToottaall,, cclliimmaattee--sseennssiittiivvee sseeccttoorrss22 TToottaall,, aallll sseeccttoorrss CClliimmaattee--sseennssiittiivvee eexxppoossuurree:: eelleevvaatteedd ttrraannssiittiioonn rriisskkss,, aass ooff 3311..1122..221122 CClliimmaattee--sseennssiittiivvee eexxppoossuurree:: eelleevvaatteedd pphhyyssiiccaall rriisskkss,, aass ooff 3311..1122..221122 Trend (%) 2019–2021 Gross exposure3 Share of total in % Trend (%) 2019–2021 Gross exposure3 Share of total in %                  883311 770033 11,,111122 33,,663377 335555 22 112211 11,,004400 22,,992200 55,,882233 11,,440000 229999 1133 1188,,002299 884499 337755 3377,,551100 445599,,006611 00..1188 00..1155 00..2244 00..7799 00..0088 00..0000 00..0033 00..2233 00..6644 11..2277 00..3300 00..0077 00..0000 33..9933 00..1188 00..0088 88..1177 110000..0000                       333388 11,,004422 885533 999911 330022 665500 11,,330088 11,,333344 224433 227744 22,,773322 440088 11,,115533 55,,553388 881144 228800 332200 552288 44,,337711 441199 11,,557799 2255,,447766 445599,,006611 00..0077 00..2233 00..1199 00..2222 00..0077 00..1144 00..2288 00..2299 00..0055 00..0066 00..6600 00..0099 00..2255 11..2211 00..1188 00..0066 00..0077 00..1122 00..9955 00..0099 00..3344 55..5555 110000..0000 11 Not additive across transition risks and physical risks. 22 Global Wealth Management corporate lending to customers represents 1.1% of all on- and off-balance sheet loans and advances to customers, and is not rated. 33 Reported as IFRS9 expected credit loss (ECL) calculation, and represents both on-balance sheet: total loans and advances to customers and off-balance sheet: guarantees and irrevocable loan commitments (within the scope of ECL). Physical risk exposures include USD ~4 billion in loans backed by real estate. 44 The table includes only those sector exposures that are defined as climate-sensitive. Climate-sensitive sectors defined as business activities rated as having high, moderately high or moderate vulnerability to transition and physical risks. Transition risk methodology was initially developed in collaboration with UNEP FI TCFD working group and disclosed in Phase II “From disclosure to action – a guide to implementing the TCFD framework within financial institutions” report. Physical risk methodology is based on country, sectoral and value chain risk factors derived from a range of academic and expert sources. Both methodologies have been adapted internally and enhanced. Climate risk heatmaps enable us to use a materiality-driven approach when defining our climate risk management strategy by: – helping us to identify concentrations of exposure with high climate risk vulnerability, which, in turn, enables resource prioritization for detailed risk analysis and management action; – supporting a client-centric strategy in order to best assist clients that may benefit from UBS products and services to support their climate strategies; and – providing information to senior management to support decision making and the provision of external disclosure to stakeholders. Our climate risk heatmaps rate cross-sectoral credit risk exposure to climate sensitivity, from high to low, through a risk segmentation process. The transition risk methodology, reflected in the climate risk heatmap on the next page, divides economic sectors into segments with similar risk characteristics and rates those segments according to their vulnerability to mitigative climate policies, low-carbon technology risks and revenue or demand shifts under an aggressive approach to meeting the well- below-2˚C Paris goal. The physical risk methodology groups corporate counterparties based on exposure to key physical risk factors, through rating sectoral, geographic, and value chain vulnerabilities in a climate change trajectory in which no additional policy action is taken. Counterparties are assigned a climate vulnerability rating based on the primary industry code (Global Industry Classification Standard, GICS) and risk domicile in UBS data systems. › For our physical risk heatmap, refer to “Taking action on a net- zero future – our climate report” in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors 144 144 Risk, capital, liquidity and funding, and balance sheet | Risk management and control UBS lending to climate-sensitive sectors1 USD million, except where indicated Trend (%) 2019–2021 Gross exposure3 Share of total in % Trend (%) 2019–2021 Gross exposure3 Share of total in % CClliimmaattee--sseennssiittiivvee eexxppoossuurree:: eelleevvaatteedd ttrraannssiittiioonn rriisskkss,, aass ooff 3311..1122..221122 CClliimmaattee--sseennssiittiivvee eexxppoossuurree:: eelleevvaatteedd pphhyyssiiccaall rriisskkss,, aass ooff 3311..1122..221122 Climate risk heatmap (transition risks) in USD million 265 High 4,741 Moderately high 32,503 Moderate 17,593 Moderately low 192,189 Low 459,061 Total exposure 211,769 Non-sensitive1 CClliimmaattee--sseennssiittiivvee sseeccttoorr44 Aerospace and defense Automotive Business services Chemicals Constructions and materials Consumer products and retail Entertainment, leisure and services Food and beverage Industrial materials Information technology Machinery and equipment Medical equipment and services Mining Oil and gas Pharmaceuticals/biotechnology Plastic and rubber Primary materials Real estate management Sovereigns and financials Transportation and equipment Utilities TToottaall,, cclliimmaattee--sseennssiittiivvee sseeccttoorrss22 TToottaall,, aallll sseeccttoorrss                  883311 770033 11,,111122 33,,663377 335555 22 112211 11,,004400 22,,992200 55,,882233 11,,440000 229999 1133 1188,,002299 884499 337755 3377,,551100 445599,,006611 00..1188 00..1155 00..2244 00..7799 00..0088 00..0000 00..0033 00..2233 00..6644 11..2277 00..3300 00..0077 00..0000 33..9933 00..1188 00..0088 88..1177                       333388 11,,004422 885533 999911 330022 665500 11,,330088 11,,333344 224433 227744 22,,773322 440088 11,,115533 55,,553388 881144 228800 332200 552288 44,,337711 441199 11,,557799 2255,,447766 445599,,006611 00..0077 00..2233 00..1199 00..2222 00..0077 00..1144 00..2288 00..2299 00..0055 00..0066 00..6600 00..0099 00..2255 11..2211 00..1188 00..0066 00..0077 00..1122 00..9955 00..0099 00..3344 55..5555 11 Not additive across transition risks and physical risks. 22 Global Wealth Management corporate lending to customers represents 1.1% of all on- and off-balance sheet loans and advances to customers, and is not rated. 33 Reported as IFRS9 expected credit loss (ECL) calculation, and represents both on-balance sheet: total loans and advances to customers and off-balance sheet: guarantees and irrevocable loan commitments (within the scope of ECL). Physical risk exposures include USD ~4 billion in loans backed by real estate. 44 The table includes only those sector exposures that are defined as climate-sensitive. Climate-sensitive sectors defined as business activities rated as having high, moderately high or moderate vulnerability to transition and physical risks. Transition risk methodology was initially developed in collaboration with UNEP FI TCFD working group and disclosed in Phase II “From disclosure to action – a guide to implementing the TCFD framework within financial institutions” report. Physical risk methodology is based on country, sectoral and value chain risk factors derived from a range of academic and expert sources. Both methodologies have been adapted internally and enhanced. 110000..0000 110000..0000 Climate risk heatmaps enable us to use a materiality-driven Our climate risk heatmaps rate cross-sectoral credit risk approach when defining our climate risk management strategy exposure to climate sensitivity, from high to low, through a risk by: segmentation process. The transition risk methodology, reflected – helping us to identify concentrations of exposure with high in the climate risk heatmap on the next page, divides economic climate risk vulnerability, which, in turn, enables resource sectors into segments with similar risk characteristics and rates prioritization for detailed risk analysis and management action; those segments according to their vulnerability to mitigative – supporting a client-centric strategy in order to best assist clients climate policies, low-carbon technology risks and revenue or that may benefit from UBS products and services to support demand shifts under an aggressive approach to meeting the well- their climate strategies; and below-2˚C Paris goal. The physical risk methodology groups – providing information to senior management to support corporate counterparties based on exposure to key physical risk decision making and the provision of external disclosure to factors, through rating sectoral, geographic, and value chain stakeholders. vulnerabilities in a climate change trajectory in which no additional policy action is taken. Counterparties are assigned a climate vulnerability rating based on the primary industry code (Global Industry Classification Standard, GICS) and risk domicile in UBS data systems. › For our physical risk heatmap, refer to “Taking action on a net- zero future – our climate report” in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors 144 1 Non-sensitive is mostly composed of private Lombard lending. 2 Includes pharmaceuticals. t e e h s l e c n a a b d n a High 265 Coal 233 Shale gas 24 Oil reﬁning 8 Moderately high 4,741 Chemicals2 2,821 Transportation and storage (oil) 853 Integrated oil and gas companies 404 Cement or concrete manufacturing 312 Conventional oil drilling 233 i , g n d n u f d n a High-carbon power generation (regulated) 118 y t i d u q i i l Commercial real estate management 18,029 Moderate 32,503 , l a t i p a c , k s i R Downstream oil and gas distribution 4,430 Construction – non-infrastructure 3,206 Mining conglomerates 2,687 Manufacturing of other metals 917 Consumer durables manufacturing 873 Airlines – commercial 708 Car manufacturing (high-carbon) 644 Land-based shipping, high-carbon (trucks) 500 Medium-carbon power generation (regulated) 249 Sea-based shipping 160 Steel / iron manufacturing 76 Livestock – beef, extensive grazing 15 Conventional gas drilling 4 Transportation and storage (gas) 3 145 145 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Scenario analysis and stress tests exercises We have been using scenario-based approaches since 2014 to assess our exposure and the potential impacts of physical and transition risks stemming from climate change. Novel in-house scenario analyses have been followed by a series of assessments performed through industry collaborations in order to harmonize approaches in addressing methodological and data gaps. We have performed both top-down balance sheet stress testing (across the firm) and targeted bottom-up analyses of specific sector exposures covering short-, mid- and long-term time horizons. Starting in 2021, UBS participates in regulatory scenario analysis and stress test exercises, including the Bank of England’s “2021 Climate Biennial Exploratory Scenario: Financial risks from climate change” and the European Central Bank’s climate stress test. In addition, in 2021 UBS participated in a top-down climate risk assessment performed jointly by FINMA and the Swiss National Bank in Switzerland. › For more information about our climate risk approach and physical risk heatmap, refer to “Taking action on a net-zero future – our climate report” in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors 146 146 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Scenario analysis and stress tests exercises “2021 Climate Biennial Exploratory Scenario: Financial risks from We have been using scenario-based approaches since 2014 to climate change” and the European Central Bank’s climate stress assess our exposure and the potential impacts of physical and test. In addition, in 2021 UBS participated in a top-down climate transition risks stemming from climate change. Novel in-house risk assessment performed jointly by FINMA and the Swiss scenario analyses have been followed by a series of assessments National Bank in Switzerland. performed through industry collaborations in order to harmonize approaches in addressing methodological and data gaps. We have performed both top-down balance sheet stress testing (across the firm) and targeted bottom-up analyses of specific › For more information about our climate risk approach and physical risk heatmap, refer to “Taking action on a net-zero future – our climate report” in the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at sector exposures covering short-, mid- and long-term time ubs.com/investors horizons. Starting in 2021, UBS participates in regulatory scenario analysis and stress test exercises, including the Bank of England’s Non-financial risk Key developments We have identified seven non-financial risk themes as key to the firm for 2022. These are: – digital transformation and cyber and operational resilience; – use of data; – new ways of working and change delivery; – investor protection and market interaction; – strategic growth initiatives and partnerships; – the evolving nature of anti-money-laundering (AML) / know- your-client (KYC) programs and sanctions; and – environmental, social and governance (ESG) risks. We are continuing our efforts regarding innovation and digitalization to create value for our clients. As part of the resulting transformation, we are focusing on timely changes to frameworks, including consideration of new or revised controls, working practices and oversight, with the aim of mitigating any new risks introduced, including those related to data ethics. Increases in the sophistication of cyberattacks and frauds are noted worldwide, especially with ransomware attacks. To date, our security controls, regular communications to help employees stay alert to cyber threats while working remotely and enhanced monitoring of cyber threats have resulted in no cyber security incidents having a material effect on our operations during 2021. UBS continues to be vigilant, particularly in view of the potential for intensifying cyber threats, both in terms of volume and sophistication, driven by current geopolitical events. Operational resilience continues to be a focus area for us, as well as for regulators globally. We have a global program to enhance our operational-resilience including addressing developing regulatory requirements. capabilities, The existing resilience built into our operations and the effectiveness of our business continuity management and operational risk processes (including those for third-party service providers) have been critical in handling the ongoing COVID-19 pandemic. They have enabled us to maintain stable operations while complying with governmental measures to contain COVID-19; continuing to serve our clients without material impact; and to support the safety and well-being of our staff. Hybrid working arrangements can lead to increased conduct risk, inherent risk of fraudulent activities, potential increases in the number of suspicious transactions and increased information security risks. We have implemented additional monitoring and supervision intended to mitigate these risks. In addition, as we move to a post-pandemic new normal, changes to the work environment, including permanent hybrid and the introduction of agile ways of working, may introduce new challenges for supervision and monitoring. Achieving fair outcomes for our clients, upholding market integrity and cultivating the highest standards of employee conduct are of critical importance to the firm. We maintain a conduct risk framework across our activities, which is designed to align our standards and conduct with these objectives and maintain momentum on fostering a strong culture. Competition to find new business opportunities across the financial services industry, both for firms and customers, is increasing. Thus suitability risk, product selection, cross-divisional service offerings, quality of advice and price transparency also remain areas of heightened focus for UBS and for the industry as a whole, as low interest rates, market volatility and major legislative change programs (such as the Swiss Financial Services Act (FIDLEG) in Switzerland, Regulation Best Interest (Reg BI) in the US, and the Markets in Financial Instruments Directive II (MiFID II) in the EU) all significantly affect the industry and require adjustments to control processes on a geographically aligned basis. We regularly monitor our suitability, product and conflicts of interest control frameworks to assess whether they are reasonably designed to facilitate adherence to applicable laws and regulatory expectations. Cross-border risk remains an area of regulatory attention for global financial institutions, with a strong focus on fiscal transparency, as well as market access, particularly third-country market access into the European Economic Area. There is also an ongoing high level of attention regarding the risk that tax authorities may, on the basis of new interpretations of existing law, seek to impose taxation based on the existence of a permanent establishment. We maintain a series of controls designed to address these risks. laundering, Financial crime, terrorist including money financing, sanctions violations, fraud, bribery and corruption, continues to present a major risk, as technological innovation and geopolitical developments increase the complexity of doing business and heightened regulatory attention continues. An effective financial crime prevention program therefore remains laundering and financial fraud essential for UBS. Money techniques are becoming increasingly sophisticated, and geopolitical volatility makes the sanctions landscape more challenging, as new or novel sanctions may be imposed that require complex implementation in a short timeframe, as evidenced by the existing, and potential escalation of new sanctions arising from the Russian invasion of Ukraine. New risks continue to emerge, such as virtual currencies and related activities or investments. In the US, the Office of the Comptroller of the Currency issued a Cease and Desist Order against the firm in May 2018 relating to our US branch KYC and AML programs. In response, we initiated an extensive program for the purpose of ensuring sustainable remediation of US-relevant Bank Secrecy Act / AML issues across all our US legal entities. We introduced significant improvements to the framework between 2019 and 2021 and are continuing to implement these. We believe they will yield the planned enhancements to our AML controls. We continued to focus on strategic enhancements to our global AML / KYC and sanctions programs to address evolving risk profiles and regulatory expectations, including the exploration of new technologies and more sophisticated monitoring. In line with our firm-wide purpose, ESG topics and the risks related to them are high on our agenda, particularly considering the increasing regulatory focus on ESG disclosure, climate-related stress testing and greenwashing, as well as the potential for new and diverse regulations being deployed across jurisdictions. › Refer to “Sustainability and climate risk” in this section for more information about risks related to sustainability and climate risk 146 147 147 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Risk management and control Compliance & Operational Risk Control (C&ORC) is responsible for providing an independent and objective view of the adequacy of operational risk management across the Group, and ensuring that operational, compliance and conduct risks are understood, owned and managed in accordance with the firm’s risk appetite. C&ORC-aligned teams sit within the Group Compliance, Regulatory & Governance (GCRG) function, reporting to the Group Chief Compliance and Governance Officer, who is a member of the Group Executive Board. The ORF forms the for managing and assessing operational, common basis compliance and conduct risk, and there are additional C&ORC activities intended to ensure UBS is able to demonstrate compliance with applicable laws, rules and regulations. In 2021, UBS continued to review and enhance the ORF through the established ORF design authority, considering feedback and input from both internal and external stakeholders, including implementing Group-wide control portfolio analytics, supporting consistency across the control portfolio. All functions within UBS are required to assess the design and operating effectiveness of their internal controls periodically. The output of these assessments forms the basis for the assessment and testing of internal controls over financial reporting as required by the Sarbanes–Oxley Act, Section 404 (SOX 404). Key control deficiencies identified during the internal control and risk assessment processes must be reported in the operational risk inventory, and sustainable remediation must be defined and executed. These control deficiencies are assigned to owners at senior management level and the remediation progress is reflected in the respective managers’ annual performance measurement and management objectives. To assist with prioritizing the most material control deficiencies and measuring aggregated risk exposure, irrespective of origin, a common rating methodology is applied across all three lines of defense, as well as by external audit. Operational risk framework Operational risk is an inherent part of the firm’s business. Losses can result from inadequate or failed internal processes, people and systems, or from external causes. UBS follows a Group-wide operational risk framework (an ORF) that establishes requirements for identifying, managing, assessing and mitigating operational, compliance and conduct risks to achieve an agreed balance between risk and return. It is built on the following pillars: risks – classifying risk taxonomy, which defines the universe of material operational risks that can arise as a consequence of the firm’s business activities and external factors; the operational inherent through – assessing the design and operating effectiveness of controls through the control assessment process; – proactively and sustainably remediating identified control deficiencies; – defining operational risk appetite (including a financial operational risk appetite statement at Group, UBS AG and business division levels for operational risk events) through quantitative metrics and thresholds and qualitative measures, and assessing risk exposure against appetite; and – assessing inherent and residual risk through risk assessment processes, and determining whether additional remediation plans are required to address identified deficiencies. Divisional Presidents are accountable for the effectiveness of operational risk management and for the robustness of the front- to-back control environment within their business divisions, and legal entity responsible executives are responsible for operational risk management within their legal entities. Group function heads are accountable for supporting the divisional Presidents and legal entity responsible executives of our legal entities in the discharge of responsibility, by confirming completeness and effectiveness of the control environment and operational risk management within their Group functions. Collectively, divisional Presidents, central Group function heads and legal entity responsible executives are in charge of implementing the operational risk framework. this 148 148 Risk, capital, liquidity and funding, and balance sheet | Risk management and control Operational risk is an inherent part of the firm’s business. Losses of operational risk management across the Group, and ensuring can result from inadequate or failed internal processes, people that operational, compliance and conduct risks are understood, and systems, or from external causes. UBS follows a Group-wide owned and managed in accordance with the firm’s risk appetite. operational risk framework (an ORF) that establishes requirements C&ORC-aligned teams sit within the Group Compliance, for identifying, managing, assessing and mitigating operational, Regulatory & Governance (GCRG) function, reporting to the compliance and conduct risks to achieve an agreed balance Group Chief Compliance and Governance Officer, who is a between risk and return. It is built on the following pillars: member of the Group Executive Board. The ORF forms the – classifying inherent risks through the operational risk common basis for managing and assessing operational, taxonomy, which defines the universe of material operational compliance and conduct risk, and there are additional C&ORC risks that can arise as a consequence of the firm’s business activities intended to ensure UBS is able to demonstrate activities and external factors; compliance with applicable laws, rules and regulations. – assessing the design and operating effectiveness of controls In 2021, UBS continued to review and enhance the ORF through the control assessment process; through the established ORF design authority, considering – proactively and sustainably remediating identified control feedback and input from both internal and external stakeholders, deficiencies; including implementing Group-wide control portfolio analytics, – defining operational risk appetite (including a financial supporting consistency across the control portfolio. operational risk appetite statement at Group, UBS AG and All functions within UBS are required to assess the design and business division levels for operational risk events) through operating effectiveness of their internal controls periodically. The quantitative metrics and thresholds and qualitative measures, output of these assessments forms the basis for the assessment and assessing risk exposure against appetite; and and testing of internal controls over financial reporting as required – assessing inherent and residual risk through risk assessment by the Sarbanes–Oxley Act, Section 404 (SOX 404). processes, and determining whether additional remediation Key control deficiencies identified during the internal control plans are required to address identified deficiencies. and risk assessment processes must be reported in the operational Divisional Presidents are accountable for the effectiveness of executed. These control deficiencies are assigned to owners at operational risk management and for the robustness of the front- senior management level and the remediation progress is to-back control environment within their business divisions, and reflected in the respective managers’ annual performance risk inventory, and sustainable remediation must be defined and risk management within their legal entities. Group function heads prioritizing the most material control deficiencies and measuring are accountable for supporting the divisional Presidents and legal aggregated risk exposure, irrespective of origin, a common rating entity responsible executives of our legal entities in the discharge methodology is applied across all three lines of defense, as well as of this responsibility, by confirming completeness and by external audit. effectiveness of the control environment and operational risk management within their Group functions. Collectively, divisional Presidents, central Group function heads and legal entity responsible executives are in charge of implementing the operational risk framework. Operational risk framework Compliance & Operational Risk Control (C&ORC) is responsible for providing an independent and objective view of the adequacy Advanced measurement approach model The operational risk framework outlined above underpins the calculation of regulatory capital for operational risk, which enables us to quantify operational risk and define effective risk mitigating management incentives as part of the related operational risk capital allocation approach to the business divisions. We measure Group operational risk exposure and calculate the advanced regulatory capital using operational measurement approach (AMA) in accordance with FINMA requirements. risk An entity-specific AMA model has been applied for UBS Switzerland AG, while for other regulated entities the basic indicators or standardized approaches are adopted for regulatory capital in agreement with local regulators. Also, the methodology of the Group AMA is leveraged for entity-specific Internal Capital Adequacy Assessment Processes. Currently, the model includes 16 AMA units of measure (UoM), which are aligned with our operational risk taxonomy as closely as possible. Frequency and severity distributions are calibrated for each of the model’s UoM. The modeled distribution functions for both frequency and severity are used to generate the annual loss distribution. The resulting 99.9% quantile of the overall annual operational risk loss distribution across all UoM determines the required regulatory capital. Currently, we do not reflect mitigation through insurance or any other risk transfer mechanism in our AMA model. legal entity responsible executives are responsible for operational measurement and management objectives. To assist with AMA model calibration and review A key assumption when calibrating data-driven frequency and severity distributions is that historical losses form a reasonable proxy for future events. In line with regulatory expectations, the AMA methodology utilizes both historical internal losses and external losses suffered by the broader industry for model calibration. Initial model outputs driven by loss history are reviewed and adjusted to reflect fast-changing external developments, such as new regulations, geopolitical change, volatile market and economic conditions, and internal factors (e.g., changes in business strategy and control framework enhancements). The resulting baseline data-driven frequency and severity distributions are reviewed by subject matter experts and where necessary adjusted based on a review of qualitative information about the business environment and internal control factors, as well as expert judgment, with the aim of forecasting losses. Our model is reviewed regularly to maintain risk sensitivity and recalibrated at least annually. Any changes to regulatory capital as a result of a recalibration or methodology changes are presented to FINMA for approval prior to use for disclosure purposes. AMA model governance The Group and entity-specific AMA models are subject to an independent validation performed by Model Risk Management & Control in line with the Group’s model risk management framework. Expected transition of capital regime under Basel III capital regulations The AMA is expected to be replaced by the standardized measurement approach for regulatory capital determination purposes in line with the relevant Basel Committee for Banking Supervision Basel III capital regulations. UBS is interacting closely with the relevant Swiss authorities to discuss the implementation details and related implementation timeline. › Refer to “Capital planning and activities” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the development of risk-weighted assets › Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures › Refer to the “Risk factors” section of this report for more information 148 149 149 Risk, capital, liquidity and funding, and balance sheet Capital, liquidity and funding, and balance sheet Table of contents 151 151 152 154 158 161 163 164 164 164 165 166 167 168 168 174 176 Capital management Capital management objectives, planning and activities Swiss SRB total loss-absorbing capacity framework Total loss-absorbing capacity Risk-weighted assets Leverage ratio denominator Equity attribution and return on attributed equity Liquidity and funding management Strategy, objectives and governance Liquidity management Funding management Liquidity coverage ratio Net stable funding ratio Balance sheet and off-balance sheet Balance sheet Off-balance sheet Cash flows 177 Currency management 178 UBS shares Capital, liquidity and funding, and balance sheet 151 151 152 154 158 161 163 164 164 164 165 166 167 168 168 174 176 Table of contents Capital management Capital management objectives, planning and activities Swiss SRB total loss-absorbing capacity framework Total loss-absorbing capacity Risk-weighted assets Leverage ratio denominator Equity attribution and return on attributed equity Liquidity and funding management Strategy, objectives and governance Liquidity management Funding management Liquidity coverage ratio Net stable funding ratio Balance sheet and off-balance sheet Balance sheet Off-balance sheet Cash flows 177 Currency management 178 UBS shares Capital management Capital management objectives, planning and activities Capital management objectives Capital planning and activities Audited | An adequate level of total loss-absorbing capacity (TLAC) meeting both internal assessment and regulatory requirements is a prerequisite for conducting our business activities.  We are therefore committed to maintaining a strong TLAC position and sound TLAC ratios at all times, in order to meet regulatory capital requirements and our target capital ratios, and to support the growth of our businesses. As of 31 December 2021, our common equity tier 1 (CET1) capital ratio was 15.0% and our CET1 leverage ratio 4.24%, each above our capital guidance, and also above the requirements for Swiss systemically relevant banks (SRBs) and the Basel Committee on Banking Supervision (the BCBS) requirements. We believe that our capital strength is a source of confidence for our stakeholders, contributes to our sound credit ratings and is one of the foundations of our success. The BCBS announced the finalization of the Basel III framework in December 2017, and published the final rules on the minimum capital requirements for market risk from the Fundamental Review of the Trading Book (the FRTB) in January 2019. In response to COVID-19, the Group of Central Bank Governors and Heads of Supervision, which acts as the BCBS’s oversight body, endorsed the deferral of the implementation date by one year, to 1 January 2023. The accompanying transitional arrangements for the output floor were also extended by one year, to 1 January 2028. We expect the Swiss regulations to come into force in 2024 and we continue to make progress on our infrastructure design and operational governance ahead of the upcoming adoption of these rules. We currently estimate that the revised Basel III framework may lead to a further net increase in risk-weighted assets (RWA) of around USD 20 billion in 2024, before taking into account mitigating actions. The estimate includes credit risk and operational risk RWA from the finalization of the Basel III framework, as well as market risk and credit valuation adjustment (CVA) RWA from the FRTB, based on our current understanding of the relevant standards. It may change as a result of new or changed regulatory interpretations, particularly those regarding the treatment of historical operational losses, as well as the appropriate the implementation of Basel III standards into national law, changes in business growth, market conditions and other factors. conservatism in model calibration, › Refer to the “Our strategy” and “Targets, aspirations and capital guidance” sections of this report for more information about our capital and resource guidelines › Refer to “We may be unable to maintain our capital strength” in the “Risk factors” section of this report for more information about capital ratio-related risks Audited | We manage our balance sheet, RWA, leverage ratio denominator (LRD) and TLAC ratio levels based on our regulatory requirements and within our internal limits and targets. Our strategic focus is on achieving an optimal attribution and use of financial resources between our business divisions and Group Functions, as well as between our legal entities, while remaining within the limits defined for the Group and allocated to the business divisions by the Board of Directors (the BoD). These resource allocations, in turn, affect business plans and earnings projections, which are reflected in our capital plans. The annual strategic planning process includes a capital- planning component that is key in defining our capital targets. It is based on an attribution of Group RWA and LRD internal limits to the business divisions. Limits and targets are established at the Group and business division levels, and are approved by the BoD at least annually. In the target-setting process, we take into account the current and potential future TLAC requirements, our aggregate risk exposure in terms of capital-at-risk, the assessment by rating agencies, comparisons with peers and the effect of expected accounting policy changes.  Monitoring is based on these internal limits and targets and provides indications if any changes are required. Any breach of limits in place triggers a series of required remediating actions. Group Treasury plans for and monitors consolidated TLAC information on an ongoing basis, reflecting business and legal entity requirements, as well as regulatory developments in capital regulations. In addition, capital planning and monitoring are performed at the legal entity level for our significant subsidiaries and sub-groups that are subject to prudential supervision and must meet capital and other supervisory requirements. › Refer to “Capital and capital ratios of our significant regulated subsidiaries” in this section for more information 151 151 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Swiss SRB total loss-absorbing capacity framework The disclosures in this section are provided for UBS Group AG on a consolidated basis and focus on key developments during the reporting period and information in accordance with the Basel III framework, as applicable to Swiss SRBs. Additional regulatory disclosures for UBS Group AG on a consolidated basis are provided in our 31 December 2021 Pillar 3 Report. The Pillar 3 Report further includes information relating to our significant regulated subsidiaries and sub-groups (UBS AG standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated) as of 31 December 2021 and is available under “Pillar 3 disclosures” at ubs.com/investors. Capital and other regulatory information for UBS AG consolidated in accordance with the Basel III framework, as applicable to Swiss SRBs, is provided in the combined UBS Group AG and UBS AG Annual Report 2021, available under “Annual reporting” at ubs.com/investors. Regulatory framework The Basel III framework came into effect in Switzerland on 1 January 2013 and is embedded in the Swiss Capital Adequacy Ordinance (the CAO). The CAO also includes the too-big-to-fail provisions applicable to Swiss SRBs, which have been fully phased- in since 1 January 2020. Under the Swiss SRB framework, going and gone concern requirements represent the Group’s TLAC requirement. TLAC encompasses regulatory capital, such as CET1, loss-absorbing additional tier 1 (AT1) and tier 2 capital instruments, and liabilities that can be written down or converted into equity in case of resolution or for the purpose of restructuring measures. Capital and other instruments contributing to our total loss-absorbing capacity In addition to CET1 capital, the following instruments contribute to our loss-absorbing capacity: – loss-absorbing AT1 capital instruments (high- and low-trigger); – loss-absorbing tier 2 capital instruments (high- and low-trigger); – non-Basel III-compliant tier 2 capital instruments; and – TLAC-eligible senior unsecured debt instruments. Under the Swiss SRB rules, going concern capital includes CET1 and high-trigger loss-absorbing AT1 capital instruments. Our existing outstanding low-trigger loss-absorbing AT1 capital instruments are available to meet the going concern capital requirements until their first call date. As of their first call date, these instruments are eligible to meet the gone concern requirements. Outstanding high- and low-trigger loss-absorbing tier 2 capital instruments, non-Basel III-compliant tier 2 capital instruments and TLAC-eligible senior unsecured debt instruments are eligible to meet gone concern requirements until one year before maturity. A maximum of 25% of the gone concern requirements can be met with instruments that have a remaining maturity of between one and two years (i.e., are in the last year of eligibility). However, once at least 75% of the gone concern requirement has been met with instruments that have a remaining maturity of greater than two years, all instruments that have a remaining maturity of between one and two years remain eligible to be included in the total gone concern capital. › Refer to “Bondholder information,” available at ubs.com/investors, for more information about the eligibility of capital and senior unsecured debt instruments and key features and terms and conditions of capital instruments Total loss-absorbing capacity and leverage ratio requirements Going concern capital requirements Under the Swiss SRB requirements, total going concern minimum requirements for all Swiss SRBs are a capital ratio requirement of 12.86% of RWA and a leverage ratio requirement of 4.5%. In addition to these minimum requirements, an add-on reflecting the degree of systemic importance is applied, based on market share and LRD. The applicable market share add-on requirements for UBS increased 0.36% to 0.72% of RWA and 0.125% to 0.25% of LRD, reflecting an increase in UBS’s market share in the Swiss credit business to more than 17%. The applicable LRD add- on requirements remained unchanged at 0.72% of RWA and 0.25% of LRD, as our Group LRD remained within the same add- on bucket. Effective from 27 March 2020, the Swiss Federal Council deactivated the countercyclical buffer requirement of 2% on risk- weighted positions that are directly or indirectly backed by residential properties in Switzerland to support the lending capacity of banks. Even though the Swiss countercyclical buffer requirement was not active in 2021, we continued to apply additional countercyclical buffer requirements introduced in other BCBS member jurisdictions, which result in an additional buffer requirement of 0.02%. In January 2022, the Swiss Federal Council decided, at the request of the Swiss National Bank, to reactivate the countercyclical capital buffer, at a maximum level of 2.5%. The reactivated countercyclical capital buffer will become effective on 30 September 2022 and is expected to increase our CET1 capital requirement by approximately 30 basis points. The total going concern capital requirements applicable are 14.32% of RWA (including countercyclical buffer requirements) and 5.00% of LRD. Furthermore, of the total going concern capital requirement of 14.32% of RWA, at least 10.02% must be met with CET1 capital, while a maximum of 4.3% can be met with high-trigger instruments (including our existing outstanding low-trigger AT1 capital instruments, which qualify until their first call date as mentioned above). loss-absorbing AT1 capital Similarly, of the total going concern leverage ratio requirement of 5.00%, at least 3.5% must be met with CET1 capital, while a maximum of 1.5% can be met with high-trigger loss-absorbing AT1 capital instruments (including our existing outstanding low- trigger AT1 capital instruments, which qualify until their first call date as mentioned above). 152 152 Risk, capital, liquidity and funding, and balance sheet | Capital management Swiss SRB total loss-absorbing capacity framework The disclosures in this section are provided for UBS Group AG on once at least 75% of the gone concern requirement has been met a consolidated basis and focus on key developments during the with instruments that have a remaining maturity of greater than reporting period and information in accordance with the Basel III two years, all instruments that have a remaining maturity of framework, as applicable to Swiss SRBs. between one and two years remain eligible to be included in the Additional regulatory disclosures for UBS Group AG on a total gone concern capital. consolidated basis are provided in our 31 December 2021 Pillar 3 Report. The Pillar 3 Report further includes information relating to our significant regulated subsidiaries and sub-groups (UBS AG standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated) as of › Refer to “Bondholder information,” available at ubs.com/investors, for more information about the eligibility of capital and senior unsecured debt instruments and key features and terms and conditions of capital instruments 31 December 2021 and is available under “Pillar 3 disclosures” at Total loss-absorbing capacity and leverage ratio requirements ubs.com/investors. Capital and other regulatory information for UBS AG Going concern capital requirements consolidated in accordance with the Basel III framework, as Under the Swiss SRB requirements, total going concern minimum applicable to Swiss SRBs, is provided in the combined UBS Group requirements for all Swiss SRBs are a capital ratio requirement of AG and UBS AG Annual Report 2021, available under “Annual 12.86% of RWA and a leverage ratio requirement of 4.5%. In reporting” at ubs.com/investors. Regulatory framework addition to these minimum requirements, an add-on reflecting the degree of systemic importance is applied, based on market share and LRD. The applicable market share add-on requirements for UBS increased 0.36% to 0.72% of RWA and 0.125% to The Basel III framework came into effect in Switzerland on 0.25% of LRD, reflecting an increase in UBS’s market share in the 1 January 2013 and is embedded in the Swiss Capital Adequacy Swiss credit business to more than 17%. The applicable LRD add- Ordinance (the CAO). The CAO also includes the too-big-to-fail on requirements remained unchanged at 0.72% of RWA and provisions applicable to Swiss SRBs, which have been fully phased- 0.25% of LRD, as our Group LRD remained within the same add- in since 1 January 2020. on bucket. Under the Swiss SRB framework, going and gone concern Effective from 27 March 2020, the Swiss Federal Council requirements represent the Group’s TLAC requirement. TLAC deactivated the countercyclical buffer requirement of 2% on risk- encompasses regulatory capital, such as CET1, loss-absorbing weighted positions that are directly or indirectly backed by additional tier 1 (AT1) and tier 2 capital instruments, and liabilities residential properties in Switzerland to support the lending that can be written down or converted into equity in case of capacity of banks. Even though the Swiss countercyclical buffer resolution or for the purpose of restructuring measures. requirement was not active in 2021, we continued to apply additional countercyclical buffer requirements introduced in other Capital and other instruments contributing to our total BCBS member jurisdictions, which result in an additional buffer loss-absorbing capacity requirement of 0.02%. In January 2022, the Swiss Federal Council In addition to CET1 capital, the following instruments contribute decided, at the request of the Swiss National Bank, to reactivate to our loss-absorbing capacity: the countercyclical capital buffer, at a maximum level of 2.5%. – loss-absorbing AT1 capital instruments (high- and low-trigger); The reactivated countercyclical capital buffer will become – loss-absorbing tier 2 capital instruments (high- and low-trigger); effective on 30 September 2022 and is expected to increase our – non-Basel III-compliant tier 2 capital instruments; and CET1 capital requirement by approximately 30 basis points. – TLAC-eligible senior unsecured debt instruments. The total going concern capital requirements applicable are 14.32% of RWA (including countercyclical buffer requirements) Under the Swiss SRB rules, going concern capital includes CET1 and 5.00% of LRD. Furthermore, of the total going concern and high-trigger loss-absorbing AT1 capital instruments. Our capital requirement of 14.32% of RWA, at least 10.02% must be existing outstanding low-trigger loss-absorbing AT1 capital met with CET1 capital, while a maximum of 4.3% can be met instruments are available to meet the going concern capital with high-trigger loss-absorbing AT1 capital instruments requirements until their first call date. As of their first call date, (including our existing outstanding low-trigger AT1 capital these instruments are eligible to meet the gone concern instruments, which qualify until their first call date as mentioned requirements. above). Outstanding high- and low-trigger loss-absorbing tier 2 capital Similarly, of the total going concern leverage ratio requirement instruments, non-Basel III-compliant tier 2 capital instruments and of 5.00%, at least 3.5% must be met with CET1 capital, while a TLAC-eligible senior unsecured debt instruments are eligible to maximum of 1.5% can be met with high-trigger loss-absorbing meet gone concern requirements until one year before maturity. AT1 capital instruments (including our existing outstanding low- A maximum of 25% of the gone concern requirements can be trigger AT1 capital instruments, which qualify until their first call met with instruments that have a remaining maturity of between date as mentioned above). one and two years (i.e., are in the last year of eligibility). However, Gone concern loss-absorbing capacity requirements As an internationally active Swiss SRB, UBS is also subject to gone concern loss-absorbing capacity requirements. The gone concern requirements also include add-ons for market share and LRD. Under the Swiss SRB framework, banks are eligible for a rebate on the gone concern requirement if they take actions that facilitate recovery and resolvability beyond the minimum requirements. The amount of the rebate for improved resolvability is assessed annually by FINMA. Based on actions we had completed by December 2020 to improve resolvability, FINMA granted a rebate on the gone concern requirement of 55% of the aforementioned maximum rebate in the third quarter of 2021, which resulted in a reduction of 3.14 percentage points for the RWA-based requirement and 1.10 percentage points for the LRD-based requirement. Our gone concern requirements are further reduced when higher quality capital instruments (CET1 capital, low-trigger tier 2 capital loss-absorbing AT1 or certain instruments) are used to meet gone concern requirements. As of low-trigger tier 2 capital 31 December 2021, UBS used instruments to fulfill gone concern requirements, resulting in a reduction of 0.43 percentage points for the RWA-based requirement and 0.12 percentage points for the LRD-based requirement. low-trigger Until 31 December 2021, the gone concern requirement after the application of the rebate for resolvability measures and the reduction for the use of higher quality capital instruments was floored at 8.6% and 3% for the RWA- and LRD-based requirements, respectively. From 1 January 2022 onward, this floor increased to 10% and 3.75% for the RWA- and LRD-based requirements, respectively. In this report, we refer to the RWA-based gone concern capacity concern requirements as gone requirements and the RWA-based gone concern ratio is referred to as the gone concern loss-absorbing capacity ratio. loss-absorbing The table below provides the RWA- and LRD-based requirements and information as of 31 December 2021. Swiss SRB going and gone concern requirements and information AAss ooff 3311..1122..2211 USD million, except where indicated RReeqquuiirreedd ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall of which: minimum capital of which: buffer capital of which: countercyclical buffer MMaaxxiimmuumm aaddddiittiioonnaall ttiieerr 11 ccaappiittaall of which: additional tier 1 capital of which: additional tier 1 buffer capital EElliiggiibbllee ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall Common equity tier 1 capital TToottaall lloossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall33 of which: high-trigger loss-absorbing additional tier 1 capital of which: low-trigger loss-absorbing additional tier 1 capital RReeqquuiirreedd ggoonnee ccoonncceerrnn ccaappiittaall TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy44 of which: base requirement 5 of which: additional requirement for market share and LRD of which: applicable reduction on requirements of which: rebate granted (equivalent to 55% of maximum rebate) of which: reduction for usage of low-trigger tier 2 capital instruments EElliiggiibbllee ggoonnee ccoonncceerrnn ccaappiittaall TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy TToottaall ttiieerr 22 ccaappiittaall of which: low-trigger loss-absorbing tier 2 capital of which: non-Basel III-compliant tier 2 capital TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy RReeqquuiirreedd ttoottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy EElliiggiibbllee ttoottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy RRWWAA iinn %% LLRRDD iinn %% 1144..332211 1100..0022 4.50 5.50 0.02 44..3300 3.50 0.80 2200..0022 14.98 55..0033 4.23 0.80 1100..7744 12.86 1.44 (3.56) (3.14) (0.43) 1144..6655 11..0044 0.86 0.18 1133..6611 4433,,228811 3300,,228866 13,599 16,621 66 1122,,999955 10,577 2,418 6600,,448888 45,281 1155,,220077 12,783 2,425 3322,,444444 38,864 4,352 (10,772) (9,474) (1,298) 4444,,226644 33,,114444 2,596 547 4411,,112200 2255..0066 3344..6666 7755,,772255 110044,,775522 55..000011 33..550022 1.50 2.00 11..5500 1.50 55..6666 4.24 11..4422 1.20 0.23 33..7788 4.50 0.50 (1.22) (1.10) (0.12) 44..1144 00..2299 0.24 0.05 33..8855 88..7788 99..8800 5533,,444433 3377,,441100 16,033 21,377 1166,,003333 16,033 6600,,448888 45,281 1155,,220077 12,783 2,425 4400,,338888 48,099 5,344 (13,056) (11,757) (1,298) 4444,,226644 33,,114444 2,596 547 4411,,112200 9933,,883311 110044,,775522 RRiisskk--wweeiigghhtteedd aasssseettss // lleevveerraaggee rraattiioo ddeennoommiinnaattoorr Risk-weighted assets Leverage ratio denominator 11 Includes applicable add-ons of 1.44% for RWA and 0.50% for LRD. 22 Our minimum CET1 leverage ratio requirement of 3.5% consists of a 1.5% base requirement, a 1.5% base buffer capital requirement, a 0.25% LRD add-on requirement and a 0.25% market share add-on requirement based on our Swiss credit business. 33 Includes outstanding low-trigger loss-absorbing additional tier 1 (AT1) capital instruments, which are available under the Swiss SRB framework to meet the going concern requirements until their first call date. As of their first call date, these instruments are eligible to meet the gone concern requirements. 44 A maximum of 25% of the gone concern requirements can be met with instruments that have a remaining maturity of between one and two years. Once at least 75% of the minimum gone concern requirement has been met with instruments that have a remaining maturity of greater than two years, all instruments that have a remaining maturity of between one and two years remain eligible to be included in the total gone concern capital. 55 The gone concern requirement after the application of the rebate for resolvability measures and the reduction for the use of higher quality capital instruments is floored at 8.6% and 3% for the RWA- and LRD-based requirements, respectively. This means that the combined reduction may not exceed 5.7 percentage points for the RWA-based requirement of 14.3% and 2.0 percentage points for the LRD-based requirement of 5.0%. 11,,006688,,886622 330022,,220099 152 153 153 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Total loss-absorbing capacity Swiss SRB going and gone concern information USD million, except where indicated EElliiggiibbllee ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ttiieerr 11 ccaappiittaall Common equity tier 1 capital TToottaall lloossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall of which: high-trigger loss-absorbing additional tier 1 capital of which: low-trigger loss-absorbing additional tier 1 capital EElliiggiibbllee ggoonnee ccoonncceerrnn ccaappiittaall TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy TToottaall ttiieerr 22 ccaappiittaall of which: low-trigger loss-absorbing tier 2 capital of which: non-Basel III-compliant tier 2 capital TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy RRiisskk--wweeiigghhtteedd aasssseettss // lleevveerraaggee rraattiioo ddeennoommiinnaattoorr Risk-weighted assets Leverage ratio denominator CCaappiittaall aanndd lloossss--aabbssoorrbbiinngg ccaappaacciittyy rraattiiooss ((%%)) Going concern capital ratio of which: common equity tier 1 capital ratio Gone concern loss-absorbing capacity ratio TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy rraattiioo LLeevveerraaggee rraattiiooss ((%%))11 Going concern leverage ratio of which: common equity tier 1 leverage ratio 3311..1122..2211 31.12.20 6600,,448888 6600,,448888 4455,,228811 1155,,220077 1122,,778833 22,,442255 4444,,226644 33,,114444 22,,559966 554477 4411,,112200 56,178 56,178 39,890 16,288 13,711 2,577 45,545 7,744 7,201 543 37,801 110044,,775522 101,722 330022,,220099 11,,006688,,886622 289,101 1,037,1501 2200..00 1155..00 1144..66 3344..77 19.4 13.8 15.8 35.2 55..77 44..2244 44..11 99..88 5.4 3.85 4.4 9.8 Gone concern leverage ratio TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy lleevveerraaggee rraattiioo 11 The leverage ratio denominator (LRD) and leverage ratios for 31 December 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section and to “Application of the temporary COVID-19-related FINMA exemption of central bank sight deposits” in the “Capital, liquidity and funding, and balance sheet” sections of our Annual Report 2020 for more information. Audited | Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital USD million TToottaall IIFFRRSS eeqquuiittyy Equity attributable to non-controlling interests Defined benefit plans, net of tax Deferred tax assets recognized for tax loss carry-forwards Deferred tax assets on temporary differences, excess over threshold Goodwill, net of tax1 Intangible assets, net of tax Compensation-related components (not recognized in net profit) Expected losses on advanced internal ratings-based portfolio less provisions Unrealized (gains) / losses from cash flow hedges, net of tax Own credit related to gains / losses on financial liabilities measured at fair value that existed at the balance sheet date Own credit related to gains / losses on derivative financial instruments that existed at the balance sheet date Unrealized gains related to debt instruments at fair value through OCI, net of tax Prudential valuation adjustments Accruals for dividends to shareholders Capital reserve for potential share repurchases Other TToottaall ccoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall 11 Includes goodwill related to significant investments in financial institutions of USD 22 million as of 31 December 2021 (31 December 2020: USD 413 million) presented on the balance sheet line Investments in associates. 31.12.20 59,765 (319) (41) (5,617) (5) (6,319) (296) (1,349) (330) (2,321) 382 (45) (152) (150) (1,314) (2,000) 0 39,890 3311..1122..2211 6611,,000022 ((334400)) ((227700)) ((44,,556655)) ((4499)) ((55,,883388)) ((118800)) ((11,,770000)) ((448822)) ((662288)) 331155 ((5500)) ((6688)) ((116677)) ((11,,770000)) 11 4455,,228811  154 154 Risk, capital, liquidity and funding, and balance sheet | Capital management Total loss-absorbing capacity Swiss SRB going and gone concern information USD million, except where indicated EElliiggiibbllee ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall TToottaall ttiieerr 11 ccaappiittaall Common equity tier 1 capital TToottaall lloossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall of which: high-trigger loss-absorbing additional tier 1 capital of which: low-trigger loss-absorbing additional tier 1 capital EElliiggiibbllee ggoonnee ccoonncceerrnn ccaappiittaall TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy TToottaall ttiieerr 22 ccaappiittaall of which: low-trigger loss-absorbing tier 2 capital of which: non-Basel III-compliant tier 2 capital TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy Risk-weighted assets Leverage ratio denominator RRiisskk--wweeiigghhtteedd aasssseettss // lleevveerraaggee rraattiioo ddeennoommiinnaattoorr CCaappiittaall aanndd lloossss--aabbssoorrbbiinngg ccaappaacciittyy rraattiiooss ((%%)) Going concern capital ratio of which: common equity tier 1 capital ratio Gone concern loss-absorbing capacity ratio TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy rraattiioo LLeevveerraaggee rraattiiooss ((%%))11 Going concern leverage ratio of which: common equity tier 1 leverage ratio Gone concern leverage ratio TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy lleevveerraaggee rraattiioo 11 The leverage ratio denominator (LRD) and leverage ratios for 31 December 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section and to “Application of the temporary COVID-19-related FINMA exemption of central bank sight deposits” in the “Capital, liquidity and funding, and balance sheet” sections of our Annual Report 2020 for more information. Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital Audited | USD million TToottaall IIFFRRSS eeqquuiittyy Equity attributable to non-controlling interests Defined benefit plans, net of tax Deferred tax assets recognized for tax loss carry-forwards Deferred tax assets on temporary differences, excess over threshold Goodwill, net of tax1 Intangible assets, net of tax Compensation-related components (not recognized in net profit) Expected losses on advanced internal ratings-based portfolio less provisions Unrealized (gains) / losses from cash flow hedges, net of tax Own credit related to gains / losses on financial liabilities measured at fair value that existed at the balance sheet date Own credit related to gains / losses on derivative financial instruments that existed at the balance sheet date Unrealized gains related to debt instruments at fair value through OCI, net of tax Prudential valuation adjustments Accruals for dividends to shareholders Capital reserve for potential share repurchases TToottaall ccoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall Other associates. 11 Includes goodwill related to significant investments in financial institutions of USD 22 million as of 31 December 2021 (31 December 2020: USD 413 million) presented on the balance sheet line Investments in 4455,,228811 39,890 110044,,775522 101,722 330022,,220099 11,,006688,,886622 289,101 1,037,1501 3311..1122..2211 31.12.20 6600,,448888 6600,,448888 4455,,228811 1155,,220077 1122,,778833 22,,442255 4444,,226644 33,,114444 22,,559966 554477 4411,,112200 2200..00 1155..00 1144..66 3344..77 55..77 44..2244 44..11 99..88 3311..1122..2211 6611,,000022 ((334400)) ((227700)) ((44,,556655)) ((4499)) ((55,,883388)) ((118800)) ((11,,770000)) ((448822)) ((662288)) 331155 ((5500)) ((6688)) ((116677)) ((11,,770000)) 11 56,178 56,178 39,890 16,288 13,711 2,577 45,545 7,744 7,201 543 37,801 19.4 13.8 15.8 35.2 5.4 3.85 4.4 9.8 31.12.20 59,765 (319) (41) (5,617) (5) (6,319) (296) (1,349) (330) (2,321) 382 (45) (152) (150) (1,314) (2,000) 0  Total loss-absorbing capacity and movement Our total loss-absorbing capacity increased by USD 3.0 billion to USD 104.8 billion as of 31 December 2021. Going concern capital and movement Audited | Our CET1 capital mainly consists of: share capital; share premium, which primarily consists of additional paid-in capital related to shares issued; and retained earnings. A detailed reconciliation of IFRS equity to CET1 capital is provided in the “Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital” table. Our CET1 capital increased by USD 5.4 billion to USD 45.3 billion as of 31 December 2021, mainly as a result of operating profit before tax of USD 9.5 billion, a USD 0.5 billion increase in eligible deferred tax assets on temporary differences, a USD 0.4 billion decrease in deduction of goodwill resulting from the sale of our remaining minority investment in Clearstream Fund Centre AG (previously Fondcenter AG) and an increase of USD 0.2 billion related to the launch of our new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. These effects were partly offset by dividend accruals of USD 1.7 billion, current tax expenses of USD 1.6 billion, share repurchases under our share repurchase program of USD 0.6 billion, negative foreign currency effects of USD 0.6 billion, compensation- and own share-related capital components of USD 0.4 billion, and negative effects from defined benefit plans of USD 0.2 billion. Our share repurchases in 2021 decreased CET1 capital by USD 0.6 billion, reflecting shares repurchased under our share repurchase programs of USD 2.6 billion, partly offset by the use of the capital reserve for potential share repurchases of USD 2.0 billion. The capital reserve for potential share repurchases was fully utilized during 2021. › Refer to “UBS shares” in this section for more information about our share repurchase programs Our loss-absorbing additional tier 1 (AT1) capital decreased by USD 1.1 billion to USD 15.2 billion, mainly due to two calls of USD 2.6 billion of AT1 capital instruments denominated in US dollars and foreign currency translation and interest rate risk hedge effects, partly offset by two issuances of USD 2.25 billion of AT1 capital instruments denominated in US dollars.  Gone concern loss-absorbing capacity and movement Audited | Our total gone concern loss-absorbing capacity decreased by USD 1.3 billion to USD 44.3 billion as of 31 December 2021 and included USD 41.1 billion of TLAC-eligible senior unsecured debt.  The decrease was mainly due to four TLAC-eligible senior unsecured debt instruments denominated in US dollars, euro and Swiss francs that ceased to be eligible as they had less than one year to maturity, the call of a low-trigger tier 2 capital instrument denominated in euro, a low-trigger loss-absorbing tier 2 capital instrument denominated in US dollars that ceased to be eligible as it had less than one year to maturity, and the call of a TLAC- eligible senior unsecured debt instrument denominated in euro, as well as interest rate risk hedge, foreign currency translation and other effects. These decreases were partly offset by 16 issuances of TLAC-eligible senior unsecured debt instruments denominated in euro, US dollars, Swiss francs, pounds sterling and Australian dollars. Loss-absorbing capacity and leverage ratios Our CET1 capital ratio increased 1.2 percentage points to 15.0%, reflecting a USD 5.4 billion increase in CET1 capital that was partly offset by a USD 13.1 billion increase in RWA. Our CET1 leverage ratio increased 0.39 percentage points to 4.24% as of 31 December 2021, as the aforementioned increase in CET1 capital was partly offset by a USD 32 billion increase in LRD. Our gone concern loss-absorbing capacity ratio decreased from 15.8% to 14.6% and our gone concern leverage ratio decreased from 4.4% to 4.1%, mainly driven by an increase in RWA and LRD, respectively, and the aforementioned decrease in gone concern loss-absorbing capacity. 154 155 155 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Swiss SRB total loss-absorbing capacity movement USD million Going concern capital CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2200 Operating profit before tax Current tax (expense) / benefit Deferred tax assets on temporary differences Goodwill and intangible assets Accruals for proposed dividends to shareholders Share repurchase program Capital reserve for potential share repurchases Foreign currency translation effects before tax Compensation- and own share-related capital components Defined benefit plans1 Other CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2211 LLoossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2200 Issuance of high-trigger loss-absorbing additional tier 1 capital Call of high-trigger loss-absorbing additional tier 1 capital Interest rate risk hedge, foreign currency translation and other effects LLoossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2211 TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall aass ooff 3311..1122..2200 TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall aass ooff 3311..1122..2211 Gone concern loss-absorbing capacity TTiieerr 22 ccaappiittaall aass ooff 3311..1122..2200 Call of low-trigger loss-absorbing tier 2 capital Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year Interest rate risk hedge, foreign currency translation and other effects TTiieerr 22 ccaappiittaall aass ooff 3311..1122..2211 TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt aass ooff 3311..1122..2200 Issuance of TLAC-eligible senior unsecured debt Call of TLAC-eligible senior unsecured debt Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year Interest rate risk hedge, foreign currency translation and other effects TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt aass ooff 3311..1122..2211 TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2200 TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2211 SSwwiissss SSRRBB 3399,,889900 9,484 (1,564) 544 519 (1,700) (2,612) 2,000 (570) (441) (234) (34) 4455,,228811 1166,,228888 2,250 (2,600) (731) 1155,,220077 5566,,117788 6600,,448888 77,,774444 (2,415) (2,020) (166) 33,,114444 3377,,880011 11,956 (2,027) (4,248) (2,362) 4411,,112200 4455,,554455 4444,,226644 Total loss-absorbing capacity TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2200 TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2211 11 Includes a pension plan curtailment of USD 80 million that reduced the defined benefit obligation and a USD 254 million payment of the second installment to employees’ retirement assets in the Swiss pension fund. As announced in 2018, a similar contribution will be made in the first quarter of 2022. Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of the Annual Report 2019 for more information. 110011,,772222 110044,,775522 Additional information Active management of sensitivity to foreign exchange movements Group Treasury is mandated to minimize adverse effects from changes in foreign currency rates on our CET1 capital and / or CET1 capital ratio. A significant portion of our CET1 capital and RWA is denominated in Swiss francs, euro, pounds sterling and other currencies. In order to hedge the CET1 capital ratio, CET1 capital needs to have foreign currency exposure, leading to foreign currency rates sensitivity of CET1 capital. As a consequence, it is not possible to simultaneously fully hedge CET1 capital and the CET1 capital ratio. As the proportion of RWA denominated in currencies other than the US dollar outweighs CET1 capital in such currencies, a significant appreciation of the US dollar against such currencies could benefit our capital ratios, while a significant depreciation of the US dollar against these currencies could adversely affect our capital ratios. The Group Asset and Liability Committee (the Group ALCO), a committee of the Group Executive Board, has mandated Group Treasury to adjust the currency mix of CET1 capital, within limits set by the BoD, to balance the effect of foreign exchange movements on CET1 capital and the CET1 capital ratio. Limits are in place for the sensitivity of both CET1 capital and the CET1 capital ratio to an appreciation or depreciation of 10% in the value of the US dollar against other currencies. Sensitivity to currency movements Risk-weighted assets We estimate that a 10% depreciation of the US dollar against other currencies would have increased our RWA by USD 13 billion and our CET1 capital by USD 1.4 billion as of 31 December 2021 (31 December 2020: USD 13 billion and USD 1.3 billion, respectively) and decreased our CET1 capital ratio 15 basis points (31 December 2020: 15 basis points). Conversely, we estimate that a 10% appreciation of the US dollar against other currencies would have decreased our RWA by USD 11 billion and our CET1 capital by USD 1.3 billion (31 December 2020: USD 12 billion and USD 1.2 billion, respectively) and increased our CET1 capital ratio 14 basis points (31 December 2020: 15 basis points). 156 156 SSwwiissss SSRRBB 3399,,889900 9,484 (1,564) 544 519 (1,700) (2,612) 2,000 (570) (441) (234) (34) 4455,,228811 1166,,228888 2,250 (2,600) (731) 1155,,220077 5566,,117788 6600,,448888 77,,774444 (2,415) (2,020) (166) 33,,114444 3377,,880011 11,956 (2,027) (4,248) (2,362) 4411,,112200 4455,,554455 4444,,226644 110011,,772222 110044,,775522 Risk, capital, liquidity and funding, and balance sheet | Capital management Swiss SRB total loss-absorbing capacity movement USD million Going concern capital CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2200 Operating profit before tax Current tax (expense) / benefit Deferred tax assets on temporary differences Goodwill and intangible assets Accruals for proposed dividends to shareholders Share repurchase program Capital reserve for potential share repurchases Foreign currency translation effects before tax Compensation- and own share-related capital components Defined benefit plans1 Other CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2211 LLoossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2200 Issuance of high-trigger loss-absorbing additional tier 1 capital Call of high-trigger loss-absorbing additional tier 1 capital Interest rate risk hedge, foreign currency translation and other effects LLoossss--aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall aass ooff 3311..1122..2211 TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall aass ooff 3311..1122..2200 TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall aass ooff 3311..1122..2211 Gone concern loss-absorbing capacity TTiieerr 22 ccaappiittaall aass ooff 3311..1122..2200 Call of low-trigger loss-absorbing tier 2 capital TTiieerr 22 ccaappiittaall aass ooff 3311..1122..2211 TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt aass ooff 3311..1122..2200 Issuance of TLAC-eligible senior unsecured debt Call of TLAC-eligible senior unsecured debt Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year Interest rate risk hedge, foreign currency translation and other effects Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year Interest rate risk hedge, foreign currency translation and other effects TTLLAACC--eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt aass ooff 3311..1122..2211 TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2200 TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2211 Total loss-absorbing capacity TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2200 TToottaall lloossss--aabbssoorrbbiinngg ccaappaacciittyy aass ooff 3311..1122..2211 of the Annual Report 2019 for more information. Additional information 11 Includes a pension plan curtailment of USD 80 million that reduced the defined benefit obligation and a USD 254 million payment of the second installment to employees’ retirement assets in the Swiss pension fund. As announced in 2018, a similar contribution will be made in the first quarter of 2022. Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section set by the BoD, to balance the effect of foreign exchange movements on CET1 capital and the CET1 capital ratio. Limits are Active management of sensitivity to foreign exchange in place for the sensitivity of both CET1 capital and the CET1 movements capital ratio to an appreciation or depreciation of 10% in the Group Treasury is mandated to minimize adverse effects from value of the US dollar against other currencies. changes in foreign currency rates on our CET1 capital and / or CET1 capital ratio. A significant portion of our CET1 capital and Sensitivity to currency movements RWA is denominated in Swiss francs, euro, pounds sterling and other currencies. In order to hedge the CET1 capital ratio, CET1 Risk-weighted assets foreign currency rates sensitivity of CET1 capital. other currencies would have increased our RWA by USD 13 As a consequence, it is not possible to simultaneously fully billion and our CET1 capital by USD 1.4 billion as of hedge CET1 capital and the CET1 capital ratio. As the proportion 31 December 2021 (31 December 2020: USD 13 billion and of RWA denominated in currencies other than the US dollar USD 1.3 billion, respectively) and decreased our CET1 capital outweighs CET1 capital in such currencies, a significant ratio 15 basis points (31 December 2020: 15 basis points). appreciation of the US dollar against such currencies could benefit Conversely, we estimate that a 10% appreciation of the US our capital ratios, while a significant depreciation of the US dollar dollar against other currencies would have decreased our RWA by against these currencies could adversely affect our capital ratios. USD 11 billion and our CET1 capital by USD 1.3 billion The Group Asset and Liability Committee (the Group ALCO), a (31 December 2020: USD 12 billion and USD 1.2 billion, committee of the Group Executive Board, has mandated Group respectively) and increased our CET1 capital ratio 14 basis points Treasury to adjust the currency mix of CET1 capital, within limits (31 December 2020: 15 basis points). Leverage ratio denominator Our is also sensitive to foreign exchange leverage ratio movements as a result of the currency mix of our capital and LRD. When adjusting the currency mix in capital, potential effects on the going concern leverage ratio are taken into account and the sensitivity of the going concern leverage ratio to an appreciation or depreciation of 10% in the value of the US dollar against other currencies is actively monitored. We estimate that a 10% depreciation of the US dollar against other currencies would have increased our LRD by USD 63 billion as of 31 December 2021 (31 December 2020: USD 65 billion) and decreased our Swiss SRB going concern leverage ratio 15 basis points (31 December 2020: 16 basis points). Conversely, we estimate that a 10% appreciation of the US dollar against other currencies would have decreased our LRD by USD 57 billion (31 December 2020: USD 58 billion) and increased our Swiss SRB going concern leverage ratio 16 basis points (31 December 2020: 16 basis points). The aforementioned sensitivities do not consider foreign currency translation effects related to defined benefit plans other than those related to the currency translation of the net equity of foreign operations. Capital and capital ratios of our significant regulated subsidiaries UBS Group AG is a holding company conducting substantially all operations through UBS AG and subsidiaries thereof. UBS Group AG and UBS AG have contributed a significant portion of their respective capital to, and provided substantial liquidity to, subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with minimum capital, liquidity and similar requirements. Regulatory capital components and capital ratios of our significant regulated subsidiaries determined under the regulatory framework of each subsidiary’s home jurisdiction are provided in the “Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups” section of this report. Supervisory authorities generally have discretion to impose higher requirements, or to otherwise limit the activities of subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis, and may limit the ability of the entity to engage in new activities or take capital actions based on the results of those tests. › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more capital and other regulatory information about our significant regulated subsidiaries and sub-groups in liabilities” Estimated effect on capital from litigation, regulatory and similar matters subject to provisions and contingent liabilities We have estimated the loss in capital that we could incur as a result of the risks associated with the matters described in “Note 18 Provisions and contingent the “Consolidated financial statements” section of this report. We have employed for this purpose the advanced measurement approach (AMA) methodology that we use when determining the capital requirements associated with operational risks, based on a level over a 12-month horizon. The 99.9% confidence methodology industry into consideration UBS and takes experience for the AMA operational risk categories to which those matters correspond, as well as the external environment affecting risks of these types, in isolation from other areas. On this basis, we estimate the maximum loss in capital that we could incur over a 12-month period as a result of our risks associated with these operational risk categories at USD 4.0 billion as of 31 December 2021, with no change to prior year-end. This estimate is not related to and does not take into account any provisions recognized for any of these matters and does not constitute a subjective assessment of our actual exposure in any of these matters. Joint liability of UBS AG and UBS Switzerland AG In June 2015, upon the transfer of the Personal & Corporate Banking and Global Wealth Management businesses booked in Switzerland from UBS AG to UBS Switzerland AG, UBS AG and UBS Switzerland AG assumed joint liability for obligations transferred to UBS Switzerland AG and existing at UBS AG, respectively. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank. The joint liability amounts have declined as obligations matured, terminated or were novated following the transfer date. As of 31 December 2021, the liability of UBS Switzerland AG amounted to CHF 5.2 billion (the equivalent of USD 5.7 billion), a decrease of CHF 3.7 billion (USD 4.4 billion) compared with 31 December 2020. The respective liability of UBS AG has been substantially extinguished. capital needs to have foreign currency exposure, leading to We estimate that a 10% depreciation of the US dollar against more information › Refer to “Non-financial risk” in the “Risk management and control” section of this report for more information › Refer to “Note 18 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for 156 157 157 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Risk-weighted assets RWA development in 2021 During 2021, RWA increased by USD 13.1 billion to USD 302.2 billion, primarily driven by increases of USD 12.0 billion in credit and counterparty credit risk RWA, USD 1.0 billion in operational risk RWA and USD 0.9 billion in non-counterparty-related risk. Movement in risk-weighted assets by key driver These increases were partly offset by a decrease of USD 0.8 billion in market risk RWA. › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about RWA movements and definitions of RWA movement key drivers USD billion Credit and counterparty credit risk2 Non-counterparty-related risk3 Market risk Operational risk TToottaall RWA as of 31.12.20 178.1 23.4 11.8 75.8 228899..11 Currency effects (4.1) (0.3) ((44..44)) 22..00 Methodology and policy changes 2.0 Model updates / changes 5.3 Regulatory add-ons 3.1 Asset size and Other1 5.8 RRWWAA aass ooff 3311..1122..2211 119900..11 (0.1) 1.0 66..11 3.14 66..22 1.2 (3.7) 33..22 2244..33 1111..11 7766..77 330022..22 11 Includes the Pillar 3 categories “Asset size,” “Credit quality of counterparties,” “Acquisitions and disposals” and “Other.” Refer to the 31 December 2021 Pillar 3 Report under “Pillar 3 disclosures” at ubs.com/investors for more information. 22 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book. 33 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences, property, equipment, software and other items. 44 As of 31 December 2021, the regulatory add-on related to time decay was USD 3.5 billion. Credit and counterparty credit risk Credit and counterparty credit risk RWA increased by USD 12.0 billion to USD 190.1 billion as of 31 December 2021. This increase was partly driven by asset size and other movements of USD 5.8 billion, due to an increase in asset size of USD 8.8 billion, mainly due to loan growth in Global Wealth Management, partly offset by asset quality movements of USD 3.1 billion, mainly reflecting improvements in counterparty ratings and loss given default (LGD) in Global Wealth Management and Personal & Corporate Banking. Also, 2021 included increases from model updates of USD 5.3 billion, regulatory add-ons of USD 3.1 billion, and methodology and policy changes of USD 2.0 billion. These increases were partly offset by decreases from currency effects of USD 4.1 billion. Movement in credit and counterparty credit risk RWA by key driver1 USD billion TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..2200 Asset size Asset quality Model updates Methodology and policy changes Regulatory add-ons Acquisitions and disposals Foreign exchange movements Other TToottaall mmoovveemmeenntt TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..2211 Global Wealth Management 4466..77 Personal & Corporate Banking 6622..88 Asset Management 22..99 Investment Bank 5588..55 Group Functions 77..22 5.5 (1.3) 4.3 1.7 0.2 0.0 (0.6) 0.4 1100..22 5566..99 1.1 (1.1) 1.2 0.3 0.7 0.0 (1.6) (0.4) 00..22 6633..00 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00..33 33..22 1.8 (0.4) (0.2) 0.0 2.3 0.0 (1.4) 0.0 22..11 6600..55 0.1 (0.3) 0.0 0.0 (0.1) 0.0 (0.5) 0.0 ((00..88)) 66..44 GGrroouupp 117788..11 88..88 ((33..11)) 55..33 22..00 33..11 00..00 ((44..11)) 00..11 1122..00 119900..11 11 Refer to the 31 December 2021 Pillar 3 Report under “Pillar 3 disclosures” at ubs.com/investors for the definitions of credit and counterparty credit risk RWA movement categories. 158 158 Risk, capital, liquidity and funding, and balance sheet | Capital management Risk-weighted assets RWA development in 2021 These increases were partly offset by a decrease of USD 0.8 billion During 2021, RWA increased by USD 13.1 billion to USD 302.2 billion, primarily driven by increases of USD 12.0 billion in credit and counterparty credit risk RWA, USD 1.0 billion in operational › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about RWA movements and definitions of RWA movement key risk RWA and USD 0.9 billion in non-counterparty-related risk. drivers in market risk RWA. Movement in risk-weighted assets by key driver USD billion Credit and counterparty credit risk2 Non-counterparty-related risk3 Market risk Operational risk TToottaall Methodology and policy changes 2.0 Model updates / changes 5.3 RWA as of 31.12.20 Currency effects (4.1) (0.3) 178.1 23.4 11.8 75.8 228899..11 ((44..44)) 22..00 Regulatory Asset size and RRWWAA aass ooff 3311..1122..2211 add-ons 3.1 3.14 66..22 Other1 5.8 1.2 (3.7) 33..22 119900..11 2244..33 1111..11 7766..77 330022..22 (0.1) 1.0 66..11 11 Includes the Pillar 3 categories “Asset size,” “Credit quality of counterparties,” “Acquisitions and disposals” and “Other.” Refer to the 31 December 2021 Pillar 3 Report under “Pillar 3 disclosures” at ubs.com/investors for more information. 22 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book. 33 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences, property, equipment, software and other items. 44 As of 31 December 2021, the regulatory add-on related to time decay was USD 3.5 billion. Credit and counterparty credit risk improvements in counterparty ratings and loss given default (LGD) Credit and counterparty credit risk RWA increased by USD 12.0 in Global Wealth Management and Personal & Corporate billion to USD 190.1 billion as of 31 December 2021. This increase Banking. Also, 2021 included increases from model updates of was partly driven by asset size and other movements of USD 5.8 USD 5.3 billion, regulatory add-ons of USD 3.1 billion, and billion, due to an increase in asset size of USD 8.8 billion, mainly methodology and policy changes of USD 2.0 billion. These due to loan growth in Global Wealth Management, partly offset increases were partly offset by decreases from currency effects of by asset quality movements of USD 3.1 billion, mainly reflecting USD 4.1 billion. Movement in credit and counterparty credit risk RWA by key driver1 TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..2200 USD billion Asset size Asset quality Model updates Methodology and policy changes Regulatory add-ons Acquisitions and disposals Foreign exchange movements Other TToottaall mmoovveemmeenntt Global Wealth Management Personal & Corporate Banking Asset Investment Management Group Functions 4466..77 5.5 (1.3) 4.3 1.7 0.2 0.0 (0.6) 0.4 1100..22 5566..99 6622..88 1.1 (1.1) 1.2 0.3 0.7 0.0 (1.6) (0.4) 00..22 6633..00 22..99 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00..33 33..22 Bank 5588..55 1.8 (0.4) (0.2) 0.0 2.3 0.0 (1.4) 0.0 22..11 6600..55 77..22 0.1 (0.3) 0.0 0.0 (0.1) 0.0 (0.5) 0.0 ((00..88)) 66..44 GGrroouupp 117788..11 88..88 ((33..11)) 55..33 22..00 33..11 00..00 ((44..11)) 00..11 1122..00 119900..11 TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..2211 11 Refer to the 31 December 2021 Pillar 3 Report under “Pillar 3 disclosures” at ubs.com/investors for the definitions of credit and counterparty credit risk RWA movement categories. Regulatory add-ons The increase in credit and counterparty credit risk RWA from regulatory add-ons of USD 3.1 billion was primarily driven by add- ons for prime brokerage clients of USD 2.4 billion, credit card exposures in Switzerland of USD 0.5 billion, as well as clients leasing aircraft and industrial goods of USD 0.4 billion. › Refer to the “Risk management and control” section of this report and the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about credit and counterparty credit risk developments We expect that further methodology changes and model updates, as well as regulatory add-ons, will increase credit and counterparty credit risk RWA by around USD 10 billion in 2022. The extent and timing of RWA changes may vary as methodology changes and model updates are completed and receive regulatory approval. In addition, changes in the composition of the relevant portfolios and other market factors will affect RWA. Model updates The increase in credit and counterparty credit risk RWA from model updates of USD 5.3 billion was primarily driven by the phase-in impacts for structured margin loans and similar products in Global Wealth Management of USD 2.1 billion and by new probability of default (PD) and LGD models for the mortgage portfolio in the US of USD 2.0 billion. In addition, we have updated the LGD model for mortgages in Switzerland, which resulted in an RWA increase of USD 0.9 billion and was partly offset by an RWA reduction of USD 0.3 billion related to the introduction of new models for the leasing of aircraft and industrial goods. › Refer to “Credit risk models” in the “Risk management and control” section of this report for more information about model updates Methodology changes The increase in credit and counterparty credit risk RWA from methodology changes of USD 2.0 billion was primarily driven by a change related to credit valuation adjustment (CVA) risk for derivative exposures with Lombard clients that resulted in an increase of USD 1.1 billion in RWA. Additionally, the approach used for the covered bonds within the high-quality liquid asset (HQLA) portfolio has been changed from the advanced internal ratings-based (A-IRB) approach to the standardized approach, as requested by FINMA, resulting in an RWA increase of USD 1.0 billion. 158 159 159 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Non-counterparty-related risk Non-counterparty credit risk RWA increased by USD 0.9 billion to USD 24.3 billion as of 31 December 2021, primarily driven by an increase in deferred tax assets on temporary differences. Market risk Market risk RWA decreased by USD 0.8 billion to USD 11.1 billion as of 31 December 2021, primarily driven by a decrease of USD 3.7 billion from portfolio and market movements, mostly in the Investment Bank’s Global Markets business. This was partly offset by an increase from regulatory add-ons of USD 3.1 billion, primarily related to time decay. The integration of time decay into the regulatory VaR model is subject to further discussions between FINMA and UBS. › Refer to the “Risk management and control” section of this Operational risk Operational risk RWA increased by USD 1.0 billion to USD 76.7 billion as of 31 December 2021, driven by the annual recalibration of the AMA model used for the calculation of operational risk capital. Allocations to the business divisions changed in the fourth quarter of 2021, as certain historical losses dropped from the time window that is relevant for the internal allocation approach. We are assessing the effect of the verdict in the French cross- border matter and the corresponding changes in provisions for litigation, regulatory and similar matters on operational risk RWA in consultation with FINMA. We expect to reflect additional operational risk RWA in the first quarter of 2022, with a potential single-digit billion US dollar operational risk RWA impact following completion of this assessment. › Refer to “Advanced measurement approach model” in the “Risk report and the 31 December 2021 Pillar 3 Report, available under management and control” section of this report for more “Pillar 3 disclosures” at ubs.com/investors, for more information information about the AMA model about market risk developments Risk-weighted assets by business division and Group Functions USD billion Credit and counterparty credit risk1 Non-counterparty-related risk2 Market risk Operational risk TToottaall Credit and counterparty credit risk1 Non-counterparty-related risk2 Market risk Operational risk TToottaall Credit and counterparty credit risk1 Non-counterparty-related risk2 Market risk Operational risk TToottaall GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt PPeerrssoonnaall && CCoorrppoorraattee BBaannkkiinngg AAsssseett MMaannaaggee-- mmeenntt 3311..1122..2211 IInnvveessttmmeenntt BBaannkk GGrroouupp FFuunnccttiioonnss TToottaall RRWWAA 56.9 6.2 1.6 35.2 9999..88 46.7 6.2 1.4 32.8 8877..22 10.2 0.0 0.1 2.4 1122..77 63.0 2.0 0.0 8.1 7733..22 62.8 2.1 0.0 7.2 7722..11 0.2 (0.1) 0.0 0.9 11..11 3.2 0.6 3.0 66..99 31.12.20 2.9 0.7 3.3 66..99 60.5 3.5 8.1 20.2 9922..22 58.5 3.6 9.0 23.2 9944..33 31.12.21 vs 31.12.20 0.3 (0.1) (0.3) ((00..11)) 2.1 (0.2) (0.9) (3.0) ((22..00)) 6.4 12.0 1.5 10.3 3300..11 7.2 10.7 1.4 9.3 2288..77 (0.8) 1.2 0.1 1.0 11..55 190.1 24.3 11.1 76.7 330022..22 178.1 23.4 11.8 75.8 228899..11 12.0 0.9 (0.8) 1.0 1133..11 11 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book. 22 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences (31 December 2021: USD 11.4 billion; 31 December 2020: USD 10.0 billion), as well as property, equipment, software and other items (31 December 2021: USD 12.9 billion; 31 December 2020: USD 13.4 billion). 160 160 Risk, capital, liquidity and funding, and balance sheet | Capital management Non-counterparty-related risk Operational risk Non-counterparty credit risk RWA increased by USD 0.9 billion to Operational risk RWA increased by USD 1.0 billion to USD 76.7 USD 24.3 billion as of 31 December 2021, primarily driven by an billion as of 31 December 2021, driven by the annual recalibration increase in deferred tax assets on temporary differences. of the AMA model used for the calculation of operational risk Market risk capital. Allocations to the business divisions changed in the fourth quarter of 2021, as certain historical losses dropped from the time Market risk RWA decreased by USD 0.8 billion to USD 11.1 billion window that is relevant for the internal allocation approach. as of 31 December 2021, primarily driven by a decrease of We are assessing the effect of the verdict in the French cross- USD 3.7 billion from portfolio and market movements, mostly in border matter and the corresponding changes in provisions for the Investment Bank’s Global Markets business. This was partly litigation, regulatory and similar matters on operational risk RWA offset by an increase from regulatory add-ons of USD 3.1 billion, in consultation with FINMA. We expect to reflect additional primarily related to time decay. The integration of time decay into operational risk RWA in the first quarter of 2022, with a potential the regulatory VaR model is subject to further discussions single-digit billion US dollar operational risk RWA impact between FINMA and UBS. following completion of this assessment. › Refer to the “Risk management and control” section of this › Refer to “Advanced measurement approach model” in the “Risk report and the 31 December 2021 Pillar 3 Report, available under management and control” section of this report for more “Pillar 3 disclosures” at ubs.com/investors, for more information information about the AMA model about market risk developments Risk-weighted assets by business division and Group Functions Credit and counterparty credit risk1 Non-counterparty-related risk2 USD billion Market risk Operational risk TToottaall Credit and counterparty credit risk1 Non-counterparty-related risk2 Market risk Operational risk TToottaall Credit and counterparty credit risk1 Non-counterparty-related risk2 Market risk Operational risk TToottaall 2020: USD 13.4 billion). GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt PPeerrssoonnaall && CCoorrppoorraattee BBaannkkiinngg AAsssseett MMaannaaggee-- mmeenntt IInnvveessttmmeenntt BBaannkk GGrroouupp FFuunnccttiioonnss TToottaall RRWWAA 56.9 6.2 1.6 35.2 9999..88 46.7 6.2 1.4 32.8 8877..22 10.2 0.0 0.1 2.4 1122..77 3311..1122..2211 31.12.20 3.2 0.6 3.0 66..99 2.9 0.7 3.3 66..99 0.3 (0.1) (0.3) ((00..11)) 60.5 3.5 8.1 20.2 9922..22 58.5 3.6 9.0 23.2 9944..33 2.1 (0.2) (0.9) (3.0) ((22..00)) 31.12.21 vs 31.12.20 63.0 2.0 0.0 8.1 7733..22 62.8 2.1 0.0 7.2 7722..11 0.2 (0.1) 0.0 0.9 11..11 6.4 12.0 1.5 10.3 3300..11 7.2 10.7 1.4 9.3 2288..77 (0.8) 1.2 0.1 1.0 11..55 190.1 24.3 11.1 76.7 330022..22 178.1 23.4 11.8 75.8 228899..11 12.0 0.9 (0.8) 1.0 1133..11 11 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book. 22 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences (31 December 2021: USD 11.4 billion; 31 December 2020: USD 10.0 billion), as well as property, equipment, software and other items (31 December 2021: USD 12.9 billion; 31 December Leverage ratio denominator LRD increased by USD 32 billion to USD 1,069 billion as of 31 December 2021, driven by asset size and other movements of USD 54 billion, partly offset by a decrease due to currency effects of USD 23 billion. Movement in leverage ratio denominator by key driver USD billion On-balance sheet exposures (excluding derivative exposures and SFTs)2 Derivative exposures Securities financing transactions Off-balance sheet items Deduction items LLRRDD aass ooff 3311..1122..220011 806.6 96.6 115.3 31.3 (12.8) Currency effects (17.0) Asset size and other 57.8 (2.7) (2.3) (0.7) 0.1 (3.0) (3.9) 2.2 1.2 LLRRDD aass ooff 3311..1122..2211 884477..44 9900..99 110099..22 3322..88 ((1111..55)) TToottaall 11 The respective period shown ending on 31 December 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section and to “Application of the temporary COVID-19-related FINMA exemption of central bank sight deposits” in the “Capital, liquidity and funding, and balance sheet” section of our Annual Report 2020, available under “Annual reporting” at ubs.com/investors, for more information. 22 The exposures exclude derivative financial instruments, cash collateral receivables on derivative instruments, receivables from SFTs, and margin loans, as well as prime brokerage receivables and financial assets at fair value not held for trading, both related to SFTs. These exposures are presented separately under Derivative exposures and Securities financing transactions in this table. 11,,006688..99 11,,003377..11 ((2222..66)) 5544..33 The LRD movements described below exclude currency effects. On-balance sheet exposures (excluding derivative exposures and SFTs) increased by USD 58 billion, mainly driven by an increase in central bank balances partly offset by disposal of high- quality liquid asset (HQLA) securities in Group Treasury, as well as higher lending balances, mainly in Global Wealth Management, and trading assets in the Investment Bank. Derivative exposures decreased by USD 3 billion, reflecting market-driven movements and lower client volumes mainly in the Investment Bank. SFTs decreased by USD 4 billion, mainly due to lower prime brokerage receivables and margin loan repayments as a result of client activities in the Investment Bank. › Refer to “Balance sheet and off-balance sheet” in this section for more information about balance sheet movements 160 161 161 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Capital management Leverage ratio denominator by business division and Group Functions USD billion Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt PPeerrssoonnaall && CCoorrppoorraattee BBaannkkiinngg AAsssseett MMaannaaggeemmeenntt IInnvveessttmmeenntt BBaannkk GGrroouupp FFuunnccttiioonnss TToottaall 3311..1122..2211 395.2 0.0 (25.9) 336699..33 5.8 22.6 7.2 (5.3) 339999..66 367.7 (0.1) (34.0) 333333..66 6.6 30.1 6.1 (5.2) 337711..22 225.4 0.0 (11.8) 221133..66 1.4 10.9 17.5 (0.2) 224433..22 231.7 (16.7) 221155..00 2.0 15.1 16.3 (0.1) 224488..33 25.6 (21.5) (0.1) 44..11 0.0 0.0 0.0 (1.2) 22..99 31.12.203 28.6 (21.1) (0.7) 66..77 0.0 0.7 0.0 (1.6) 55..88 346.4 (0.1) (159.2) 118877..11 79.0 45.7 7.6 (0.3) 331199..22 369.7 0.0 (191.6) 117788..00 82.7 46.5 8.5 (0.3) 331155..55 31.12.21 vs 31.12.20 124.5 0.0 (51.2) 7733..33 4.7 29.9 0.5 (4.4) 110044..00 128.1 0.1 (54.9) 7733..33 5.3 22.9 0.4 (5.5) 9966..22 1,117.2 (21.6) (248.2) 884477..44 90.9 109.2 32.8 (11.5) 11,,006688..99 1,125.8 (21.2) (298.0) 880066..66 96.6 115.3 31.3 (12.8) 11,,003377..11 Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall 11 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 22 The exposures consist of derivative financial instruments, cash collateral receivables on derivative instruments, receivables from SFTs, and margin loans, as well as prime brokerage receivables and financial assets at fair value not held for trading, both related to SFTs, all of which are in accordance with the regulatory scope of consolidation. These exposures are presented separately under Derivative exposures and Securities financing transactions in this table. 33 The respective period shown ending on 31 December 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section and to “Application of the temporary COVID-19-related FINMA exemption of central bank sight deposits” in the “Capital, liquidity and funding, and balance sheet” section of our Annual Report 2020, available under “Annual reporting” at ubs.com/investors, for more information. (23.3) (0.1) 32.5 99..11 (3.7) (0.8) (0.9) 0.0 33..77 27.5 0.1 8.1 3355..77 (0.8) (7.5) 1.1 (0.1) 2288..44 (8.6) (0.5) 49.8 4400..88 (5.7) (6.2) 1.5 1.3 3311..77 (6.3) 0.0 4.9 ((11..44)) (0.6) (4.2) 1.2 0.0 ((55..11)) (3.6) (0.1) 3.7 00..00 (0.6) 7.0 0.1 1.1 77..77 (2.9) (0.4) 0.7 ((22..77)) 0.0 (0.7) 0.4 ((22..99)) 162 162 Risk, capital, liquidity and funding, and balance sheet | Capital management USD billion Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall Total IFRS assets Difference in scope of consolidation1 Less: derivative exposures and SFTs2 OOnn--bbaallaannccee sshheeeett eexxppoossuurreess Derivative exposures Securities financing transactions Off-balance sheet items Items deducted from Swiss SRB tier 1 capital TToottaall GGlloobbaall WWeeaalltthh MMaannaaggeemmeenntt BBaannkkiinngg MMaannaaggeemmeenntt BBaannkk AAsssseett IInnvveessttmmeenntt GGrroouupp FFuunnccttiioonnss TToottaall PPeerrssoonnaall && CCoorrppoorraattee 3311..1122..2211 395.2 0.0 (25.9) 336699..33 5.8 22.6 7.2 (5.3) 339999..66 367.7 (0.1) (34.0) 333333..66 6.6 30.1 6.1 (5.2) 337711..22 27.5 0.1 8.1 3355..77 (0.8) (7.5) 1.1 (0.1) 2288..44 225.4 0.0 (11.8) 221133..66 1.4 10.9 17.5 (0.2) 224433..22 231.7 (16.7) 221155..00 2.0 15.1 16.3 (0.1) 224488..33 (6.3) 0.0 4.9 ((11..44)) (0.6) (4.2) 1.2 0.0 ((55..11)) 31.12.203 25.6 (21.5) (0.1) 44..11 0.0 0.0 0.0 (1.2) 22..99 28.6 (21.1) (0.7) 66..77 0.0 0.7 0.0 (1.6) 55..88 (2.9) (0.4) 0.7 ((22..77)) 0.0 (0.7) 0.4 ((22..99)) 346.4 (0.1) (159.2) 118877..11 79.0 45.7 7.6 (0.3) 331199..22 369.7 0.0 (191.6) 117788..00 82.7 46.5 8.5 (0.3) 331155..55 (23.3) (0.1) 32.5 99..11 (3.7) (0.8) (0.9) 0.0 33..77 31.12.21 vs 31.12.20 124.5 0.0 (51.2) 7733..33 4.7 29.9 0.5 (4.4) 110044..00 128.1 0.1 (54.9) 7733..33 5.3 22.9 0.4 (5.5) 9966..22 (3.6) (0.1) 3.7 00..00 (0.6) 7.0 0.1 1.1 77..77 1,117.2 (21.6) (248.2) 884477..44 90.9 109.2 32.8 (11.5) 11,,006688..99 1,125.8 (21.2) (298.0) 880066..66 96.6 115.3 31.3 (12.8) 11,,003377..11 (8.6) (0.5) 49.8 4400..88 (5.7) (6.2) 1.5 1.3 3311..77 11 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 22 The exposures consist of derivative financial instruments, cash collateral receivables on derivative instruments, receivables from SFTs, and margin loans, as well as prime brokerage receivables and financial assets at fair value not held for trading, both related to SFTs, all of which are in accordance with the regulatory scope of consolidation. These exposures are presented separately under Derivative exposures and Securities financing transactions in this table. 33 The respective period shown ending on 31 December 2020 does not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section and to “Application of the temporary COVID-19-related FINMA exemption of central bank sight deposits” in the “Capital, liquidity and funding, and balance sheet” section of our Annual Report 2020, available under “Annual reporting” at ubs.com/investors, for more information. Leverage ratio denominator by business division and Group Functions Equity attribution and return on attributed equity Under our equity attribution framework, tangible equity is attributed based on a weighting of 50% each for average risk- weighted assets (RWA) and average leverage ratio denominator (LRD), which both include resource allocations from Group Functions to the business divisions (the BDs). Average RWA and LRD are converted to common equity tier 1 (CET1) capital equivalents using capital ratios of 12.5% and 3.75%, respectively. If the attributed tangible equity calculated under the weighted- driver approach is less than the CET1 capital equivalent of risk- based capital (RBC) for any BD, the CET1 capital equivalent of RBC is used as a floor for that BD. Furthermore, we allocate to the BDs attributed equity related to certain CET1 deduction items, such as compensation-related components and expected losses on the advanced internal ratings-based portfolio less provisions. We attribute all remaining Basel III capital deduction items to Group Functions. These items include deferred tax assets (DTAs) recognized for tax loss carry-forwards, DTAs on temporary differences in excess of the threshold, accruals for shareholder returns, and unrealized gains from cash flow hedges. › Refer to “Balance sheet and off-balance sheet” in this section for more information about movements in equity attributable to In addition to tangible equity, we allocate equity to the BDs to shareholders support goodwill and intangible assets. Average attributed equity USD billion Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions 31.12.19 16.6 8.4 1.8 12.3 15.1 7.1 2.8 5.1 AAvveerraaggee eeqquuiittyy aattttrriibbuutteedd ttoo bbuussiinneessss ddiivviissiioonnss aanndd GGrroouupp FFuunnccttiioonnss 54.2 11 Includes average attributed equity related to the Basel III capital deduction items for deferred tax assets (deferred tax assets recognized for tax loss carry-forwards and deferred tax assets on temporary differences, excess over threshold), as well as retained RWA and LRD related to deferred tax assets. 22 Excludes average attributed equity related to retained RWA and LRD related to deferred tax assets. 33 The temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19 was not applied when calculating average attributed equity for 2020. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 44 Includes attributed equity related to dividend accruals, unrealized gains from cash flow hedges, and a balancing item for capital held in excess of the 12.5% / 3.75% capital and leverage ratio calibration thresholds for equity attribution. of which: deferred tax assets1 of which: related to retained RWA and LRD2,3 of which: accruals for shareholder returns and others4 3311..1122..2211 1188..88 99..22 22..00 1133..00 1166..33 55..99 33..22 77..22 5599..33 For the year ended 31.12.20 17.1 8.9 2.0 12.6 17.4 6.7 3.4 7.2 57.8 Return on attributed equity1 In % Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank 11 Return on attributed equity for Group Functions is not shown, as it is not meaningful. For the year ended 31.12.20 23.6 14.2 74.2 19.7 3311..1122..2211 2255..44 1188..99 5511..88 2200..33 31.12.19 20.5 17.1 29.7 6.4 162 163 163 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Liquidity and funding management Liquidity and funding management We manage the structural risks of our balance sheet, including interest rate risk, structural foreign exchange risk and collateral risk, as well as liquidity and funding risks. This section provides information about regulatory requirements and the firm’s funding management liquidity and governance structure, (including sources of liquidity and funding), contingency planning, and stress testing. The balances disclosed in this section represent year-end positions, unless indicated otherwise. Intra-period balances fluctuate in the ordinary course of business and may differ from year-end positions. Strategy, objectives and governance Audited | Our management of balance sheet, liquidity and funding positions has the overall objective of optimizing our franchise’s value across a broad range of market conditions while considering current and future regulatory constraints. We employ a number of measures to monitor these positions under normal and stressed conditions. In particular, we use stress scenarios to apply behavioral adjustments to our balance sheet and calibrate the results from internal stress models while in compliance with external measures, primarily the liquidity coverage ratio (the LCR) and the net stable funding ratio (the NSFR). Our liquidity and funding strategy is proposed by Group Treasury and approved by the Group Asset and Liability Committee (the Group ALCO), which is a committee of the Group Executive Board (the GEB) that is overseen by the Risk Committee of the Board of Directors (the BoD).  Group Treasury monitors and oversees the implementation and execution of our liquidity and funding strategy and is responsible for adherence to policies, limits, triggers and targets. This enables close control of both our cash and collateral, including our high-quality liquid assets, and centralizes the Group’s general access to wholesale cash markets in Group Treasury. In addition, should a crisis require contingency funding measures to be invoked, Group Treasury is responsible for coordinating liquidity generation with representatives of the relevant business areas. Group Treasury reports on the Group’s overall liquidity and funding position, including funding status and concentration risks, at least monthly, to the Group ALCO and the Risk Committee of the BoD. Audited | Liquidity and funding limits, triggers and targets are set at Group and, where appropriate, at legal entity and business division levels, and are reviewed and reconfirmed at least once a year by the BoD, the Group ALCO, the Group Chief Financial Officer, the Group Chief Risk Officer, the Group Treasurer and the business divisions, taking into consideration current and projected business strategy and risk tolerance. The principles underlying our limit, trigger and target framework are designed to maximize and sustain the value of our business franchise and maintain an appropriate balance in the asset and liability structure. Structural limits, triggers and targets focus on the structure and composition of the balance sheet, with supplementary limits, triggers and targets designed to drive the utilization, diversification and allocation of funding resources. To complement and support this framework, Group Treasury monitors the markets for early warning indicators regarding the current liquidity situation. These indicators are used at the Group level to assess both the overall global and regional liquidity status for potential threats. Treasury Risk Control provides independent oversight over liquidity and funding risks.  › Refer to the “Corporate governance” and “Risk management and control” sections of this report for more information Liquidity management Audited | Our liquidity risk management aims to ensure that the firm has sufficient liquidity or access to funding sources to meet its liabilities when due, to meet prudential requirements and to survive a severe three-month idiosyncratic and market-wide liquidity stress event, allowing for discrete management actions instructed by the Group Treasurer in addition to monetizing the firm’s liquidity reserves. Our liquid assets are managed using limits, triggers and targets to maintain an appropriate level of diversification (issuer, tenor and other risk characteristics) in response to any expected or unexpected volatility in funding availability or requirements caused by adverse market, operational or other firm-specific events. The liquid asset portfolio size is managed dynamically, so as to operate at all times within the risk appetite of the BoD and relevant Group and subsidiary liquidity requirements.  Stress testing Audited | We perform stress testing to determine the optimal asset and liability structure that enables us to maintain an appropriately balanced liquidity and funding position under various scenarios. Liquidity crisis scenario analysis and contingency funding planning support the liquidity management process and aim to ensure that immediate corrective measures to absorb potential sudden liquidity shortfalls can be put into effect.  We model our liquidity exposures under two main potential scenarios: a structural market-wide scenario and a combined market and idiosyncratic scenario. We continuously refine the assumptions used to maintain a robust, actionable and tested contingency plan. › Refer to “Risk measurement” in the “Risk management and control” section of this report for more information about stress testing 164 164 Risk, capital, liquidity and funding, and balance sheet | Liquidity and funding management Liquidity and funding management We manage the structural risks of our balance sheet, including are designed to maximize and sustain the value of our business interest rate risk, structural foreign exchange risk and collateral franchise and maintain an appropriate balance in the asset and risk, as well as liquidity and funding risks. This section provides liability structure. Structural limits, triggers and targets focus information about regulatory requirements and the firm’s on the structure and composition of the balance sheet, with governance structure, liquidity and funding management supplementary limits, triggers and targets designed to drive (including sources of liquidity and funding), contingency planning, the utilization, diversification and allocation of funding and stress testing. The balances disclosed in this section represent resources. To complement and support this framework, Group year-end positions, unless indicated otherwise. Intra-period Treasury monitors the markets for early warning indicators balances fluctuate in the ordinary course of business and may regarding the current liquidity situation. These indicators are differ from year-end positions. Strategy, objectives and governance used at the Group level to assess both the overall global and regional liquidity status for potential threats. Treasury Risk Control provides independent oversight over liquidity and funding risks.  › Refer to the “Corporate governance” and “Risk management and control” sections of this report for more information Audited | Our management of balance sheet, liquidity and funding positions has the overall objective of optimizing our franchise’s value across a broad range of market conditions while considering current and future regulatory constraints. We employ a number Liquidity management of measures to monitor these positions under normal and stressed conditions. In particular, we use stress scenarios to apply Audited | Our liquidity risk management aims to ensure that the firm behavioral adjustments to our balance sheet and calibrate the has sufficient liquidity or access to funding sources to meet its results from internal stress models while in compliance with liabilities when due, to meet prudential requirements and to external measures, primarily the liquidity coverage ratio (the LCR) survive a severe three-month idiosyncratic and market-wide and the net stable funding ratio (the NSFR). Our liquidity and liquidity stress event, allowing for discrete management actions funding strategy is proposed by Group Treasury and approved by instructed by the Group Treasurer in addition to monetizing the the Group Asset and Liability Committee (the Group ALCO), firm’s liquidity reserves. which is a committee of the Group Executive Board (the GEB) that Our liquid assets are managed using limits, triggers and targets is overseen by the Risk Committee of the Board of Directors (the to maintain an appropriate level of diversification (issuer, tenor BoD).  and other risk characteristics) in response to any expected or Group Treasury monitors and oversees the implementation unexpected volatility in funding availability or requirements and execution of our liquidity and funding strategy and is caused by adverse market, operational or other firm-specific responsible for adherence to policies, limits, triggers and targets. events. The liquid asset portfolio size is managed dynamically, so This enables close control of both our cash and collateral, as to operate at all times within the risk appetite of the BoD and including our high-quality liquid assets, and centralizes the relevant Group and subsidiary liquidity requirements.  Group’s general access to wholesale cash markets in Group Treasury. In addition, should a crisis require contingency funding Stress testing measures to be invoked, Group Treasury is responsible for Audited | We perform stress testing to determine the optimal asset coordinating liquidity generation with representatives of the and liability structure that enables us to maintain an appropriately relevant business areas. Group Treasury reports on the Group’s balanced liquidity and funding position under various scenarios. overall liquidity and funding position, including funding status Liquidity crisis scenario analysis and contingency funding planning and concentration risks, at least monthly, to the Group ALCO and support the liquidity management process and aim to ensure that the Risk Committee of the BoD. immediate corrective measures to absorb potential sudden Audited | Liquidity and funding limits, triggers and targets are liquidity shortfalls can be put into effect.  set at Group and, where appropriate, at legal entity and We model our liquidity exposures under two main potential business division levels, and are reviewed and reconfirmed at scenarios: a structural market-wide scenario and a combined least once a year by the BoD, the Group ALCO, the Group market and idiosyncratic scenario. We continuously refine the Chief Financial Officer, the Group Chief Risk Officer, the Group assumptions used to maintain a robust, actionable and tested Treasurer and the business divisions, taking into consideration contingency plan. current and projected business strategy and risk tolerance. The principles underlying our limit, trigger and target framework › Refer to “Risk measurement” in the “Risk management and control” section of this report for more information about stress testing Structural market-wide scenario As a liquidity crisis could have a myriad of causes, the structural market-wide scenario encompasses potential stress effects across all markets, currencies and products, but it is typically not firm- specific. In addition to the loss of the ability to replace maturing wholesale funding, it assumes a gradual decline of otherwise stable client deposits and liquidity outflows corresponding to a one-notch downgrade in our long-term credit rating, and a corresponding downgrade in our short-term rating. We use a cash capital metric that incorporates the structural market-wide scenario and measures the amount of long-term funding available to fund franchise and illiquid assets. Franchise assets consist of lending exposure to clients or assets to support franchise client activities. The illiquid assets cannot easily and readily be sold or exchanged for cash without a substantial loss in value within the scenario horizon. Long-term funding used as cash capital to support franchise and illiquid assets is composed of unsecured funding with a remaining time to maturity of at least one year, deposits that have a behavioral maturity of at least one year and shareholders’ equity. Combined market and idiosyncratic scenario The combined scenario represents an extreme stress event that combines a firm-specific crisis with market disruption. This scenario assumes: (i) substantial outflows of otherwise stable client deposits, mainly due on demand; (ii) inability to renew or replace maturing unsecured wholesale funding; (iii) unusually large drawdowns on loan commitments; (iv) reduced capacity to generate liquidity from trading assets; (v) liquidity outflows corresponding to a three-notch downgrade in our long-term credit rating, and a corresponding downgrade in our short-term rating; (vi) triggering contractual obligations to unwind derivative positions or to deliver additional collateral; (vii) additional collateral requirements due to adverse movements in the market values of derivatives; and (viii) elevated liquidity requirements in support of continuous payment and settlement activity. The combined scenario is run daily to project potential cash outflows under it and is assessed as part of ongoing risk management activities. Contingency Funding Plan Audited | Our Group Contingency Funding Plan is an integral part of our global crisis management framework, which covers various types of crisis events. This Contingency Funding Plan contains an assessment of contingent funding sources and liquidity generative actions in a stressed environment, early warning indicators and metrics, and contingency procedures. Our funding diversification and global scope help to protect our liquidity position in the event of a crisis. We regularly assess and test all material known and expected cash flows, as well as the level and availability of high- quality collateral that could be used to raise additional funding if required. Our contingent funding sources include our high-quality liquid asset (HQLA) portfolios, available and unutilized liquidity facilities at several major central banks, contingent reductions of liquid trading portfolio assets, and other available business management actions.  Funding management Audited | Group Treasury regularly monitors our funding status, including concentration risks, aiming to ensure that we maintain a well-balanced and diversified liability structure. Our funding management team looks to create the optimal asset and liability structure to finance our businesses reliably and cost-efficiently. Our funding activities are planned by analyzing the overall liquidity and funding profile of our balance sheet, taking into account the amount of stable funding that would be needed to support ongoing business activities through periods of difficult market conditions.  The funding strategy of UBS Group AG is set annually in the Funding Plan and is reviewed on a quarterly basis. The Funding Plan is developed by Group Treasury and approved by the Group ALCO. Group Treasury proposes, sets and oversees limits, triggers and targets for funding generation, including concentration limits, weighted average maturity limits and volume. Funding diversification is monitored continuously, with a focus on product type, single-counterparty exposure (as a percentage of the total), maturity profile, and the overall contribution of a particular funding source to the liability mix. › Refer to “Balance sheet and off-balance sheet” in this section for more information about the development of our short-term and long-term debt during 2021 Global Wealth Management and Personal & Corporate Banking provide significant, cost-efficient and stable sources of funding. These include core deposits and debt issued through the Swiss central mortgage institutions, which use a portion of our portfolio of Swiss residential mortgages as collateral to generate long-term funding. In addition, we have several short-, medium- and long-term funding programs under which we issue senior unsecured debt and structured notes, as well as short-term debt. These programs enable institutional and private investors who are active in the markets of Europe, the US and Asia Pacific to customize their investments in UBS’s debt. Collectively, these broad product offerings and funding sources, together with the global scope of our business activities, support our funding stability. Internal funding and funds transfer pricing We use an integrated liquidity and funding framework to govern the liquidity management of all our branches and subsidiaries, and our major sources of liquidity are channeled through entities that are fully consolidated. Group Treasury meets internal demands for funding by channeling funds from entities generating surplus cash to those in need of financing, except in circumstances where transfer restrictions exist. Funding costs and benefits are allocated to our business divisions according to our liquidity and funding risk management framework. Our internal funds transfer pricing system, which is governed by Group Treasury, is designed to provide the proper liability structure to support the assets and planned activities of each business division. 164 165 165 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Liquidity and funding management Credit ratings Credit ratings can affect the cost and availability of funding, especially funding from wholesale unsecured sources. Our credit ratings can also influence the performance of some of our businesses and the levels of client and counterparty confidence. Rating agencies take into account a range of factors when assessing creditworthiness and setting credit ratings. These include the company’s strategy, its business position and franchise value, stability and quality of earnings, capital adequacy, risk profile and management, liquidity management, diversification of funding sources, asset quality, and corporate governance. Credit ratings reflect the opinions of the rating agencies and can change at any time. to counterparties In evaluating our liquidity and funding requirements, we consider the potential effect of a reduction in our long-term credit ratings and a corresponding reduction in short-term ratings. If our credit ratings were to be downgraded, rating trigger clauses could result in an immediate cash settlement or the need to deliver additional collateral from contractual obligations related to over-the-counter (OTC) derivative positions and other obligations. Based on our credit ratings as of 31 December 2021, in the event of a one-notch reduction in our long-term credit ratings, we would have been required to provide USD 0.0 billion in cash or other collateral. In the event of a two- notch reduction it would have been USD 0.5 billion and for a three-notch downgrade USD 0.7 billion. In all scenarios these collateral requirements predominantly relate to OTC derivative positions. There was one main rating action with regard to UBS Group AG’s and UBS AG’s solicited credit ratings in 2021. On 2 March 2021, Fitch Ratings revised the outlooks for the issuer ratings of UBS Group AG, UBS AG and the rated subsidiaries from negative back to stable, reversing the outlook change on 31 March 2020, which was part of a series of rating actions over several weeks across the sector to reflect the disruption caused by the COVID-19 pandemic. › Refer to “Liquidity and funding management are critical to UBS’s ongoing performance” in the “Risk factors” section of this report for more information Liquidity coverage ratio The LCR measures the short-term resilience of a bank’s liquidity profile by comparing whether sufficient HQLA are available to survive expected net cash outflows from a significant liquidity stress scenario, as defined by the relevant regulator. For UBS, HQLA are low-risk unencumbered assets under the control of Group Treasury that are easily and immediately convertible into cash at little or no loss of value, in order to meet liquidity needs. Our HQLA predominantly consist of assets that qualify as Level 1 in the LCR framework, including cash, central bank reserves and government bonds. Group HQLA are held by UBS AG and its subsidiaries, and may include amounts that are available to meet funding and collateral needs in certain jurisdictions, but are not readily available for use by the Group as a whole. These limitations are typically the result of local regulatory requirements, including local LCR and large exposure requirements. Funds that are effectively restricted are excluded from the calculation of Group HQLA to the extent they exceed the outflow assumptions for the subsidiary that holds the relevant HQLA. On this basis, USD 44 billion of assets were excluded from our daily average Group HQLA for the fourth quarter of 2021. Amounts held in excess of local liquidity requirements that are not subject to other restrictions are generally available for transfer within the Group. Basel Committee on Banking Supervision (BCBS) standards require an LCR of at least 100%. In a period of financial stress, the Swiss Financial Market Supervisory Authority (FINMA) may allow banks to use their HQLA and let their LCR temporarily fall below the minimum threshold. We monitor the LCR in all significant currencies in order to manage any currency mismatches between HQLA and the net expected cash outflows in times of stress. Our daily average LCR for the fourth quarter of 2021 was 155%, compared with 152% in the fourth quarter of 2020, remaining above the prudential requirement communicated by FINMA. The average LCR increase was driven by a USD 14 billion increase in average HQLA to USD 228 billion, driven by higher average cash balances, which was partly offset by an increase in average net cash outflows of USD 6 billion to USD 147 billion, due to higher outflows from customer deposit balances and secured financing transactions. › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about the LCR › Refer to the “Significant regulated subsidiary and sub-group information” section of this report for more information about the LCR of UBS AG and UBS Switzerland AG Liquidity coverage ratio USD billion, except where indicated High-quality liquid assets AAvveerraaggee 44QQ22111 222288 Average 4Q201 214 Net cash outflows 141 LLiiqquuiiddiittyy ccoovveerraaggee rraattiioo ((%%))22 152 11 Calculated based on an average of 66 data points in the fourth quarter of 2021 and 63 data points in the fourth quarter of 2020. 22 Calculated after the application of haircuts and inflow and outflow rates, as well as, where applicable, caps on Level 2 assets and cash inflows. 114477 115555 166 166 Credit ratings For UBS, HQLA are low-risk unencumbered assets under the Net stable funding ratio The net stable funding ratio (NSFR) framework is intended to limit overreliance on short-term wholesale funding, to encourage a better assessment of funding risk across all on- and off-balance sheet items and to promote funding stability. The NSFR has two components: available stable funding (ASF) and required stable funding (RSF). ASF is the portion of capital and liabilities expected to be available over the period of one year. RSF is a measure of the stable funding requirement of an asset based on its maturity, encumbrance and other characteristics, as well as the potential for contingent calls on funding liquidity from off-balance sheet exposures. The BCBS NSFR regulatory framework requires a ratio of at least 100%. Net stable funding ratio USD billion, except where indicated Available stable funding Required stable funding NNeett ssttaabbllee ffuunnddiinngg rraattiioo ((%%)) 11 “Net stable funding ratio” is based on estimated pro forma reporting. The NSFR regulation was finalized in the fourth quarter of 2020 with the release of the revised FINMA Circular 2015/2 “Liquidity risks – banks” and became effective on 1 July 2021. As of 31 December 2021, our NSFR was unchanged at 119%. This reflected USD 15 billion higher available stable funding, mainly driven by an increase in debt issued designated at fair value and an increase in required stable funding of USD 15 billion, mainly reflecting higher loans and advances to customers. 3311..1122..2211 31.12.201 557788 448888 111199 563 473 119 Risk, capital, liquidity and funding, and balance sheet | Liquidity and funding management Credit ratings can affect the cost and availability of funding, control of Group Treasury that are easily and immediately especially funding from wholesale unsecured sources. Our credit convertible into cash at little or no loss of value, in order to meet ratings can also influence the performance of some of our liquidity needs. Our HQLA predominantly consist of assets that businesses and the levels of client and counterparty confidence. qualify as Level 1 in the LCR framework, including cash, central Rating agencies take into account a range of factors when bank reserves and government bonds. Group HQLA are held by assessing creditworthiness and setting credit ratings. These UBS AG and its subsidiaries, and may include amounts that are include the company’s strategy, its business position and franchise available to meet funding and collateral needs in certain value, stability and quality of earnings, capital adequacy, risk jurisdictions, but are not readily available for use by the Group as profile and management, liquidity management, diversification of a whole. These limitations are typically the result of local funding sources, asset quality, and corporate governance. Credit regulatory requirements, including local LCR and large exposure ratings reflect the opinions of the rating agencies and can change requirements. Funds that are effectively restricted are excluded at any time. from the calculation of Group HQLA to the extent they exceed the In evaluating our liquidity and funding requirements, we outflow assumptions for the subsidiary that holds the relevant consider the potential effect of a reduction in our long-term credit HQLA. On this basis, USD 44 billion of assets were excluded from ratings and a corresponding reduction in short-term ratings. If our our daily average Group HQLA for the fourth quarter of 2021. credit ratings were to be downgraded, rating trigger clauses could Amounts held in excess of local liquidity requirements that are not result in an immediate cash settlement or the need to deliver subject to other restrictions are generally available for transfer additional collateral to counterparties from contractual within the Group. obligations related to over-the-counter (OTC) derivative positions Basel Committee on Banking Supervision (BCBS) standards and other obligations. Based on our credit ratings as of 31 require an LCR of at least 100%. In a period of financial stress, December 2021, in the event of a one-notch reduction in our the Swiss Financial Market Supervisory Authority (FINMA) may long-term credit ratings, we would have been required to provide allow banks to use their HQLA and let their LCR temporarily fall USD 0.0 billion in cash or other collateral. In the event of a two- below the minimum threshold. We monitor the LCR in all notch reduction it would have been USD 0.5 billion and for a significant currencies in order to manage any currency three-notch downgrade USD 0.7 billion. In all scenarios these mismatches between HQLA and the net expected cash outflows collateral requirements predominantly relate to OTC derivative in times of stress. positions. Our daily average LCR for the fourth quarter of 2021 was There was one main rating action with regard to UBS Group 155%, compared with 152% in the fourth quarter of 2020, AG’s and UBS AG’s solicited credit ratings in 2021. On 2 March remaining above the prudential requirement communicated by 2021, Fitch Ratings revised the outlooks for the issuer ratings of FINMA. UBS Group AG, UBS AG and the rated subsidiaries from negative The average LCR increase was driven by a USD 14 billion back to stable, reversing the outlook change on 31 March 2020, increase in average HQLA to USD 228 billion, driven by higher which was part of a series of rating actions over several weeks average cash balances, which was partly offset by an increase in across the sector to reflect the disruption caused by the average net cash outflows of USD 6 billion to USD 147 billion, due COVID-19 pandemic. to higher outflows from customer deposit balances and secured › Refer to “Liquidity and funding management are critical to UBS’s financing transactions. ongoing performance” in the “Risk factors” section of this report › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information about the LCR › Refer to the “Significant regulated subsidiary and sub-group information” section of this report for more information about the LCR of UBS AG and UBS Switzerland AG for more information Liquidity coverage ratio The LCR measures the short-term resilience of a bank’s liquidity profile by comparing whether sufficient HQLA are available to survive expected net cash outflows from a significant liquidity stress scenario, as defined by the relevant regulator. Liquidity coverage ratio USD billion, except where indicated High-quality liquid assets Net cash outflows LLiiqquuiiddiittyy ccoovveerraaggee rraattiioo ((%%))22 AAvveerraaggee 44QQ22111 Average 4Q201 222288 114477 115555 214 141 152 11 Calculated based on an average of 66 data points in the fourth quarter of 2021 and 63 data points in the fourth quarter of 2020. 22 Calculated after the application of haircuts and inflow and outflow rates, as well as, where applicable, caps on Level 2 assets and cash inflows. 166 167 167 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Balance sheet and off-balance sheet Balance sheet The balances disclosed in this section represent year-end positions, unless indicated otherwise. Intra-period balances fluctuate in the ordinary course of business and may differ from year-end positions. Balance sheet assets As of 31 December 2021, balance sheet assets totaled USD 1,117 billion, a decrease of USD 9 billion compared with 31 December 2020, which included a decrease from currency effects of approximately USD 21 billion. Derivatives and cash collateral receivables on derivative instruments decreased by USD 44 billion. This decrease predominantly reflected decreases in foreign exchange contracts, mainly in our Derivatives & Solutions and Financing businesses in the Investment Bank, driven by net roll-offs, partly offset by market-driven movements. In addition, interest rate contracts decreased, mainly in our Derivatives & Solutions and Financing businesses and in Non-core and Legacy Portfolio, reflecting market-driven movements as long-term interest rates increased in the year. Other financial assets measured at amortized cost and fair value decreased by USD 21 billion, largely due to shifts within the high-quality liquid asset (HQLA) portfolio from securities into cash within Group Treasury. Brokerage receivables decreased by USD 3 billion, mainly in our Financing business in the Investment Bank, Assets with growth in lending more than offset by an associated increase in netting effects. consumption by These decreases were partly offset by a USD 35 billion increase in Cash and balances at central banks, predominantly in Group Treasury. The cash inflow was generated mainly from lower funding the aforementioned shifts within the HQLA portfolio from securities into cash, and net new issuances of long-term debt issued measured at amortized cost. These inflows were partly offset by outflows from higher margin requirements and an increase in net receivables from securities financing transactions, as well as currency effects. Investment Bank, the Lending assets increased by USD 18 billion, of which USD 21 billion was in Global Wealth Management and predominantly reflected increases in Lombard loans and mortgage loans, primarily in the Americas, partly offset by currency effects. In Personal & Corporate Banking, lending assets decreased by USD 1 billion as increases in mortgage loans and corporate lending were more than offset by currency effects. Trading portfolio assets increased by USD 5 billion, mainly in our Financing business in the Investment Bank, reflecting higher inventory held to hedge client positions. › Refer to the “Consolidated financial statements” section of this report for more information % change from 31.12.20 USD billion 22 Cash and balances at central banks Lending1 5 Securities financing transactions at amortized cost 1 Trading portfolio2 4 Derivatives and cash collateral receivables on derivative instruments (23) Brokerage receivables (11) Other financial assets measured at amortized cost and fair value3 (22) 0 Non-financial assets and financial assets for unit-linked investment contracts TToottaall aasssseettss (1) 11 Consists of loans and advances to banks and customers. 22 Consists of financial assets at fair value held for trading. 33 Consists of financial assets at fair value not held for trading, financial assets measured at fair value through other comprehensive income and other financial assets measured at amortized cost, but excludes financial assets for unit-linked investment contracts. 31.12.20 158.2 395.0 74.2 125.4 192.4 24.7 95.1 60.9 1,125.8 3311..1122..2211 119922..88 441133..22 7755..00 113300..88 114488..77 2211..88 7733..88 6611..00 11,,111177..22 As of 168 168 Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Balance sheet and off-balance sheet Balance sheet with growth in lending more than offset by an associated increase The balances disclosed in this section represent year-end in netting effects. positions, unless indicated otherwise. Intra-period balances These decreases were partly offset by a USD 35 billion increase fluctuate in the ordinary course of business and may differ from in Cash and balances at central banks, predominantly in Group year-end positions. Balance sheet assets Treasury. The cash inflow was generated mainly from lower funding consumption by the Investment Bank, the aforementioned shifts within the HQLA portfolio from securities As of 31 December 2021, balance sheet assets totaled USD 1,117 into cash, and net new issuances of long-term debt issued billion, a decrease of USD 9 billion compared with 31 December measured at amortized cost. These inflows were partly offset by 2020, which included a decrease from currency effects of outflows from higher margin requirements and an increase in net approximately USD 21 billion. receivables from securities financing transactions, as well as instruments decreased by USD 44 billion. This decrease Lending assets increased by USD 18 billion, of which USD 21 predominantly reflected decreases in foreign exchange contracts, billion was in Global Wealth Management and predominantly mainly in our Derivatives & Solutions and Financing businesses in reflected increases in Lombard loans and mortgage loans, the Investment Bank, driven by net roll-offs, partly offset by primarily in the Americas, partly offset by currency effects. In market-driven movements. In addition, interest rate contracts Personal & Corporate Banking, lending assets decreased by USD 1 decreased, mainly in our Derivatives & Solutions and Financing billion as increases in mortgage loans and corporate lending were businesses and in Non-core and Legacy Portfolio, reflecting more than offset by currency effects. Trading portfolio assets market-driven movements as long-term interest rates increased in increased by USD 5 billion, mainly in our Financing business in the the year. Investment Bank, reflecting higher inventory held to hedge client Other financial assets measured at amortized cost and fair positions. value decreased by USD 21 billion, largely due to shifts within the › Refer to the “Consolidated financial statements” section of this high-quality liquid asset (HQLA) portfolio from securities into cash report for more information within Group Treasury. Brokerage receivables decreased by USD 3 billion, mainly in our Financing business in the Investment Bank, Assets USD billion Lending1 Trading portfolio2 Brokerage receivables TToottaall aasssseettss Cash and balances at central banks Securities financing transactions at amortized cost Derivatives and cash collateral receivables on derivative instruments Other financial assets measured at amortized cost and fair value3 Non-financial assets and financial assets for unit-linked investment contracts As of 3311..1122..2211 31.12.20 % change from 31.12.20 119922..88 441133..22 7755..00 113300..88 114488..77 2211..88 7733..88 6611..00 158.2 395.0 74.2 125.4 192.4 24.7 95.1 60.9 11,,111177..22 1,125.8 22 5 1 4 (23) (11) (22) 0 (1) 11 Consists of loans and advances to banks and customers. 22 Consists of financial assets at fair value held for trading. 33 Consists of financial assets at fair value not held for trading, financial assets measured at fair value through other comprehensive income and other financial assets measured at amortized cost, but excludes financial assets for unit-linked investment contracts. Asset encumbrance The table below provides a breakdown of on- and off-balance sheet assets between encumbered assets, unencumbered assets and assets that cannot be pledged as collateral. Assets are presented as Encumbered if they have been pledged as collateral against an existing liability or are otherwise not available for securing additional funding. Included within the latter category are assets protected under client asset segregation rules, financial assets for unit-linked investment contracts, assets held in certain jurisdictions to comply with explicit minimum local asset maintenance requirements. › Refer to “Note 23 Restricted and transferred financial assets” in the “Consolidated financial statements” section of this report for more information Assets that cannot be pledged as collateral represents assets that are not encumbered but by their nature are not considered available to secure funding or meet collateral needs. All other assets are presented as Unencumbered. Assets that are considered to be readily available to secure funding on a Group and / or legal entity level are shown separately and consist of cash and securities readily realizable in the normal course of business. These include our HQLA and unencumbered positions in our trading portfolio. Unencumbered assets that are considered to be available to secure funding on a legal entity level may be subject to restrictions that limit the total amount of assets available to the Group as a whole. Other unencumbered assets, which are not considered to be readily available to secure funding on a Group and / or legal entity level, primarily consist of loans and advances to banks. Derivatives and cash collateral receivables on derivative currency effects. Asset encumbrance as of 31 December 2021 Encumbered Assets otherwise restricted and not available to secure funding Assets pledged as collateral Unencumbered Cash and securities available to secure funding on a Group and / or legal entity level Other realizable assets Assets that cannot be pledged as collateral Total Group USD billion BBaallaannccee sshheeeett Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers Other financial assets measured at amortized cost TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Financial assets at fair value held for trading Derivative financial instruments Brokerage receivables Financial assets at fair value not held for trading TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee NNoonn--ffiinnaanncciiaall aasssseettss TToottaall bbaallaannccee sshheeeett aasssseettss aass ooff 3311 DDeecceemmbbeerr 22002211 TToottaall bbaallaannccee sshheeeett aasssseettss aass ooff 3311 DDeecceemmbbeerr 22002200 OOffff--bbaallaannccee sshheeeett FFaaiirr vvaalluuee ooff sseeccuurriittiieess aacccceepptteedd aass ccoollllaatteerraall aass ooff 3311 DDeecceemmbbeerr 22002211 FFaaiirr vvaalluuee ooff sseeccuurriittiieess aacccceepptteedd aass ccoollllaatteerraall aass ooff 3311 DDeecceemmbbeerr 22002200 3.4 4.7 1.2 0.1 99..55 0.4 22.8 2233..22 00..99 00..00 3333..55 32.3 1166..33 12.4 18.2 2.2 2200..44 63.71 1.01 6644..77 00..00 8855..11 89.5 336677..44 367.3 TToottaall bbaallaannccee sshheeeett aasssseettss aanndd ooffff--bbaallaannccee sshheeeett sseeccuurriittiieess aacccceepptteedd aass ccoollllaatteerraall aass ooff 3311 DDeecceemmbbeerr 22002211 445522..55 4499..88 of which: high-quality liquid assets TToottaall bbaallaannccee sshheeeett aasssseettss aanndd ooffff--bbaallaannccee sshheeeett sseeccuurriittiieess aacccceepptteedd aass ccoollllaatteerraall aass ooff 3311 DDeecceemmbbeerr 22002200 456.8 44.7 of which: high-quality liquid assets 192.8 16.6 220099..44 62.2 22.7 8844..88 77..99 55..33 330077..55 284.0 110066..55 113.4 441144..00 232.8 397.3 214.1 12.1 375.5 1.4 338888..99 4.5 7.8 1122..33 1144..11 441155..44 395.6 77..66 7.7 75.0 25.8 2.9 5.9 110099..66 118.1 21.8 5.9 114455..99 2200..33 227755..77 324.3 192.8 15.5 75.0 30.5 397.8 26.2 773377..88 130.8 118.1 21.8 60.1 333300..99 88..88 3399..77 11,,111177..22 1,125.8 449977..88 500.7 442233..00 227755..77 11,,661155..00 403.3 324.3 1,626.5 11 Includes assets pledged as collateral that may be sold or repledged by counterparties. The respective amounts are disclosed in “Note 23 Restricted financial assets” in the “Consolidated financial statements” section of this report. Assets available to secure funding on a Group and / or legal entity level by currency USD billion Swiss franc US dollar Euro Other TToottaall 3311..1122..2211 111111..44 117744..77 4466..66 8811..22 441144..00 31.12.20 109.2 163.3 48.1 76.7 397.3 168 169 169 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Balance sheet liabilities Total liabilities as of 31 December 2021 were USD 1,056 billion, a decrease of USD 10 billion compared with 31 December 2020, which included a decrease from currency effects of approximately USD 20 billion. Derivatives and cash collateral payables on derivative instruments decreased by USD 45 billion, in line with the movement on the asset side. Trading portfolio liabilities decreased by USD 2 billion, predominantly due to lower levels of short positions held to hedge client positions. Other financial liabilities measured at amortized cost and fair value decreased by USD 2 billion, mainly in Group Treasury due to higher netting on securities financing transactions measured at fair value. Short- term borrowings decreased by USD 2 billion, mainly due to lower short-term debt issued in Global Wealth Management, partly offset by higher amounts due to banks in our Derivatives & Solutions business in the Investment Bank. These decreases were partly offset by an increase in customer deposits of USD 17 billion. An increase of USD 22 billion in Global Wealth Management, mainly in the Americas, was partly offset by a decrease of USD 4 billion in Personal & Corporate Banking driven by currency effects. As of 31 December 2021, our ratio of customer deposits to outstanding loan balances was 136% (31 December 2020: 138%). Debt issued designated at fair value and long-term debt issued measured at amortized cost increased by USD 16 billion, mainly driven by USD 13 billion higher debt issued designated at fair value, mainly reflecting net new issuances of equity-linked and rates-linked debt instruments, as well as market-driven movements in our Derivatives & Solutions business in the Investment Bank. In addition, long-term debt issued measured at amortized cost increased by USD 3 billion, driven by net new issuances, partly offset by foreign exchange and hedge accounting effects. During 2021, net new issuances of TLAC- eligible benchmark instruments and senior unsecured debt USD 12 billion were partly offset by USD 4 billion of net redemptions of covered bonds and subordinated debt instruments. During 2022, USD 1.4 billion equivalent of TLAC-eligible benchmark instruments and USD 2.0 billion of loss-absorbing tier 2 capital instruments will mature. In February 2022, loss- absorbing additional tier 1 capital instruments equivalent to USD 1.1 billion were called and USD 2.8 billion equivalent of TLAC-eligible benchmark instruments matured. UBS is already compliant with its 2022 going and gone concern capital requirements and expects to act rationally and strategically with respect to the refinancing of any callable capital instruments and any potential incremental issuances. › Refer to the document titled “UBS Group AG consolidated Brokerage payables increased by USD 5 billion, mainly in the Financing business of our Investment Bank, due to an increase in client credit and short positions, partly offset by higher netting effects from increased lending. reclassification of assets Non-financial liabilities and financial liabilities related to unit- linked investment contracts increased by USD 2 billion, mainly reflecting a in Global Wealth Management as disposal groups held for sale in connection with the upcoming sales of our domestic wealth management business in Spain and UBS Swiss Financial Advisers AG. The increase also included market-driven increases from unit-linked investment contracts in Asset Management. › Refer to the “Consolidated financial statements” section of this report for more information Equity Equity attributable to shareholders increased by USD 1,217 million to USD 60,662 million as of 31 December 2021. This increase was mainly driven by total comprehensive income attributable to shareholders of positive USD 5,106 million, reflecting net profit of USD 7,457 million and negative other comprehensive income (OCI) of USD 2,351 million. OCI mainly included negative cash flow hedge OCI of USD 1,675 million, negative OCI related to foreign currency translation of USD 535 million and negative OCI related to debt instruments measured at fair value through OCI of USD 157 million. In addition, amortization of deferred share-based compensation awards increased share premium by USD 643 million and the launch of our new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. resulted in an equity increase of USD 155 million. These increases were partly offset by net treasury share activity that decreased equity by USD 3,326 million. This was mainly due to share repurchases with an acquisition cost of USD 2,500 million under our 2021 share repurchase program, repurchases of USD 112 million under our 2018–2021 program and purchases of USD 545 million from the market to hedge our share delivery obligations related to employee share-based compensation awards. In addition, distributions to shareholders reduced equity by USD 1,301 million, reflecting a dividend payment of USD 0.37 per share. In the second quarter of 2021, we canceled 156,632,400 shares purchased under our 2018–2021 share repurchase program, as approved by shareholders at the 2021 Annual General Meeting. The cancellation of shares resulted in reclassifications within equity but had no net effect on our total equity attributable to shareholders. › Refer to the “Group performance” and “Consolidated financial statements” sections of this report for more information about capital instruments and TLAC-eligible senior unsecured debt,” OCI available under “Bondholder information” at ubs.com/investors, for more information › Refer to “UBS shares” in this section for more information about our share repurchase programs › Refer to “Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses” in the “Consolidated financial statements” section of this report for more information about our partnership with Sumitomo Mitsui Trust Holdings, Inc. 170 170 Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Total liabilities as of 31 December 2021 were USD 1,056 billion, Financing business of our Investment Bank, due to an increase in a decrease of USD 10 billion compared with 31 December 2020, client credit and short positions, partly offset by higher netting which included a decrease from currency effects of approximately effects from increased lending. USD 20 billion. Non-financial liabilities and financial liabilities related to unit- Derivatives and cash collateral payables on derivative linked investment contracts increased by USD 2 billion, mainly instruments decreased by USD 45 billion, in line with the reflecting a reclassification of assets in Global Wealth movement on the asset side. Trading portfolio liabilities decreased Management as disposal groups held for sale in connection with by USD 2 billion, predominantly due to lower levels of short the upcoming sales of our domestic wealth management business positions held to hedge client positions. Other financial liabilities in Spain and UBS Swiss Financial Advisers AG. The increase also measured at amortized cost and fair value decreased by USD 2 included market-driven increases from unit-linked investment billion, mainly in Group Treasury due to higher netting on contracts in Asset Management. securities financing transactions measured at fair value. Short- › Refer to the “Consolidated financial statements” section of this term borrowings decreased by USD 2 billion, mainly due to lower report for more information short-term debt issued in Global Wealth Management, partly offset by higher amounts due to banks in our Derivatives & Equity Solutions business in the Investment Bank. Equity attributable to shareholders increased by USD 1,217 These decreases were partly offset by an increase in customer million to USD 60,662 million as of 31 December 2021. deposits of USD 17 billion. An increase of USD 22 billion in Global This increase was mainly driven by total comprehensive income Wealth Management, mainly in the Americas, was partly offset by attributable to shareholders of positive USD 5,106 million, a decrease of USD 4 billion in Personal & Corporate Banking reflecting net profit of USD 7,457 million and negative other driven by currency effects. As of 31 December 2021, our ratio of comprehensive income (OCI) of USD 2,351 million. OCI mainly customer deposits to outstanding loan balances was 136% included negative cash flow hedge OCI of USD 1,675 million, (31 December 2020: 138%). negative OCI related to foreign currency translation of USD 535 Debt issued designated at fair value and long-term debt issued million and negative OCI related to debt instruments measured at measured at amortized cost increased by USD 16 billion, mainly fair value through OCI of USD 157 million. In addition, driven by USD 13 billion higher debt issued designated at fair amortization of deferred share-based compensation awards value, mainly reflecting net new issuances of equity-linked and increased share premium by USD 643 million and the launch of rates-linked debt instruments, as well as market-driven our new operational partnership entity with Sumitomo Mitsui movements in our Derivatives & Solutions business in the Trust Holdings, Inc. resulted in an equity increase of USD 155 Investment Bank. In addition, long-term debt issued measured at million. amortized cost increased by USD 3 billion, driven by net new These increases were partly offset by net treasury share activity issuances, partly offset by foreign exchange and hedge that decreased equity by USD 3,326 million. This was mainly due accounting effects. During 2021, net new issuances of TLAC- to share repurchases with an acquisition cost of USD 2,500 million eligible benchmark instruments and senior unsecured debt under our 2021 share repurchase program, repurchases of USD 12 billion were partly offset by USD 4 billion of net USD 112 million under our 2018–2021 program and purchases of redemptions of covered bonds and subordinated debt USD 545 million from the market to hedge our share delivery instruments. obligations related to employee share-based compensation During 2022, USD 1.4 billion equivalent of TLAC-eligible awards. In addition, distributions to shareholders reduced equity benchmark instruments and USD 2.0 billion of loss-absorbing by USD 1,301 million, reflecting a dividend payment of USD 0.37 tier 2 capital instruments will mature. In February 2022, loss- per share. absorbing additional tier 1 capital instruments equivalent to In the second quarter of 2021, we canceled 156,632,400 USD 1.1 billion were called and USD 2.8 billion equivalent of shares purchased under our 2018–2021 share repurchase TLAC-eligible benchmark instruments matured. UBS is already program, as approved by shareholders at the 2021 Annual compliant with its 2022 going and gone concern capital General Meeting. The cancellation of shares resulted in requirements and expects to act rationally and strategically with reclassifications within equity but had no net effect on our total respect to the refinancing of any callable capital instruments and equity attributable to shareholders. any potential incremental issuances. › Refer to the document titled “UBS Group AG consolidated › Refer to the “Group performance” and “Consolidated financial statements” sections of this report for more information about capital instruments and TLAC-eligible senior unsecured debt,” OCI available under “Bondholder information” at ubs.com/investors, for more information › Refer to “UBS shares” in this section for more information about our share repurchase programs › Refer to “Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses” in the “Consolidated financial statements” section of this report for more information about our partnership with Sumitomo Mitsui Trust Holdings, Inc. Balance sheet liabilities Brokerage payables increased by USD 5 billion, mainly in the Liabilities and equity As of % change from USD billion 31.12.20 Short-term borrowings1 (3) Securities financing transactions at amortized cost (12) Customer deposits 3 Debt issued designated at fair value and long-term debt issued measured at amortized cost2 10 Trading portfolio3 (6) Derivatives and cash collateral payables on derivative instruments (23) Brokerage payables 14 Other financial liabilities measured at amortized cost and fair value4 (8) Non-financial liabilities and financial liabilities related to unit-linked investment contracts 7 TToottaall lliiaabbiilliittiieess (1) Share capital (5) Share premium (5) Treasury shares 15 Retained earnings 13 Other comprehensive income5 (32) TToottaall eeqquuiittyy aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss 2 Equity attributable to non-controlling interests 6 TToottaall eeqquuiittyy 2 TToottaall lliiaabbiilliittiieess aanndd eeqquuiittyy (1) 11 Consists of short-term debt issued measured at amortized cost and amounts due to banks. 22 The classification of debt issued measured at amortized cost into short-term and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classification does not consider any early redemption features. 33 Consists of financial liabilities at fair value held for trading. 44 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but excludes financial liabilities related to unit-linked investment contracts. 55 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings. 31.12.20 57.7 6.3 524.6 153.8 33.6 198.4 38.7 19.1 33.7 1,066.0 0.3 16.8 (4.1) 38.8 7.6 59.4 0.3 59.8 1,125.8 3311..1122..2211 5566..22 55..55 554422..00 116699..99 3311..77 115533..11 4444..00 1177..66 3366..11 11,,005566..22 00..33 1155..99 ((44..77)) 4433..99 55..22 6600..77 00..33 6611..00 11,,111177..22 Asset funding USD billion, except where indicated As of 31 December 2021 Cash, balances at central banks and loans and advances to banks 208 Securities ﬁnancing transactions at amortized cost 75 Trading portfolio Brokerage receivables Loans and advances to customers 131 22 398 Other (including net derivative assets) 162 USD 69 billion collateral surplus 136% coverage USD 144 billion surplus s t i s o p e d r e m o t s u C 56 6 32 44 542 74 96 86 61 Short-term borrowings Securities ﬁnancing transactions at amortized cost Trading portfolio Brokerage payables 246 Demand deposits 247 Retail savings / deposits 49 Time deposits Debt issued designated at fair value Long-term debt issued measured at amortized cost1 Other Total equity 1 The classiﬁcation of debt issued measured at amortized cost into short- and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classiﬁcation does not consider any early redemption features. Assets Liabilities and equity 170 171 171 00 1000 750 500 250 1000 1000 750750 500500 250250 0 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Liabilities by product and currency UUSSDD bbiilllliioonn AAllll ccuurrrreenncciieess 3311..1122..2211 31.12.20 57.7 11.0 46.7 5566..22 1133..11 4433..11 6.3 55..55 554422..00 524.6 224466..44 236.4 224477..22 220.9 4488..44 67.3 AAllll ccuurrrreenncciieess 3311..1122..2211 31.12.20 5.4 1.0 4.4 55..33 11..22 44..11 00..55 5511..33 2233..33 2233..44 44..66 0.6 49.2 22.2 20.7 6.3 116699..99 153.8 1166..11 14.4 3311..77 33.6 33..00 3.2 115533..11 4444..00 198.4 38.7 1144..55 44..22 18.6 3.6 UUSSDD 3311..1122..2211 31.12.20 3.0 0.3 2.7 33..11 00..33 22..77 AAss aa ppeerrcceennttaaggee ooff ttoottaall lliiaabbiilliittiieess CCHHFF 3311..1122..2211 31.12.20 0.6 0.5 0.0 00..44 00..44 00..00 EEUURR 3311..1122..2211 31.12.20 1.0 0.1 0.9 00..66 00..11 00..55 00..55 2233..99 88..77 1111..99 33..22 99..55 11..33 1122..00 33..11 0.5 19.7 7.4 8.3 4.0 7.6 1.3 15.2 2.7 00..00 1188..00 66..77 1111..00 00..33 11..77 00..11 00..22 00..00 00..11 0.0 20.1 7.2 11.8 1.1 1.6 0.1 0.2 0.0 0.2 00..00 55..22 44..44 00..55 00..33 33..33 00..66 11..44 00..33 00..44 0.0 5.2 4.3 0.5 0.4 3.7 0.5 2.0 0.2 0.2 OOtthheerr 3311..1122..2211 31.12.20 0.9 0.1 0.8 11..33 00..44 00..88 00..00 44..33 33..55 00..00 00..88 11..55 11..00 00..99 00..88 00..33 0.1 4.2 3.4 0.0 0.8 1.5 1.2 1.1 0.7 0.3 1177..66 19.1 11..77 1.8 00..99 1.1 Short-term borrowings of which: amounts due to banks of which: short-term debt issued1 Securities financing transactions at amortized cost Customer deposits of which: demand deposits of which: retail savings / deposits of which: time deposits Debt issued designated at fair value and long-term debt issued measured at amortized cost2 Trading portfolio3 Derivatives and cash collateral payables on derivative instruments Brokerage payables Other financial liabilities measured at amortized cost and fair value4 Non-financial liabilities and financial liabilities related to unit-linked investment contracts TToottaall lliiaabbiilliittiieess 3366..11 11,,005566..22 33.7 1,066.0 33..44 110000..00 3.2 100.0 00..66 5544..77 0.6 51.6 00..22 2200..88 0.2 23.0 00..33 1122..11 0.2 13.1 22..33 1122..44 2.2 12.3 11 Short-term debt issued consists of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper. 22 The classification of debt issued measured at amortized cost into short-term and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classification does not consider any early redemption features. 33 Consists of financial liabilities at fair value held for trading. 44 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but excludes financial liabilities related to unit-linked investment contracts. 172 172 Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Liabilities by product and currency 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 AAllll ccuurrrreenncciieess UUSSDD CCHHFF EEUURR OOtthheerr AAss aa ppeerrcceennttaaggee ooff ttoottaall lliiaabbiilliittiieess UUSSDD bbiilllliioonn AAllll ccuurrrreenncciieess 5566..22 1133..11 4433..11 57.7 11.0 46.7 55..55 554422..00 6.3 524.6 224466..44 236.4 224477..22 220.9 4488..44 67.3 55..33 11..22 44..11 00..55 5511..33 2233..33 2233..44 44..66 5.4 1.0 4.4 0.6 49.2 22.2 20.7 6.3 116699..99 153.8 1166..11 14.4 3311..77 33.6 33..00 3.2 115533..11 4444..00 198.4 38.7 1144..55 44..22 18.6 3.6 33..11 00..33 22..77 00..55 2233..99 88..77 1111..99 33..22 99..55 11..33 1122..00 33..11 3.0 0.3 2.7 0.5 19.7 7.4 8.3 4.0 7.6 1.3 15.2 2.7 00..44 00..44 00..00 00..00 1188..00 66..77 1111..00 00..33 11..77 00..11 00..22 00..00 00..11 0.6 0.5 0.0 0.0 20.1 7.2 11.8 1.1 1.6 0.1 0.2 0.0 0.2 00..66 00..11 00..55 00..00 55..22 44..44 00..55 00..33 33..33 00..66 11..44 00..33 00..44 1.0 0.1 0.9 0.0 5.2 4.3 0.5 0.4 3.7 0.5 2.0 0.2 0.2 11..33 00..44 00..88 00..00 44..33 33..55 00..00 00..88 11..55 11..00 00..99 00..88 00..33 0.9 0.1 0.8 0.1 4.2 3.4 0.0 0.8 1.5 1.2 1.1 0.7 0.3 1177..66 19.1 11..77 1.8 00..99 1.1 Short-term borrowings of which: amounts due to banks of which: short-term debt issued1 Securities financing transactions at amortized cost Customer deposits of which: demand deposits of which: retail savings / deposits of which: time deposits Debt issued designated at fair value and long-term debt issued measured at amortized cost2 Trading portfolio3 Derivatives and cash collateral payables on derivative instruments Brokerage payables Other financial liabilities measured at amortized cost and fair value4 Non-financial liabilities and financial liabilities related to unit-linked investment contracts TToottaall lliiaabbiilliittiieess excludes financial liabilities related to unit-linked investment contracts. Maturity analysis of assets and liabilities The table below provides an analysis of carrying amounts of balance sheet assets and liabilities, as well as off-balance sheet exposures by residual contractual maturity as of the reporting date. The residual contractual maturity of assets includes the effect of callable features. The residual contractual maturity of liabilities and off-balance sheet exposures is based on the earliest date on which we could be required to pay. The presentation of liabilities at the carrying amount in this table differs from “Note 24 Maturity analysis of financial liabilities” in the “Consolidated financial statements” section of this report, where such liabilities are presented on an undiscounted basis, as required by International Financial Reporting Standards (IFRS). Derivative financial instruments and financial assets and liabilities at fair value held for trading are assigned to the Due within 1 month column, although one should note that the respective contractual maturities may extend over significantly longer periods. Assets held to hedge unit-linked investment contracts (presented within Financial assets at fair value not held for trading) are assigned to the Due within 1 month column, consistent with the maturity assigned to the related amounts due under unit- linked investment contracts (presented within Other financial liabilities designated at fair value). Other financial assets and liabilities with no contractual maturity, such as equity securities, are included in the Perpetual / Not applicable time bucket. Undated or perpetual instruments are classified based on the contractual notice period that the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the Perpetual / Not applicable time bucket. Non-financial assets and liabilities with no contractual maturity are generally included in the Perpetual / Not applicable time bucket. Loan commitments are classified on the basis of the earliest date they can be drawn down. 3366..11 33.7 33..44 3.2 11,,005566..22 1,066.0 110000..00 100.0 00..66 5544..77 0.6 51.6 00..22 2200..88 0.2 23.0 00..33 1122..11 0.2 13.1 22..33 1122..44 2.2 12.3 11 Short-term debt issued consists of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper. 22 The classification of debt issued measured at amortized cost into short-term and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classification does not consider any early redemption features. 33 Consists of financial liabilities at fair value held for trading. 44 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but USD billion Due within 1 month Due between 1 and 3 months Due between 3 and 6 months Due between 6 and 9 months Due between 9 and 12 months Due between 1 and 2 years Due between 2 and 5 years Due over 5 years Perpetual / Not applicable Total Maturity analysis of assets and liabilities Assets Total financial assets measured at amortized cost Loans and advances to customers Total financial assets measured at fair value through profit or loss Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Total non-financial assets TToottaall aasssseettss aass ooff 3311 DDeecceemmbbeerr 22002211 TToottaall aasssseettss aass ooff 3311 DDeecceemmbbeerr 22002200 Liabilities Total financial liabilities measured at amortized cost Customer deposits Debt issued measured at amortized cost Total financial liabilities measured at fair value through profit or loss Debt issued designated at fair value Total non-financial liabilities TToottaall lliiaabbiilliittiieess aass ooff 3311 DDeecceemmbbeerr 22002211 TToottaall lliiaabbiilliittiieess aass ooff 3311 DDeecceemmbbeerr 22002200 453.7 157.2 300.5 29.7 0.1 7.7 776611..99 748.1 581.6 530.1 3.7 237.7 12.5 9.3 882288..66 865.1 45.9 28.7 5.8 5.8 0.4 0.5 5522..66 64.2 20.1 5.2 12.1 12.0 11.6 3.0 3355..11 37.3 19.1 16.3 3.6 3.6 0.5 0.1 2233..33 32.7 21.3 2.0 16.5 5.2 5.1 0.0 2266..55 24.1 12.4 10.4 2.6 2.6 0.2 0.0 1155..11 18.6 15.0 0.6 13.7 6.1 5.8 0.0 2211..11 17.1 11.7 10.5 1.9 1.9 0.1 0.0 1133..66 17.8 12.1 0.7 9.6 3.3 3.2 0.0 1155..55 14.4 53.7 49.6 5.2 5.2 0.1 0.2 5599..22 53.0 17.0 1.6 14.9 18.8 18.6 0.0 3355..88 27.2 64.1 54.9 7.1 7.1 0.4 1.4 7733..00 79.9 35.6 1.5 32.5 5.6 5.4 0.0 4411..22 33.2 77.3 70.1 2.5 2.5 7.1 0.3 8877..22 79.6 24.4 0.3 22.7 12.2 11.5 0.0 3366..66 30.5 737.8 397.8 1.8 1.8 330.9 60.1 8.8 39.7 11,,111177..22 1,125.8 29.4 3311..22 31.8 13.5 740.6 542.0 13.5 139.2 300.9 73.8 14.7 11,,005566..22 1,066.0 2.4 1155..99 17.1 Guarantees, loan commitments and forward starting transactions11 GGuuaarraanntteeeess,, llooaann ccoommmmiittmmeennttss aanndd ffoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss aass ooff 3311 DDeecceemmbbeerr 22002211 Guarantees, loan commitments and forward starting transactions as of 31 December 2020 62.2 11 The notional amounts associated with derivative loan commitments, as well as forward starting repurchase and reverse repurchase agreements, measured at fair value through profit or loss are presented together with notional amounts related to derivative instruments and have been excluded from the table above. Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for information about the notional amounts of these instruments. 6600..99 61.3 6622..11 00..00 00..22 00..44 00..00 00..00 00..55 00..00 0.0 0.0 00..00 0.3 0.0 0.1 0.0 0.5 0.0 172 173 173 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Off-balance sheet In the normal course of business, we enter into transactions where, pursuant to IFRS, the maximum contractual exposure may not be recognized in whole or in part on our balance sheet. These transactions include derivative instruments, guarantees, loan commitments and similar arrangements. When we incur an obligation or become entitled to an asset through these arrangements, we recognize them on the balance sheet. It should be noted that in certain instances the amount recognized on the balance sheet does not represent the full gain or loss potential inherent in such arrangements. › Refer to “Note 1a Material accounting policies” items 1, 2a and 2c, and “Note 29 Interests in subsidiaries and other entities” in the “Consolidated financial statements” section of this report for more information The following paragraphs provide more information about certain off-balance sheet arrangements. Additional off-balance sheet information is primarily provided in Notes 9, 10, 18, 20, 21i, 23 and 29 in the “Consolidated financial statements” section of this report, and in the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors. Guarantees, loan commitments and similar arrangements In the normal course of business, we issue various forms of guarantees, commitments to extend credit, standby and other letters of credit to support our clients, forward starting transactions, note issuance facilities and revolving underwriting facilities. With the exception of related premiums, generally these guarantees and similar obligations are kept as off-balance sheet items, unless a provision to cover probable losses or expected credit losses is required. Guarantees represent irrevocable assurances that, subject to the satisfying of certain conditions, we will make payments if our clients fail to fulfill their obligations to third parties. As of 31 December 2021, the net exposure (i.e., gross values less sub- participations) from guarantees and similar instruments was USD 19 billion, compared with USD 15 billion as of 31 December 2020. The increase of USD 4 billion reflected higher guarantees in Group Treasury and an increase in guarantees issued to corporate clients in Personal & Corporate Banking. Fee income from issuing guarantees was not significant to total revenues in 2021 or 2020. We also enter into commitments to extend credit in the form of credit lines available to secure the liquidity needs of clients. The majority of loan commitments range in maturity from one month to one year. Committed unconditionally revocable credit lines are generally open-ended. During 2021, loan commitments decreased by USD 2 billion, mainly in Personal & Corporate Banking, predominantly in Personal Banking Switzerland. Committed unconditionally revocable credit lines remained broadly stable. Forward starting reverse repurchase agreements decreased by USD 2 billion and forward starting repurchase agreements increased by USD 1 billion, both predominantly in Group Treasury. Off-balance sheet As of USD billion Guarantees1 Loan commitments1,2 Committed unconditionally revocable credit lines Forward starting reverse repurchase agreements2 Forward starting repurchase agreements2 11 Guarantees and Loan commitments are shown net of sub-participations. 22 The exposures related to loan commitments, forward starting repurchase and reverse repurchase agreements measured at fair value through profit or loss are not included in this table but are reflected as notional amounts in “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report. 31.12.20 15.0 41.4 40.1 3.2 0.4 3311..1122..2211 1188..99 3399..55 4400..88 11..44 11..00 % change from 31.12.20 26 (5) 2 (56) 178 If customers fail to meet their obligations, our maximum exposure to credit risk is the contractual amount of these instruments. The risk is similar to the risk involved in extending loan facilities and is subject to the same risk management and control framework. In 2021, we recognized net credit loss releases of USD 46 million related to loan commitments, guarantees and other credit facilities in the scope of expected credit loss measurement, compared with net credit loss expenses of USD 138 million in 2020. Provisions recognized for guarantees, loan commitments and other credit facilities in the scope of expected credit loss measurement were USD 196 million as of 31 December 2021, compared with USD 257 million as of 31 December 2020. › Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about provisions for expected credit losses 174 174 Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Off-balance sheet Guarantees, loan commitments and similar arrangements In the normal course of business, we issue various forms of In the normal course of business, we enter into transactions guarantees, commitments to extend credit, standby and other where, pursuant to IFRS, the maximum contractual exposure may letters of credit to support our clients, forward starting not be recognized in whole or in part on our balance sheet. These transactions, note issuance facilities and revolving underwriting transactions include derivative instruments, guarantees, loan facilities. With the exception of related premiums, generally these commitments and similar arrangements. guarantees and similar obligations are kept as off-balance sheet When we incur an obligation or become entitled to an asset items, unless a provision to cover probable losses or expected through these arrangements, we recognize them on the balance credit losses is required. sheet. It should be noted that in certain instances the amount Guarantees represent irrevocable assurances that, subject to recognized on the balance sheet does not represent the full gain the satisfying of certain conditions, we will make payments if our or loss potential inherent in such arrangements. › Refer to “Note 1a Material accounting policies” items 1, 2a and clients fail to fulfill their obligations to third parties. As of 31 December 2021, the net exposure (i.e., gross values less sub- 2c, and “Note 29 Interests in subsidiaries and other entities” in participations) from guarantees and similar instruments was the “Consolidated financial statements” section of this report for USD 19 billion, compared with USD 15 billion as of 31 December more information 2020. The increase of USD 4 billion reflected higher guarantees in Group Treasury and an increase in guarantees issued to corporate The following paragraphs provide more information about clients in Personal & Corporate Banking. Fee income from issuing certain off-balance sheet arrangements. Additional off-balance guarantees was not significant to total revenues in 2021 or 2020. sheet information is primarily provided in Notes 9, 10, 18, 20, 21i, We also enter into commitments to extend credit in the form 23 and 29 in the “Consolidated financial statements” section of of credit lines available to secure the liquidity needs of clients. The this report, and in the 31 December 2021 Pillar 3 Report, available majority of loan commitments range in maturity from one month under “Pillar 3 disclosures” at ubs.com/investors. to one year. Committed unconditionally revocable credit lines are generally open-ended. During 2021, loan commitments decreased by USD 2 billion, mainly in Personal & Corporate Banking, predominantly in Personal Banking Switzerland. Committed unconditionally revocable credit lines remained broadly stable. Forward starting reverse repurchase agreements decreased by USD 2 billion and forward starting repurchase agreements increased by USD 1 billion, both predominantly in Group Treasury. As of % change from 3311..1122..2211 31.12.20 31.12.20 1188..99 3399..55 4400..88 11..44 11..00 15.0 41.4 40.1 3.2 0.4 26 (5) 2 (56) 178 Off-balance sheet USD billion Guarantees1 Loan commitments1,2 Committed unconditionally revocable credit lines Forward starting reverse repurchase agreements2 Forward starting repurchase agreements2 11 Guarantees and Loan commitments are shown net of sub-participations. 22 The exposures related to loan commitments, forward starting repurchase and reverse repurchase agreements measured at fair value through profit or loss are not included in this table but are reflected as notional amounts in “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report. If customers fail to meet their obligations, our maximum loan commitments and other credit facilities in the scope of exposure to credit risk is the contractual amount of these expected credit loss measurement were USD 196 million as of instruments. The risk is similar to the risk involved in extending 31 December 2021, compared with USD 257 million as of loan facilities and is subject to the same risk management and 31 December 2020. control framework. In 2021, we recognized net credit loss releases of USD 46 million related to loan commitments, guarantees and other credit facilities in the scope of expected credit loss measurement, compared with net credit loss expenses of › Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 20 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information USD 138 million in 2020. Provisions recognized for guarantees, about provisions for expected credit losses For certain obligations we enter into partial sub-participations to mitigate various risks from guarantees and loan commitments. A sub-participation is an agreement by another party to take a share of the loss in the event that the obligation is not fulfilled by the obligor and, where applicable, to fund a part of the credit facility. We retain the contractual relationship with the obligor, and the sub-participant has only an indirect relationship. We only enter into sub-participation agreements with banks to which we ascribe a credit rating equal to or better than that of the obligor. and indemnifications to third parties in the normal course of business. representations, warranties provide also We Support provided to non-consolidated investment funds In 2021, the Group did not provide material support, financial or otherwise, to unconsolidated investment funds when the Group was not contractually obligated to do so, nor does it have an intention to do so. Clearing house and exchange memberships We are a member of numerous securities and derivative exchanges and clearing houses. In connection with some of these memberships, we may be required to pay a share of the financial obligations of another member who defaults, or we may be otherwise exposed to additional financial obligations. While the membership rules vary, obligations generally would arise only if the exchange or clearing house had exhausted its resources. We consider the probability of a material loss due to such obligations to be remote. Deposit insurance Swiss banking law and the deposit insurance system require Swiss banks and securities dealers to jointly guarantee an amount of up to CHF 6 billion for privileged client deposits in the event that a Swiss bank or securities dealer becomes insolvent. As of 31 December 2021, FINMA estimates our share in the deposit insurance system to be CHF 0.9 billion. This represents a contingent payment obligation and exposes us to additional risk. As of 31 December 2021, we considered the probability of a material loss from our obligations to be remote. UBS is also subject to, or is a member of, other deposit protection schemes in other countries. However, no contingent payment obligation existed as of 31 December 2021 from any other material scheme. Material cash requirements The Group’s material cash requirements as of 31 December 2021 are represented by the residual contractual maturities for non- derivative and non-trading financial liabilities included in the table presented in “Note 24 Maturity analysis of financial liabilities” in the “Consolidated financial statements” section of this report. Included in the table are debt issued designated at fair value (USD 82 billion) and long-term debt issued measured at amortized cost (USD 106 billion). The amounts represent estimated future interest and principal payments on an undiscounted basis. In the normal course of business, we also issue or enter into various forms of guarantees, loan commitments and other similar arrangements that may result in an outflow of cash in the future. The maturity profile of these obligations, which are presented off- balance sheet, are included in “Note 24 Maturity analysis of financial liabilities” in the “Consolidated financial statements” section of this report. › Refer to “Guarantees, loan commitments and similar arrangements” in this section for more information 174 175 175 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet Cash flows As a global financial institution, our cash flows are complex and often may bear little relation to our net earnings and net assets. Consequently, we believe that a traditional cash flow analysis is less meaningful when evaluating our liquidity position than the liquidity, funding and capital management frameworks and measures described elsewhere in this section. Cash and cash equivalents As of 31 December 2021, cash and cash equivalents totaled USD 207.9 billion, an increase of USD 34.3 billion compared with 31 December 2020, driven by net cash inflows from operating and financing activities. These effects were partly offset by net cash outflows from investing activities, as well as the effects of exchange rate differences on cash and cash equivalents, mainly reflecting the appreciation of the US dollar against the Swiss franc, Japanese yen and euro in 2021. Operating activities Net cash inflows from operating activities were USD 31.4 billion in 2021, compared with USD 37.0 billion in 2020. The net operating cash flow, before changes in operating assets and liabilities and income taxes paid, was an inflow of USD 13.5 billion. Changes in operating assets and liabilities resulted in net cash inflows of USD 18.0 billion, mainly driven by net inflows of USD 29.8 billion related to customer deposits and USD 19.6 billion from financial assets and liabilities at fair value not held for trading and other financial assets and liabilities, as well as USD 8.1 billion from brokerage receivables and payables. These inflows were partly offset by a net outflow from lending balances to customers of USD 27.5 billion and a net outflow from financial assets and liabilities at fair value held for trading and derivative financial instruments of USD 10.5 billion. Investing activities Investing activities resulted in a net cash outflow of USD 2.1 billion in 2021, compared with USD 6.8 billion in 2020, primarily related to a cash outflow of USD 1.8 billion from purchase of property, equipment and software. Financing activities Financing activities resulted in a net cash inflow of USD 10.3 billion in 2021, compared with USD 12.4 billion in 2020, mainly due to net issuance proceeds of USD 18.4 billion from debt designated at fair value and long-term debt measured at amortized cost. This inflow was partly offset by the net repayment of USD 3.1 billion of short-term debt, net cash used to acquire treasury shares of USD 3.3 billion and a dividend distribution to shareholders of USD 1.3 billion. › Refer to “Primary financial statements and share information” in the “Consolidated financial statements” section of this report for more information about cash flows Statement of cash flows (condensed) USD billion Net cash flow from / (used in) operating activities Net cash flow from / (used in) investing activities Net cash flow from / (used in) financing activities Effects of exchange rate differences on cash and cash equivalents NNeett iinnccrreeaassee // ((ddeeccrreeaassee)) iinn ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr For the year ended 3311..1122..2211 31.12.20 3311 ((22)) 1100 ((55)) 3344 220088 37 (7) 12 11 54 174 176 176 Cash flows USD 29.8 billion related to customer deposits and USD 19.6 billion from financial assets and liabilities at fair value not held for Currency management less meaningful when evaluating our liquidity position than the customers of USD 27.5 billion and a net outflow from financial Strategy, objectives and governance Group Treasury focuses on three main areas of currency risk management: (i) currency-matched funding and investment of non-US dollar assets and liabilities; (ii) sell-down of foreign currency IFRS profits and losses; and (iii) selective hedging of anticipated non-US dollar profits and losses to further mitigate the effect of structural imbalances in the balance sheet. Group Treasury also manages structural currency composition at the consolidated Group level. Currency-matched funding and investment of non-US dollar assets and liabilities For monetary balance sheet items and other investments, as far as is practical and efficient, we follow the principle of matching the currencies of our assets and liabilities for funding purposes. This avoids profits and losses arising from the translation of non-US dollar assets and liabilities. Net investment hedge accounting is applied to non-US dollar core investments to balance the effect of foreign exchange movements on both CET1 capital and the CET1 capital ratio. › Refer to “Note 1a Material accounting policies” and “Note 26 Hedge accounting” in the “Consolidated financial statements” section of this report for more information › Refer to “Capital management” in this section for more information about our active management of sensitivity to currency movements and the effect thereof on our key ratios Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet As a global financial institution, our cash flows are complex and trading and other financial assets and liabilities, as well as USD 8.1 often may bear little relation to our net earnings and net assets. billion from brokerage receivables and payables. These inflows Consequently, we believe that a traditional cash flow analysis is were partly offset by a net outflow from lending balances to liquidity, funding and capital management frameworks and assets and liabilities at fair value held for trading and derivative measures described elsewhere in this section. financial instruments of USD 10.5 billion. Cash and cash equivalents Investing activities As of 31 December 2021, cash and cash equivalents totaled Investing activities resulted in a net cash outflow of USD 2.1 billion USD 207.9 billion, an increase of USD 34.3 billion compared with in 2021, compared with USD 6.8 billion in 2020, primarily related 31 December 2020, driven by net cash inflows from operating to a cash outflow of USD 1.8 billion from purchase of property, and financing activities. These effects were partly offset by net equipment and software. cash outflows from investing activities, as well as the effects of exchange rate differences on cash and cash equivalents, mainly Financing activities reflecting the appreciation of the US dollar against the Swiss Financing activities resulted in a net cash inflow of USD 10.3 billion franc, Japanese yen and euro in 2021. Operating activities in 2021, compared with USD 12.4 billion in 2020, mainly due to net issuance proceeds of USD 18.4 billion from debt designated at fair value and long-term debt measured at amortized cost. This Net cash inflows from operating activities were USD 31.4 billion inflow was partly offset by the net repayment of USD 3.1 billion of in 2021, compared with USD 37.0 billion in 2020. The net short-term debt, net cash used to acquire treasury shares of operating cash flow, before changes in operating assets and USD 3.3 billion and a dividend distribution to shareholders of liabilities and income taxes paid, was an inflow of USD 13.5 USD 1.3 billion. billion. Changes in operating assets and liabilities resulted in net › Refer to “Primary financial statements and share information” in cash inflows of USD 18.0 billion, mainly driven by net inflows of the “Consolidated financial statements” section of this report for more information about cash flows Statement of cash flows (condensed) USD billion Net cash flow from / (used in) operating activities Net cash flow from / (used in) investing activities Net cash flow from / (used in) financing activities Effects of exchange rate differences on cash and cash equivalents NNeett iinnccrreeaassee // ((ddeeccrreeaassee)) iinn ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr For the year ended 3311..1122..2211 31.12.20 3311 ((22)) 1100 ((55)) 3344 220088 37 (7) 12 11 54 174 Sell-down of non-US dollar reported profits and losses Income statement items of foreign subsidiaries and branches of UBS AG with a functional currency other than the US dollar are translated into US dollars at average exchange rates. To reduce earnings volatility on the translation of previously recognized earnings in foreign currencies, Group Treasury centralizes the profits and losses (under IFRS) arising in UBS AG and its branches and sells or buys the profit or loss for US dollars on a monthly basis. Our foreign subsidiaries follow a similar monthly sell-down process into their own functional currencies. Retained earnings in foreign subsidiaries with a functional currency other than the US dollar are integrated and managed as part of our net investment hedge accounting program. Hedging of anticipated non-US dollar profits and losses The Group ALCO may at any time instruct Group Treasury to execute hedges to protect anticipated future profits and losses in foreign currencies against possible adverse trends of foreign exchange rates. Although intended to hedge future earnings, these transactions are accounted for as open currency positions and subject to internal market risk limits for value-at-risk and stress loss limits. Dividend distribution UBS Group AG declares dividends in US dollars. Shareholders holding shares through SIX (ISIN: CH0244767585) will receive dividends in Swiss francs, based on a published exchange rate calculated up to five decimal places, on the day prior to the ex- dividend date. Shareholders holding shares through DTC (ISIN: CH0244767585; CUSIP: H42097107) will be paid dividends in US dollars. › Refer to the “Standalone financial statements” section of this report for more information about the proposed dividend distribution of UBS Group AG 176 177 177 Risk, capital, liquidity and funding, and balance sheet Risk, capital, liquidity and funding, and balance sheet | UBS shares UBS shares UBS Group AG shares Audited | As of 31 December 2021, IFRS equity attributable to shareholders amounted to USD 60,662 million, represented by issued decreased by issued. Shares 3,702,422,995 shares 157 million in 2021, as the 156,632,400 shares acquired under the 2018–2021 share repurchase program were canceled by means of a capital reduction, as approved by shareholders at the 2021 Annual General Meeting (AGM). UBS Group share information Shares issued Treasury shares1 of which: related to share repurchase program 2018–2021 of which: related to share repurchase program 20212 Shares outstanding Basic earnings per share (USD)3 Basic earnings per share (CHF)4 Diluted earnings per share (USD)3 Diluted earnings per share (CHF)4 Equity attributable to shareholders (USD million) Less: goodwill and intangible assets (USD million) Tangible equity attributable to shareholders (USD million) Ordinary cash dividends per share (USD)5,6 Total book value per share (USD) Tangible book value per share (USD) Share price (USD)7 Market capitalization (USD million) Each share has a nominal value of CHF 0.10, carries one vote if entered into the share register as having the right to vote, and also entitles the holder to a proportionate share of distributed dividends. All shares are fully paid up. As the Articles of Association of UBS Group AG indicate, there are no other classes of shares and no preferential rights for shareholders.  › Refer to the “Corporate governance” section of this report for more information about UBS shares As of or for the year ended 3311..1122..2211 33,,770022,,442222,,999955 330022,,881155,,332288 115522,,559966,,227733 33,,339999,,660077,,666677 31.12.20 3,859,055,395 307,477,002 148,975,800 3,551,578,393 22..1144 11..9966 22..0066 11..8888 6600,,666622 66,,337788 5544,,228833 00..5500 1177..8844 1155..9977 1188..0011 6611,,223300 1.83 1.71 1.77 1.65 59,445 6,480 52,965 0.37 16.74 14.91 14.08 50,013 % change from 31.12.20 (4) (2) (100) (4) 17 15 16 14 2 (2) 2 35 7 7 28 22 11 Based on a settlement date view. 22 Our active share repurchase program of up to CHF 4 billion was started in February 2021. The program was initially planned to run over a three-year period, but we currently expect to complete it in the first half of 2022. We therefore refer to this program as “share repurchase program 2021” throughout this report. 33 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 44 Basic and diluted earnings per share in Swiss francs are calculated based on a translation of net profit / (loss) under our US dollar presentation currency. 55 Dividends and / or distributions out of the capital contribution reserve are normally approved and paid in the year subsequent to the reporting period. 66 Refer to “Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve” in the “Standalone financial statements” section of this report for more information. 77 Represents the share price as listed on the SIX Swiss Exchange, translated to US dollars using the closing exchange rate as of the respective date. 178 178 Risk, capital, liquidity and funding, and balance sheet | UBS shares UBS shares UBS Group AG shares Each share has a nominal value of CHF 0.10, carries one vote if entered into the share register as having the right to vote, and Audited | As of 31 December 2021, IFRS equity attributable to also entitles the holder to a proportionate share of distributed shareholders amounted to USD 60,662 million, represented by dividends. All shares are fully paid up. As the Articles of 3,702,422,995 shares issued. Shares issued decreased by Association of UBS Group AG indicate, there are no other classes 157 million in 2021, as the 156,632,400 shares acquired under the of shares and no preferential rights for shareholders.  2018–2021 share repurchase program were canceled by means of a capital reduction, as approved by shareholders at the 2021 › Refer to the “Corporate governance” section of this report for more information about UBS shares Annual General Meeting (AGM). UBS Group share information Shares issued Treasury shares1 of which: related to share repurchase program 2018–2021 of which: related to share repurchase program 20212 Shares outstanding Basic earnings per share (USD)3 Basic earnings per share (CHF)4 Diluted earnings per share (USD)3 Diluted earnings per share (CHF)4 Equity attributable to shareholders (USD million) Less: goodwill and intangible assets (USD million) Tangible equity attributable to shareholders (USD million) Ordinary cash dividends per share (USD)5,6 Total book value per share (USD) Tangible book value per share (USD) Share price (USD)7 Market capitalization (USD million) As of or for the year ended 3311..1122..2211 33,,770022,,442222,,999955 330022,,881155,,332288 115522,,559966,,227733 33,,339999,,660077,,666677 31.12.20 3,859,055,395 307,477,002 148,975,800 3,551,578,393 22..1144 11..9966 22..0066 11..8888 6600,,666622 66,,337788 5544,,228833 00..5500 1177..8844 1155..9977 1188..0011 6611,,223300 1.83 1.71 1.77 1.65 59,445 6,480 52,965 0.37 16.74 14.91 14.08 50,013 % change from 31.12.20 (100) (4) (2) (4) (2) 17 15 16 14 2 2 35 7 7 28 22 11 Based on a settlement date view. 22 Our active share repurchase program of up to CHF 4 billion was started in February 2021. The program was initially planned to run over a three-year period, but we currently expect to complete it in the first half of 2022. We therefore refer to this program as “share repurchase program 2021” throughout this report. 33 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 44 Basic and diluted earnings per share in Swiss francs are calculated based on a translation of net profit / (loss) under our US dollar presentation currency. 55 Dividends and / or distributions out of the capital contribution reserve are normally approved and paid in the year subsequent to the reporting period. 66 Refer to “Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve” in the “Standalone financial statements” section of this report for more information. 77 Represents the share price as listed on the SIX Swiss Exchange, translated to US dollars using the closing exchange rate as of the respective date. Holding of UBS Group AG shares Group Treasury holds UBS Group AG shares to hedge future share delivery obligations related to employee share-based compensation awards, and also holds shares purchased under the share repurchase program. As of 31 December 2021, we held a total of 302,815,328 treasury shares (31 December 2020: 307,477,002), or 8.2% (31 December 2020: 8.0%) of shares issued. Our 2018–2021 share repurchase program was completed on 2 February 2021 with the purchase of an additional 7.7 million shares in 2021 for a total acquisition cost of CHF 100 million (USD 112 million). The 156.6 million shares repurchased under this program were canceled by means of a capital reduction, as approved by shareholders at the 2021 AGM. On 8 February 2021, we commenced a new 2021 share repurchase program of up to CHF 4 billion. Shares acquired under this program totaled 152.6 million as of 31 December 2021 for a total acquisition cost of CHF 2,294 million (USD 2,500 million) and are intended to be canceled by means of a capital reduction, pending approval by shareholders at the 2022 AGM. Looking ahead, we intend to commence a new 2022 share repurchase program of up to USD 6 billion over two years and expect to execute up to USD 5 billion of repurchases under both the existing 2021 repurchase program and the new 2022 program by the end of 2022. Treasury share purchases Treasury shares held to hedge our share delivery obligations related to employee share-based compensation awards totaled 148.8 million shares as of 31 December 2021 (31 December 2020: 157.1 million). Share delivery obligations related to employee share-based compensation awards totaled 175 million shares as of 31 December 2021 (31 December 2020: 172 million) and are calculated on the basis of undistributed notional share awards, taking into account applicable performance conditions. Treasury shares held are delivered to employees at exercise or vesting. As of 31 December 2021, up to 122 million UBS Group AG shares (31 December 2020: 122 million) could have been issued out of conditional capital to satisfy share delivery obligations of any future employee share option programs or similar awards. The Investment Bank also holds a limited number of UBS Group AG shares, primarily in its capacity as a market-maker with regard to UBS Group AG shares and related derivatives, and to hedge certain issued structured debt instruments. The table below outlines the market purchases of UBS Group AG shares by Group Treasury. It does not include the activities of the Investment Bank. Share repurchase programs1 Other treasury shares purchased2 Remaining volume of 2018–2021 share repurchase program in CHF million at month-end 31 0 Remaining volume of 2021 share repurchase program in CHF million at month-end Number of shares Average price in USD Number of shares 5,250,000 22,861,600 39,377,000 7,400,415 15,858,110 Average price in CHF 13.06 13.89 14.64 14.56 13.97 Month of purchase3 January 2021 February 2021 March 2021 April 2021 May 2021 June 2021 July 2021 August 2021 September 2021 October 2021 November 2021 December 2021 17.73 11 In March 2018, UBS initiated a share repurchase program of up to CHF 2 billion over a three-year period and this program was completed on 2 February 2021. UBS has an active share repurchase program to buy back up to CHF 4 billion of its own shares over the three-year period started in February 2021. The share repurchase information in this table is disclosed in Swiss francs as the share buybacks were transacted in Swiss francs on a separate trading line on the SIX Swiss Exchange. 22 This table excludes purchases for the purpose of hedging derivatives linked to UBS Group AG shares and for market-making in UBS Group AG shares. The table also excludes UBS Group AG shares purchased by post-employment benefit funds for UBS employees, which are managed by a board of UBS management and employee representatives in accordance with Swiss law. UBS’s post-employment benefit funds purchased 906,951 UBS Group AG shares during the year and held 14,073,132 UBS Group AG shares as of 31 December 2021. 33 Based on the transaction date of the respective treasury share purchases. 44 The remaining volume of the 2021 share repurchase program as of 31 December 2021 was USD 1,871 million. This was calculated based on the remaining volume of CHF 1,706 million as of 31 December 2021 and the respective closing exchange rate as of this date. 3,714 3,137 3,030 2,808 2,808 2,694 2,431 2,259 2,184 1,708 1,7064 7,730,000 17,140,000 11,241,248 4,500,000 28,800,000 94,500 14.71 15.36 15.36 16.58 16.54 16.23 5,585,000 14,415,000 16.11 16.31 12,770,000 Trading volumes 1,000 shares SIX Swiss Exchange total SIX Swiss Exchange daily average New York Stock Exchange total New York Stock Exchange daily average Source: Reuters For the year ended 3311..1122..2211 22,,551144,,225599 99,,889999 113377,,336666 554455 31.12.20 5,095,908 20,222 260,681 1,030 31.12.19 4,161,555 16,713 203,967 809 178 179 179 Risk, capital, liquidity and funding, and balance sheetRisk, capital, liquidity and funding, and balance sheet | UBS shares Listing of UBS Group AG shares UBS Group AG shares are listed on the SIX Swiss Exchange (SIX). They are also listed on the New York Stock Exchange (the NYSE) as global registered shares. As such, they can be traded and transferred across applicable borders, without the need for conversion, with identical shares traded on different stock exchanges in different currencies. During 2021, the average daily trading volume of UBS Group AG shares was 9.9 million shares on SIX and 0.5 million shares on the NYSE. SIX is expected to remain the main venue for determining the movement in our share price, because of the high volume traded on this exchange. During the hours in which both SIX and the NYSE are simultaneously open for trading (generally 3:30 p.m. to 5:30 p.m. Central European Time), price differences between these exchanges are likely to be arbitraged away by professional market-makers. Accordingly, the share price will typically be similar between the two exchanges when considering the prevailing US dollar / Swiss franc exchange rate. When SIX is closed for trading, globally traded volumes will typically be lower. However, the specialist firm making a market in UBS Group AG shares on the NYSE is required to facilitate sufficient liquidity and maintain an orderly market in UBS Group AG shares throughout normal NYSE trading hours. Ticker symbols UBS Group AG Security identification codes TTrraaddiinngg eexxcchhaannggee SIX Swiss Exchange New York Stock Exchange SSIIXX // NNYYSSEE BBlloooommbbeerrgg UBSG UBS UBSG SW UBS UN RReeuutteerrss UBSG.S UBS.N ISIN Valoren CUSIP CCHH00224444776677558855 2244 447766 775588 CCIINNSS HH4422009977 1100 77 180 180 Corporate governance and compensation Management report 4 Audited information according to the Swiss law and applicable regulatory requirements and guidance Disclosures provided are in line with the requirements of Art. 663c para. 1 and 3 of the Swiss Code of Obligations (supplementary disclosures for companies whose shares are listed on a stock exchange: shareholdings) and the Ordinance against Excessive Compensation in Listed Stock Corporations (tables containing such information are marked as “Audited” throughout this section), as well as other applicable regulations and guidance. 182 Corporate governance 182 183 Corporate governance and compensation | Corporate governance Corporate governance regarding regulatory UBS Group AG is subject to, and complies with, all relevant Swiss legal and corporate requirements governance, including the SIX Swiss Exchange’s Directive on Information relating to Corporate Governance (the SIX Swiss Exchange Corporate Governance Directive) and the standards established in the Swiss Code of Best Practice for Corporate Governance, including the appendix on executive compensation. As a foreign company with shares listed on the New York Stock Exchange (the NYSE), UBS Group AG also complies with all relevant corporate governance standards applicable to foreign private issuers. The Organization Regulations of UBS Group AG, adopted by the Board of Directors (the BoD) based on Art. 716b of the Swiss Code of Obligations and articles 25 and 27 of the Articles of Association of UBS Group AG, constitute our primary corporate governance guidelines. To the extent practicable, the governance structures of UBS Group AG and UBS AG are aligned. UBS AG complies with all relevant Swiss legal and regulatory corporate governance requirements. As a foreign private issuer with debt securities listed on the NYSE, UBS AG also complies with the relevant NYSE corporate governance standards. The discussion in this section refers to both UBS Group AG and UBS AG, unless specifically noted otherwise or unless the information discussed is relevant only to listed companies and therefore only applicable to UBS Group AG. This approach is in line with US Securities and Exchange Commission (SEC) regulations and NYSE standards. › Refer to the Articles of Association of UBS Group AG and of UBS AG, and to the Organization Regulations of UBS Group AG, available at ubs.com/governance and ubs.com/ubs-ag- governance, for more information › The SIX Swiss Exchange Corporate Governance Directive is available at ser-ag.com/dam/downloads/regulation/listing/ directives/DCG-en.pdf, the Swiss Code of Best Practice for Corporate Governance at economiesuisse.ch/en/publications/ swiss-code-best-practice-corporate-governance and the NYSE rules at nyse.wolterskluwer.cloud/listed-company-manual Differences from corporate governance standards relevant to US-listed companies The NYSE standards on corporate governance require foreign private issuers to disclose any significant ways in which their corporate governance practices differ from those that have to be followed by domestic companies. Such differences are discussed below. Responsibility of the Audit Committee regarding independent auditors Our Audit Committee is responsible for the compensation, retention and oversight of independent auditors. It assesses the performance and qualifications of external auditors and submits proposals for appointment, reappointment or removal of independent auditors to the BoD. As required by the Swiss Code 184 184 of Obligations, the BoD submits its proposals for a shareholder vote at the Annual General Meeting (the AGM). Under NYSE standards audit committees are responsible for appointing independent auditors. Discussion of risk assessment and risk management policies by the Risk Committee As per the Organization Regulations of UBS Group AG and UBS AG, the Risk Committee, instead of the Audit Committee, as per NYSE standards, oversees our risk principles and risk capacity on behalf of the BoD. The Risk Committee is responsible for monitoring our adherence to those risk principles and monitoring whether business divisions and control units maintain appropriate systems of risk management and control. Supervision of the internal audit function Although under NYSE standards only audit committees supervise internal audit functions, the Chairman of the BoD (the Chairman) and the Audit Committee share the supervisory responsibility and authority with respect to the internal audit function. Responsibility of the Compensation Committee for performance evaluations of senior management of UBS Group AG In line with Swiss law, our Compensation Committee, together with the BoD, proposes for shareholder approval at the AGM the maximum aggregate amount of compensation for the BoD, the maximum aggregate amount of fixed compensation for the Group Executive Board (the GEB) and the aggregate amount of variable compensation for the GEB. The members of the Compensation Committee are elected by the AGM. Under NYSE standards it is the responsibility of compensation committees to evaluate senior management’s performance and to determine and approve, as a committee or together with the other independent directors, the compensation thereof. Proxy statement reports of the Audit Committee and the Compensation Committee NYSE standards require the aforementioned committees to submit their reports directly to shareholders. However, under Swiss law all reports to shareholders, including those from the aforementioned committees, are provided to and approved by the BoD, which has ultimate responsibility to the shareholders. Shareholder votes on equity compensation plans NYSE standards require shareholder approval for the establishing of and material revisions to all equity compensation plans. However, as per Swiss law, the BoD approves compensation plans. Shareholder approval is only mandatory if equity-based compensation plans require an increase in capital. No shareholder approval is required if shares for such plans are purchased in the market. › Refer to “Board of Directors” in this section for more information about the BoD’s committees › Refer to “Share capital structure” in this section for more information about UBS Group AG’s capital Corporate governance and compensation | Corporate governance Corporate governance UBS Group AG is subject to, and complies with, all relevant Swiss of Obligations, the BoD submits its proposals for a shareholder legal and regulatory requirements regarding corporate vote at the Annual General Meeting (the AGM). Under NYSE governance, including the SIX Swiss Exchange’s Directive on standards audit committees are responsible for appointing Information relating to Corporate Governance (the SIX Swiss independent auditors. Exchange Corporate Governance Directive) and the standards established in the Swiss Code of Best Practice for Corporate Discussion of risk assessment and risk management policies by Governance, including the appendix on executive compensation. the Risk Committee As a foreign company with shares listed on the New York Stock As per the Organization Regulations of UBS Group AG and Exchange (the NYSE), UBS Group AG also complies with all UBS AG, the Risk Committee, instead of the Audit Committee, as relevant corporate governance standards applicable to foreign per NYSE standards, oversees our risk principles and risk capacity private issuers. on behalf of the BoD. The Risk Committee is responsible for The Organization Regulations of UBS Group AG, adopted by monitoring our adherence to those risk principles and monitoring the Board of Directors (the BoD) based on Art. 716b of the Swiss whether business divisions and control units maintain appropriate Code of Obligations and articles 25 and 27 of the Articles of systems of risk management and control. Association of UBS Group AG, constitute our primary corporate governance guidelines. Supervision of the internal audit function To the extent practicable, the governance structures of UBS Although under NYSE standards only audit committees supervise Group AG and UBS AG are aligned. UBS AG complies with all internal audit functions, the Chairman of the BoD (the Chairman) relevant Swiss legal and regulatory corporate governance and the Audit Committee share the supervisory responsibility and requirements. As a foreign private issuer with debt securities listed authority with respect to the internal audit function. on the NYSE, UBS AG also complies with the relevant NYSE corporate governance standards. The discussion in this section Responsibility of the Compensation Committee for performance refers to both UBS Group AG and UBS AG, unless specifically evaluations of senior management of UBS Group AG noted otherwise or unless the information discussed is relevant In line with Swiss law, our Compensation Committee, together only to listed companies and therefore only applicable to with the BoD, proposes for shareholder approval at the AGM the UBS Group AG. This approach is in line with US Securities and maximum aggregate amount of compensation for the BoD, the Exchange Commission (SEC) regulations and NYSE standards. › Refer to the Articles of Association of UBS Group AG and of UBS AG, and to the Organization Regulations of UBS Group AG, available at ubs.com/governance and ubs.com/ubs-ag- governance, for more information › The SIX Swiss Exchange Corporate Governance Directive is available at ser-ag.com/dam/downloads/regulation/listing/ directives/DCG-en.pdf, the Swiss Code of Best Practice for Corporate Governance at economiesuisse.ch/en/publications/ swiss-code-best-practice-corporate-governance and the NYSE rules at nyse.wolterskluwer.cloud/listed-company-manual Differences from corporate governance standards relevant to US-listed companies The NYSE standards on corporate governance require foreign private issuers to disclose any significant ways in which their corporate governance practices differ from those that have to be followed by domestic companies. Such differences are discussed Responsibility of the Audit Committee regarding independent maximum aggregate amount of fixed compensation for the Group Executive Board (the GEB) and the aggregate amount of variable compensation for the GEB. The members of the Compensation Committee are elected by the AGM. Under NYSE standards it is the responsibility of compensation committees to evaluate senior management’s performance and to determine and approve, as a committee or together with the other independent directors, the compensation thereof. Proxy statement reports of the Audit Committee and the Compensation Committee NYSE standards require the aforementioned committees to submit their reports directly to shareholders. However, under Swiss law all reports to shareholders, including those from the aforementioned committees, are provided to and approved by the BoD, which has ultimate responsibility to the shareholders. Shareholder votes on equity compensation plans NYSE standards require shareholder approval for the establishing of and material revisions to all equity compensation plans. However, as per Swiss law, the BoD approves compensation plans. Shareholder approval is only mandatory if equity-based compensation plans require an increase in capital. No shareholder approval is required if shares for such plans are purchased in the Our Audit Committee is responsible for the compensation, retention and oversight of independent auditors. It assesses the performance and qualifications of external auditors and submits market. › Refer to “Board of Directors” in this section for more proposals for appointment, reappointment or removal of information about the BoD’s committees independent auditors to the BoD. As required by the Swiss Code › Refer to “Share capital structure” in this section for more information about UBS Group AG’s capital below. auditors 184 Group structure and shareholders Operational Group structure As of 31 December 2021, the operational structure of the Group is composed of the Global Wealth Management, Personal & Corporate Banking, Asset Management and Investment Bank business divisions, as well as Group Functions. › Refer to the “Our businesses” section on page 21 of this report for more information about our business divisions and Group Functions › Refer to “Financial and operating performance” on page 75 and to “Note 2 Segment reporting” in the “Consolidated financial statements” section on page 306 of this report for more information › Refer to the “Our evolution” section on page 14 of this report for more information Listed and non-listed companies belonging to the Group The Group includes a number of consolidated entities, of which only UBS Group AG shares are listed. UBS Group AG’s registered office is at Bahnhofstrasse 45, CH-8001 Zurich, Switzerland. UBS Group AG shares are listed on the SIX Swiss Exchange (ISIN: CH0244767585) and on the NYSE (CUSIP: H42097107). › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section on page 178 of this report for information about UBS Group AG’s market capitalization and shares held by Group entities › Refer to “Note 29 Interests in subsidiaries and other entities” in the “Consolidated financial statements” section on page 391 of this report for more information about the significant subsidiaries of the Group Significant shareholders General rules Under the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015 (the FMIA), anyone directly or indirectly, or acting in concert with third parties, holding shares in a company listed in Switzerland or holding derivative rights related to shares in such a company must notify the company and the SIX Swiss Exchange (SIX) if the holding reaches, falls below or exceeds one of the following percentage thresholds: 3, 5, 10, 15, 20, 25, 331⁄3, 50 or 662⁄3% of voting rights, regardless of whether or not such rights may be exercised. Nominee companies that cannot autonomously decide how voting rights are exercised are not required to notify the company and SIX if they reach, exceed or fall below the above- mentioned thresholds. Pursuant to the Swiss Code of Obligations, we disclose in “Note 23 Significant shareholders” to the UBS Group AG standalone financial statements the identity of any shareholder with a holding of more than 5% of the total share capital of UBS Group AG. Shareholders subject to FMIA disclosure notifications According to the mandatory FMIA disclosure notifications filed with UBS Group AG and SIX, as of 31 December 2021, the following entities held more than 3% of the total share capital of UBS Group AG: Massachusetts Financial Services Company, Boston, which disclosed a holding of 3.01% on 22 June 2021; Artisan Partners Limited Partnership, Milwaukee, which disclosed a holding of 3.15% on 18 November 2020; BlackRock Inc., New York, which disclosed a holding of 4.70% on 26 May 2020; and Norges Bank, Oslo, which disclosed a holding of 3.01% on 24 July 2019. As registration in the UBS share register is optional, shareholders crossing the aforementioned thresholds requiring SIX notification under the FMIA do not necessarily appear in the table below. On 24 January 2022, Dodge & Cox International Stock Fund, San Francisco, disclosed a holding of 3.02% of the total share capital of UBS Group AG. No new disclosures of significant shareholdings have been made since that date. In accordance with the FMIA, the aforementioned holdings are calculated in relation to the total share capital of UBS Group AG reflected in the Articles of Association at the time of the respective disclosure notification. Information on disclosures under the FMIA is available at ser-ag.com/en/resources/notifications-market- participants/significant-shareholders.html. Shareholders registered in the UBS share register with 3% or more of the share capital of UBS Group AG As a supplement to the mandatory disclosure requirements according to the SIX Swiss Exchange Corporate Governance Directive, we disclose in the table below the shareholders (acting in their own name or in their capacity as nominees for other investors or beneficial owners) that were registered in the UBS share register with 3% or more of the total share capital of UBS Group AG as of 31 December 2021. › Refer to “Shareholders’ participation rights” on page 191 of this section for more information about voting rights, restrictions and representation Cross-shareholdings UBS Group AG has no cross-shareholdings where reciprocal ownership would be in excess of 5% of capital or voting rights with any other company. Audited | Shareholders registered in the UBS share register with 3% or more of the total share capital1 % of share capital Chase Nominees Ltd., London2 DTC (Cede & Co.), New York2,3 3311..1122..2211 31.12.20 31.12.19 88..8899 55..7788 10.39 4.99 10.94 7.57 Nortrust Nominees Ltd., London2 11 As registration in the UBS share register is optional, shareholders crossing the threshold percentages requiring SIX notification under the FMIA do not necessarily appear in this table. 22 Nominee companies and securities clearing organizations cannot autonomously decide how voting rights are exercised and are therefore not obligated to notify UBS and SIX if they reach, exceed or fall below the threshold percentages requiring disclosure notification under the FMIA. Consequently, they do not appear in the “Shareholders subject to FMIA disclosure notifications” section above. 33 DTC (Cede & Co.), New York, “The Depository Trust Company,” is a US securities clearing organization. 44..8800 5.15 4.90  185 185 Corporate governance and compensationCorporate governance and compensation | Corporate governance Share capital structure Ordinary share capital At year-end 2021, UBS Group AG had 3,702,422,995 issued shares with a nominal value of CHF 0.10 each, equating to a share capital of CHF 370,242,299.50. Under Swiss company law, shareholders must approve, in a general meeting of shareholders, any increase or reduction in the ordinary share capital or the creation of conditional or authorized share capital. In 2021, our shareholders were asked to approve a reduction of share capital by way of canceling 156,632,400 registered shares repurchased under the 2018–2021 share buyback program. In 2021, our shareholders were not asked to approve the creation of conditional or authorized share capital. No shares were issued out of existing conditional capital, as there were no employee options and stock appreciation rights outstanding. Distribution of UBS shares AAss ooff 3311 DDeecceemmbbeerr 22002211 Number of shares registered 1–100 101–1,000 1,001–10,000 10,001–100,000 100,001–1,000,000 1,000,001–5,000,000 5,000,001–37,024,229 (1%) 1–2% 2–3% 3–4% 4–5% Over 5% Total registered Unregistered3 TToottaall SShhaarreehhoollddeerrss rreeggiisstteerreedd SShhaarreess rreeggiisstteerreedd Number % of shares issued Number 21,973 98,460 65,295 6,421 523 94 26 3 0 0 1 21 % 11.4 51.1 33.9 3.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,210,904 46,829,775 192,251,772 152,692,476 152,003,230 202,245,394 291,114,743 142,657,900 0 0 177,762,902 543,460,208 192,798 100.0 1,902,229,3042 119922,,779988 110000..00 1,800,193,691 33,,770022,,442222,,999955 0.0 1.3 5.2 4.1 4.1 5.5 7.9 3.9 0.0 0.0 4.8 14.7 51.4 48.6 110000..00 11 On 31 December 2021, Chase Nominees Ltd., London, entered as a nominee, was registered with 8,89% of all UBS shares issued. However, according to the provisions of UBS Group AG, voting rights of nominees are limited to a maximum of 5% of all UBS shares issued. The US securities clearing organization DTC (Cede & Co.), New York, was registered with 5.78% of all UBS shares issued and is not subject to this 5% voting limit as a securities clearing organization. 22 Of the total shares registered, 295,987,073 shares did not carry voting rights. 33 Shares not entered in the UBS share register as of 31 December 2021. 186 186 Corporate governance and compensation | Corporate governance Share capital structure Ordinary share capital In 2021, our shareholders were asked to approve a reduction of share capital by way of canceling 156,632,400 registered At year-end 2021, UBS Group AG had 3,702,422,995 issued shares repurchased under the 2018–2021 share buyback shares with a nominal value of CHF 0.10 each, equating to a share program. capital of CHF 370,242,299.50. In 2021, our shareholders were not asked to approve the Under Swiss company law, shareholders must approve, in a creation of conditional or authorized share capital. general meeting of shareholders, any increase or reduction in the No shares were issued out of existing conditional capital, as ordinary share capital or the creation of conditional or authorized there were no employee options and stock appreciation rights share capital. outstanding. Distribution of UBS shares AAss ooff 3311 DDeecceemmbbeerr 22002211 Number of shares registered 1–100 101–1,000 1,001–10,000 10,001–100,000 100,001–1,000,000 1,000,001–5,000,000 5,000,001–37,024,229 (1%) 1–2% 2–3% 3–4% 4–5% Over 5% Total registered Unregistered3 TToottaall SShhaarreehhoollddeerrss rreeggiisstteerreedd SShhaarreess rreeggiisstteerreedd Number % of shares issued Number 21,973 98,460 65,295 6,421 523 94 26 3 0 0 1 21 % 11.4 51.1 33.9 3.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,210,904 46,829,775 192,251,772 152,692,476 152,003,230 202,245,394 291,114,743 142,657,900 0 0 177,762,902 543,460,208 1,800,193,691 33,,770022,,442222,,999955 0.0 1.3 5.2 4.1 4.1 5.5 7.9 3.9 0.0 0.0 4.8 14.7 51.4 48.6 110000..00 11 On 31 December 2021, Chase Nominees Ltd., London, entered as a nominee, was registered with 8,89% of all UBS shares issued. However, according to the provisions of UBS Group AG, voting rights of nominees are limited to a maximum of 5% of all UBS shares issued. The US securities clearing organization DTC (Cede & Co.), New York, was registered with 5.78% of all UBS shares issued and is not subject to this 5% voting limit as a securities clearing organization. 22 Of the total shares registered, 295,987,073 shares did not carry voting rights. 33 Shares not entered in the UBS share register as of 31 December 2021. 119922,,779988 110000..00 Conditional share capital At year-end 2021, the following conditional share capital was available to UBS Group AG’s BoD: – A maximum of CHF 38,000,000 represented by up to 380,000,000 fully paid registered shares with a nominal value of CHF 0.10 each, to be issued through the voluntary or mandatory exercise of conversion rights and / or warrants granted in connection with the issuance of bonds or similar financial instruments on national or international capital markets. This conditional capital allowance was approved at the Extraordinary General Meeting (the EGM) held on 26 November 2014, having originally been approved at the AGM of UBS AG on 14 April 2010. The BoD has not made use of such allowance. – A maximum of CHF 12,170,583 represented by 121,705,830 fully paid registered shares with a nominal value of CHF 0.10 each, to be issued upon exercise of employee options and stock appreciation rights issued to employees and members of the management and of the BoD of UBS Group AG and its subsidiaries. This conditional capital allowance was approved by the shareholders at the same EGM in 2014. › Refer to article 4a of the Articles of Association of UBS Group AG for more information about the terms and conditions of the issue of shares out of existing conditional capital. The Articles of Association are available at ubs.com/governance › Refer to the “Our evolution” section on page 14 of this report for more information Conditional capital of UBS Group AG AAss ooff 3311 DDeecceemmbbeerr 22002211 Employee equity participation plans Conversion rights / warrants granted in connection with bonds TToottaall MMaaxxiimmuumm nnuummbbeerr ooff sshhaarreess ttoo bbee iissssuueedd 121,705,830 Year approved by Extraor- dinary General Meeting 2014 380,000,000 550011,,770055,,883300 2014 %% ooff sshhaarreess iissssuueedd 3.29 10.26 1133..5555 Authorized share capital Ownership 192,798 100.0 1,902,229,3042 Changes in capital UBS Group AG had no authorized capital available to issue on 31 December 2021. In accordance with International Financial Reporting Standards (IFRS), Group equity attributable to shareholders was USD 60.7 billion as of 31 December 2021 (2020: USD 59.4 billion; 2019: USD 54.5 billion). The equity of UBS Group AG shareholders was represented by 3,702,422,995 issued shares as of 31 December 2021 (31 December 2020: 3,859,055,395 shares; 31 December 2019: 3,859,055,395 shares). › Refer to “Statement of changes in equity” in the “Consolidated financial statements” section on page 286 of this report for more information about changes in shareholders’ equity over the last three years Ownership of UBS Group AG shares is widely spread. The tables in this section provide information about the distribution of UBS Group AG shareholders by category and geographic location. This information relates only to shareholders registered in the UBS share register and cannot be assumed to be representative of UBS Group AG’s entire investor base or the actual beneficial ownership. Only shareholders registered in the share register as “shareholders with voting rights” are entitled to exercise voting rights. › Refer to “Shareholders’ participation rights” in this section for more information As of 31 December 2021, 1,606,242,231 UBS Group AG shares were registered in the share register and carried voting rights, 295,987,073 shares were registered in the share register without voting rights, and 1,800,193,691 shares were not registered in the UBS share register. All shares were fully paid up and eligible for dividends. There are no preferential rights for shareholders, and no other classes of shares have been issued by UBS Group AG. 186 187 187 Corporate governance and compensationCorporate governance and compensation | Corporate governance Shareholders, legal entities and nominees: type and geographical distribution AAss ooff 3311 DDeecceemmbbeerr 22002211 Individual shareholders Legal entities Nominees, fiduciaries Total registered shares Unregistered shares TToottaall AAmmeerriiccaass of which: USA AAssiiaa PPaacciiffiicc EEuurrooppee,, MMiiddddllee EEaasstt aanndd AAffrriiccaa of which: Germany of which: UK of which: rest of Europe of which: Middle East and Africa SSwwiittzzeerrllaanndd Total registered shares Unregistered shares TToottaall SShhaarreehhoollddeerrss rreeggiisstteerreedd Number 188,892 3,724 182 % 98.0 1.9 0.1 119922,,779988 110000..00 IInnddiivviidduuaall sshhaarreehhoollddeerrss LLeeggaall eennttiittiieess NNoommiinneeeess TToottaall Number 11,,775522 1,244 55,,002244 1111,,998888 3,715 4,580 3,419 274 117700,,112288 % 00..99 0.6 22..66 66..22 1.9 2.4 1.8 0.1 8888..22 Number 110022 54 9988 221188 25 9 180 4 33,,330066 % 00..11 0.0 00..11 00..11 0.0 0.0 0.1 0.0 11..77 Number 8811 78 2244 4455 3 7 34 1 3322 % 00..00 0.0 00..00 00..00 0.0 0.0 0.0 0.0 00..00 Number 11,,993355 1,376 55,,114466 1122,,225511 3,743 4,596 3,633 279 117733,,446666 % 11..00 0.7 22..77 66..44 1.9 2.4 1.9 0.1 9900..00 118888,,889922 9988..00 33,,772244 11..99 118822 00..11 119922,,779988 110000..00 At year-end 2021, UBS owned 302,815,328 UBS Group AG registered shares, which corresponded to 8.18% of the total share capital of UBS Group AG. At the same time, UBS had acquisition positions relating to 327,114,543 voting rights of UBS Group AG and disposal positions relating to 184,989,149 such rights, corresponding to 8.84% and 5.00% of the total voting rights of UBS Group AG, respectively. Of the disposal positions, 174,354,474 related to voting rights on shares deliverable in respect of employee awards. The calculation methodology for the acquisition and disposal positions is based on the Ordinance of the Swiss Financial Market Supervisory Authority on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading, which states that all future potential share delivery obligations, irrespective of the contingent nature of the delivery, must be considered. achieving growth ambitions, EOP and LTIP awards granted to certain employees will only vest if predetermined performance conditions are met. On 31 December 2021, UBS employees held at least 7% of UBS shares outstanding (including approximately 5% in unvested notional shares from our compensation programs). These figures are based on known shareholding information from employee participation plans, personal holdings with UBS and selected individual retirement plans. At the end of 2021, at least 30% of all employees held UBS shares through the firm’s employee share participation plans. › Refer to the “Compensation” section on page 222 of this report for more information Trading restrictions in UBS shares Employee share ownership total compensation greater Employee share ownership is encouraged and made possible in a variety of ways. Our Equity Plus Plan is a voluntary plan that provides eligible employees with the opportunity to purchase UBS Group AG shares at market value and receive, at no additional cost, one notional UBS Group AG share for every three shares purchased. The Equity Ownership Plan (the EOP) is a mandatory deferral plan for all employees with regulatory-driven deferral requirements or than USD / CHF 300,000, excluding selected senior leaders. EOP recipients receive a portion of their deferred performance award in notional shares (and / or notional funds for Asset Management). Selected senior leaders receive the equity-based Long-Term Incentive Plan (the LTIP) instead of the EOP. Both the EOP and LTIP include provisions that allow the firm to reduce or fully forfeit the unvested deferred portion of an award if an employee commits certain harmful acts, and in most cases trigger forfeiture where employment has been terminated. To reinforce our emphasis on sustainable performance and risk management, and our focus on UBS employees with regular access to unpublished price-sensitive information about the firm are subject to specific restrictions in respect to UBS financial instruments, including, but not limited to, pre-clearance requirements and regular blackout periods. Such UBS employees are not permitted to trade UBS financial instruments in the period starting from the close of business in New York on the seventh business day of the final month of the financial quarter of UBS Group AG and ending on the day of the publication of the quarterly financial results. Shares and participation certificates UBS Group AG has a single class of shares, which are registered shares in the form of uncertificated securities (in the sense of the Swiss Code of Obligations) and intermediary-held securities (in the sense of the Swiss Federal Act on Intermediated Securities). Each registered share has a nominal value of CHF 0.10 and carries one vote, subject to the restrictions set out under “Transferability, voting rights and nominee registration” below. We have no participation certificates outstanding. 188 188 Corporate governance and compensation | Corporate governance Shareholders, legal entities and nominees: type and geographical distribution AAss ooff 3311 DDeecceemmbbeerr 22002211 Individual shareholders Legal entities Nominees, fiduciaries Total registered shares Unregistered shares TToottaall AAmmeerriiccaass of which: USA AAssiiaa PPaacciiffiicc EEuurrooppee,, MMiiddddllee EEaasstt aanndd AAffrriiccaa of which: Germany of which: UK of which: rest of Europe of which: Middle East and Africa SSwwiittzzeerrllaanndd Total registered shares Unregistered shares TToottaall SShhaarreehhoollddeerrss rreeggiisstteerreedd Number 188,892 3,724 182 119922,,779988 110000..00 % 98.0 1.9 0.1 % 11..00 0.7 22..77 66..44 1.9 2.4 1.9 0.1 IInnddiivviidduuaall sshhaarreehhoollddeerrss LLeeggaall eennttiittiieess Number NNoommiinneeeess Number Number 11,,775522 1,244 55,,002244 1111,,998888 3,715 4,580 3,419 274 % 00..99 0.6 22..66 66..22 1.9 2.4 1.8 0.1 110022 54 9988 221188 25 9 180 4 % 00..11 0.0 00..11 00..11 0.0 0.0 0.1 0.0 11..77 8811 78 2244 4455 3 7 34 1 3322 % 00..00 0.0 00..00 00..00 0.0 0.0 0.0 0.0 00..00 TToottaall Number 11,,993355 1,376 55,,114466 1122,,225511 3,743 4,596 3,633 279 117700,,112288 8888..22 33,,330066 117733,,446666 9900..00 118888,,889922 9988..00 33,,772244 11..99 118822 00..11 119922,,779988 110000..00 IInnddiivviidduuaall sshhaarreehhoollddeerrss LLeeggaall eennttiittiieess NNoommiinneeeess Number of shares 22,,335533,,330099 895,352 2200,,773388,,997788 4444,,113355,,558888 12,300,749 19,457,985 11,187,562 1,189,292 333399,,778877,,445511 407,015,326 0 440077,,001155,,332266 % 00..11 0.0 00..66 11..22 0.3 0.5 0.3 0.0 99..22 11.0 1111..00 Number of shares 3388,,223311,,773388 32,243,999 1122,,339999,,008877 7700,,447777,,888877 1,303,330 288,377 30,050,555 38,835,625 441111,,663344,,330077 532,743,019 0 553322,,774433,,001199 % 11..00 0.9 00..33 11..99 0.0 0.0 0.8 1.0 1111..11 14.4 1144..44 Number of shares 331144,,229988,,779988 314,079,349 88,,221133,,884411 662233,,007755,,224422 10,696,165 578,307,924 33,946,355 124,798 1166,,888833,,007788 962,470,959 0 996622,,447700,,995599 % 88..55 8.5 00..22 1166..88 0.3 15.6 0.9 0.0 00..55 26.0 2266..00 SShhaarreess rreeggiisstteerreedd Number 407,015,326 532,743,019 962,470,959 1,902,229,304 1,800,193,691 33,,770022,,442222,,999955 TToottaall Number of shares 335544,,888833,,884455 347,218,700 4411,,335511,,990066 773377,,668888,,771177 24,300,244 598,054,286 75,184,472 40,149,715 776688,,330044,,883366 1,902,229,304 1,800,193,691 33,,770022,,442222,,999955 % 11.0 14.4 26.0 51.4 48.6 110000..00 % 99..66 9.4 11..11 1199..99 0.7 16.2 2.0 1.1 2200..88 51.4 48.6 110000..00 At year-end 2021, UBS owned 302,815,328 UBS Group AG achieving growth ambitions, EOP and LTIP awards granted to registered shares, which corresponded to 8.18% of the total certain employees will only vest if predetermined performance share capital of UBS Group AG. At the same time, UBS had conditions are met. acquisition positions relating to 327,114,543 voting rights of UBS On 31 December 2021, UBS employees held at least 7% of Group AG and disposal positions relating to 184,989,149 such UBS shares outstanding (including approximately 5% in unvested rights, corresponding to 8.84% and 5.00% of the total voting notional shares from our compensation programs). These figures Our shares are listed on the NYSE as global registered shares. As such, they can be traded and transferred across applicable borders, without the need for conversion, with identical shares traded on different stock exchanges in different currencies. › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section on page 178 of this report for more rights of UBS Group AG, respectively. Of the disposal positions, are based on known shareholding information from employee information 174,354,474 related to voting rights on shares deliverable in participation plans, personal holdings with UBS and selected respect of employee awards. The calculation methodology for the individual retirement plans. At the end of 2021, at least 30% of acquisition and disposal positions is based on the Ordinance of all employees held UBS shares through the firm’s employee share the Swiss Financial Market Supervisory Authority on Financial participation plans. Market Infrastructures and Market Conduct in Securities and › Refer to the “Compensation” section on page 222 of this report Derivatives Trading, which states that all future potential share for more information delivery obligations, irrespective of the contingent nature of the delivery, must be considered. Trading restrictions in UBS shares Employee share ownership UBS employees with regular access to unpublished price-sensitive information about the firm are subject to specific restrictions in Employee share ownership is encouraged and made possible in a respect to UBS financial instruments, including, but not limited to, variety of ways. Our Equity Plus Plan is a voluntary plan that pre-clearance requirements and regular blackout periods. Such provides eligible employees with the opportunity to purchase UBS UBS employees are not permitted to trade UBS financial Group AG shares at market value and receive, at no additional instruments in the period starting from the close of business in cost, one notional UBS Group AG share for every three shares New York on the seventh business day of the final month of the purchased. The Equity Ownership Plan (the EOP) is a mandatory financial quarter of UBS Group AG and ending on the day of the deferral plan for all employees with regulatory-driven deferral publication of the quarterly financial results. requirements or total compensation greater than USD / CHF 300,000, excluding selected senior leaders. EOP recipients Shares and participation certificates receive a portion of their deferred performance award in notional shares (and / or notional funds for Asset Management). Selected UBS Group AG has a single class of shares, which are registered senior leaders receive the equity-based Long-Term Incentive Plan shares in the form of uncertificated securities (in the sense of the (the LTIP) instead of the EOP. Both the EOP and LTIP include Swiss Code of Obligations) and intermediary-held securities (in the provisions that allow the firm to reduce or fully forfeit the sense of the Swiss Federal Act on Intermediated Securities). Each unvested deferred portion of an award if an employee commits registered share has a nominal value of CHF 0.10 and carries one certain harmful acts, and in most cases trigger forfeiture where vote, subject to the restrictions set out under “Transferability, employment has been terminated. To reinforce our emphasis on voting rights and nominee registration” below. sustainable performance and risk management, and our focus on We have no participation certificates outstanding. Distributions to shareholders The decision to pay a dividend and the amount of any dividend depend on a variety of factors, including our profits, cash flow generation and capital ratios. At the 2022 AGM, the BoD intends to propose to shareholders for approval a dividend of USD 0.50 per share for the 2021 financial year. Shareholders whose shares are held through SIX SIS AG will receive dividends in Swiss francs, based on a public exchange rate on the day prior to the ex-dividend date. Shareholders holding shares through The Depository Trust Company in New York and Computershare will be paid dividends in US dollars. In compliance with Swiss tax law, 50% of the dividend will be paid out of retained earnings and the balance will be paid out of the capital contribution reserve. Dividends paid out of capital contribution reserves are not subject to Swiss withholding tax. The portion of the dividend paid out of retained earnings will be subject to a 35% Swiss withholding tax. For US federal income tax purposes, we expect that the dividend will be paid out of current or accumulated earnings and profits. Provided that the proposed dividend distribution out of retained earnings and out of the capital contribution reserve will be approved at the AGM on 6 April 2022, the payment of USD 0.50 per share will be made on 14 April 2022 to holders of shares on the record date 13 April 2022. The shares will be traded ex-dividend as of 12 April 2022 and, accordingly, the last day on which the shares may be traded with entitlement to receive the dividend will be 11 April 2022. In February 2021, the BoD launched a new three-year share buyback program. At the 2021 AGM, the shareholders authorized the BoD to buy back shares for cancellation purposes in an aggregate value of up to CHF 4 billion until the 2024 AGM. Any shares bought back under the program are intended to be canceled by way of capital reduction, which will be subject to shareholder approval at one or several subsequent AGMs, and the acquisition and holding of such shares are not subject to the 10% threshold for UBS Group AG’s own shares within the meaning of Art. 659 para. 1 of the Swiss Code of Obligations. Since the start of this 2021 share repurchase program in February 2021 until 18 February 2022, we have bought back CHF 2.78 billion of shares. These shares are expected to be canceled by means of a capital reduction, to be proposed for shareholder approval at the 2022 AGM. Looking ahead, we intend to commence a new 2022 share buyback program of up to USD 6 billion over two years and expect to execute up to USD 5 billion of share repurchases under both the existing 2021 and the new 2022 share buyback program by the end of 2022. › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section on page 178 of this report for more information about the share repurchase programs 188 189 189 Corporate governance and compensationCorporate governance and compensation | Corporate governance Transferability, voting rights and nominee registration Convertible bonds and options As of 31 December 2021, there were no contingent capital securities or convertible bonds outstanding requiring the issuance of new shares. › Refer to the “Capital, liquidity and funding, and balance sheet” section on page 150 of this report for more information about our outstanding capital instruments rights appreciation As of 31 December 2021, there were no employee options and stock outstanding. Option-based compensation plans are sourced by issuing new shares out of conditional capital. As of 31 December 2021, 121,705,830 unissued UBS Group AG shares in conditional share capital were available for the issuance of new shares for this purpose. › Refer to “Conditional share capital” in this section for more information › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section on page 387 of this report for more information about outstanding options and stock appreciation rights We do not apply any restrictions or limitations on the transferability of shares. Voting rights may be exercised without any restrictions by shareholders entered into the share register if they expressly render a declaration of beneficial ownership according to the provisions of the Articles of Association. We have special provisions for the registration of nominees. Nominees are entered in the share register with voting rights up to a total of 5% of all issued UBS Group AG shares if they agree to disclose, upon our request, beneficial owners holding 0.3% or more of all issued UBS Group AG shares. An exception to the 5% voting limit rule is in place for securities clearing organizations, such as The Depository Trust Company in New York. › Refer to “Shareholders’ participation rights” in this section for more information 190 190 Corporate governance and compensation | Corporate governance We do not apply any restrictions or limitations on the As of 31 December 2021, there were no contingent capital transferability of shares. Voting rights may be exercised without securities or convertible bonds outstanding requiring the issuance any restrictions by shareholders entered into the share register if of new shares. they expressly render a declaration of beneficial ownership according to the provisions of the Articles of Association. › Refer to the “Capital, liquidity and funding, and balance sheet” section on page 150 of this report for more information about We have special provisions for the registration of nominees. our outstanding capital instruments Nominees are entered in the share register with voting rights up to a total of 5% of all issued UBS Group AG shares if they agree As of 31 December 2021, there were no employee options and to disclose, upon our request, beneficial owners holding 0.3% or stock appreciation rights outstanding. Option-based more of all issued UBS Group AG shares. An exception to the 5% compensation plans are sourced by issuing new shares out of voting limit rule is in place for securities clearing organizations, conditional capital. As of 31 December 2021, 121,705,830 such as The Depository Trust Company in New York. unissued UBS Group AG shares in conditional share capital were › Refer to “Shareholders’ participation rights” in this section for more information available for the issuance of new shares for this purpose. › Refer to “Conditional share capital” in this section for more information › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section on page 387 of this report for more information about outstanding options and stock appreciation rights Transferability, voting rights and nominee registration Convertible bonds and options Shareholders’ participation rights We are committed to shareholder participation in decision- making processes. Our online voting platform offers registered shareholders a convenient log-in and online voting process. Registered shareholders are sent personal invitations to the general meetings. Together with the invitation materials, they receive a personal one-time password and a QR code to easily log in to the online voting platform, where they can enter their voting instructions or order an admission card for the general meeting. Shareholders who choose not to receive the comprehensive invitation materials are informed of upcoming general meetings by a short letter containing a personal one-time password, a QR code for online voting and a reference to ubs.com/agm, where all information for the upcoming meeting is available. General meetings offer shareholders the opportunity to raise questions for the BoD, GEB and internal and external auditors. Also, prior to our virtual general meetings, we offer all shareholders the opportunity to contact us with questions, which are answered in writing or during the general meeting. Voting rights, restrictions and representation We place no restrictions on share ownership and voting rights. However, pursuant to general principles formulated by the BoD, nominee companies, which normally represent a large number of individual shareholders and may hold an unlimited number of shares, have voting rights limited to a maximum of 5% of all issued UBS Group AG shares. This is to avoid large shareholders being entered in UBS’s share register via nominee companies so as to exercise influence without directly registering their shares with UBS. Securities clearing organizations, such as The Depository Trust Company in New York, are not subject to this 5% voting limit. Shareholders can exercise voting rights conferred by shares only if they are registered in our share register with voting rights. To register, shareholders must confirm that they have acquired UBS Group AG shares in their own name and for their own account. Nominee companies are required to sign an agreement confirming their willingness to disclose, upon our request, individual beneficial owners holding more than 0.3% of all issued UBS Group AG shares. All shareholders registered with voting rights are entitled to participate in general meetings. If they do not wish to attend in person, they may issue instructions to support, reject or abstain for each individual item on the meeting agenda, either by giving instructions to an independent proxy in accordance with article 14 of the Articles of Association (the AoA) or by appointing another registered shareholder of their choice to vote on their behalf. Alternatively, registered shareholders may issue their voting instructions to the independent proxy electronically through our online voting platform. Nominee companies normally submit the proxy material to the beneficial owners and forward the collected votes to the independent proxy. In 2021, physical attendance at the AGM was not possible, due to COVID-19-related restrictions in Switzerland, and voting rights could only be exercised through the independent proxy. Due to the ongoing pandemic, the BoD has decided to also hold the 2022 AGM without the physical participation of shareholders. › Refer to article 14 of the Articles of Association of UBS Group AG, available at ubs.com/governance, for more information about the issuing of instructions to independent voting right representatives Statutory quorums Motions are decided at a general meeting by an absolute majority of the votes cast, excluding blank and invalid ballots. For the approval of certain specific issues, the Swiss Code of Obligations requires a positive vote from a two-thirds majority of the votes represented at the given general meeting, and from an absolute majority of the nominal value of shares represented thereat. Such issues include creating shares with privileged voting rights, introducing restrictions on the transferability of registered shares, conditional and authorized capital increases and restricting or excluding shareholders’ preemptive rights. The AoA also require a two-thirds majority of votes represented for approval of any change to their provisions regarding the number of BoD members, any decision to remove one-quarter or more of the BoD members and any modification to the provision establishing this qualified quorum. Votes and elections are generally conducted electronically to ascertain the exact number of votes cast. Voting by a show of hands is possible if a clear majority is predictable. Shareholders representing at least 3% of the votes represented may request that a vote or election be carried out electronically or by written ballot. To allow shareholders to clearly express their views on all individual topics, each agenda item is separately put to a vote and BoD members are elected on a person-by-person basis. 190 191 191 Corporate governance and compensationCorporate governance and compensation | Corporate governance Convocation of general meetings of shareholders Registrations in the share register The AGM must be held within six months of the close of the financial year (i.e., 31 December). In 2022, the AGM will take place on 6 April. Extraordinary General Meetings (EGMs) may be convened whenever the BoD or the auditors consider it necessary. Shareholders individually or jointly representing at least 10% of the share capital may at any time, including during an AGM, require, by way of a written statement, that an EGM be convened to address a specific issue they put forward. A personal invitation, including a detailed agenda, is made available to every registered shareholder at least 20 days ahead of each scheduled general meeting. The items on the agenda are also published in the Swiss Official Gazette of Commerce, as well as at ubs.com/agm. Placing of items on the agenda Pursuant to our AoA, shareholders jointly representing shares with an aggregate minimum nominal value of CHF 62,500 may submit proposals for matters to be placed on the agenda for consideration at the next general meeting of shareholders. individually or At the beginning of January, the invitation to submit such proposals is published in the Swiss Official Gazette of Commerce and at ubs.com/agm. Requests for items to be placed on the agenda must include the actual motions to be put forward, together with a short explanation. Such requests must be submitted to the BoD 50 days prior to the general meeting of shareholders, including a statement from the depository bank confirming the number of shares held by the requesting shareholder(s) and that these shares are blocked from sale until the end of the general meeting of shareholders. The BoD formulates opinions on the proposals, which are published together with the motions. The share register of UBS Group AG, where around 190,000 shareholders are directly registered, is an internal, non-public register subject to statutory confidentiality, secrecy, privacy and data protection regulations protecting registered shareholders. In general, third parties and shareholders have no inspection rights with regard to data related to other shareholders. Disclosure of such data is permitted only in specific and limited instances. In line with the Swiss Federal Act on Data Protection, the disclosure of personal data as defined thereunder is only allowed with the consent of the registered shareholder and in cases where there is an overriding private or public interest or if explicitly provided for by Swiss law. The Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading contains specific reporting duties, such as in relation to significant shareholders (refer to “Significant shareholders” in this section for more information). Disclosure may also be required or requested by a court of a competent jurisdiction, by any regulatory body that regulates the conduct of UBS Group AG or by other statutory provisions. The general rules for entry into our Swiss share register with voting rights are described in article 5 of our AoA. The same rules apply to our US transfer agent that operates the US share register for all UBS Group AG shares in a custodian account in the US, where some 230,000 US shareholders are indirectly registered via nominee companies. In order to determine the voting rights of each shareholder, our share register generally closes two business days prior to a general meeting. Our independent proxy agent processes voting instructions from shareholders as long as technically possible, generally also until two business days before a general meeting. Such technical closure of our share register facilitates the determination of the actual voting rights of every shareholder that issued a voting instruction. Irrespective of this technical closure, shares that are registered in our share register are never immobilized and are freely tradable at any time, irrespective of any issued voting instructions. › Refer to article 5 of the Articles of Association of UBS Group AG, available at ubs.com/governance, for more information about the general rules for entry into our Swiss share register 192 192 Corporate governance and compensation | Corporate governance The AGM must be held within six months of the close of the The share register of UBS Group AG, where around 190,000 financial year (i.e., 31 December). In 2022, the AGM will take shareholders are directly registered, is an internal, non-public place on 6 April. register subject to statutory confidentiality, secrecy, privacy and Extraordinary General Meetings (EGMs) may be convened data protection regulations protecting registered shareholders. In whenever the BoD or the auditors consider it necessary. general, third parties and shareholders have no inspection rights Shareholders individually or jointly representing at least 10% of with regard to data related to other shareholders. Disclosure of the share capital may at any time, including during an AGM, such data is permitted only in specific and limited instances. In line require, by way of a written statement, that an EGM be convened with the Swiss Federal Act on Data Protection, the disclosure of to address a specific issue they put forward. personal data as defined thereunder is only allowed with the A personal invitation, including a detailed agenda, is made consent of the registered shareholder and in cases where there is available to every registered shareholder at least 20 days ahead of an overriding private or public interest or if explicitly provided for each scheduled general meeting. The items on the agenda are by Swiss law. The Swiss Federal Act on Financial Market also published in the Swiss Official Gazette of Commerce, as well Infrastructures and Market Conduct in Securities and Derivatives as at ubs.com/agm. Placing of items on the agenda Trading contains specific reporting duties, such as in relation to significant shareholders (refer to “Significant shareholders” in this section for more information). Disclosure may also be required or requested by a court of a competent jurisdiction, by any Pursuant to our AoA, shareholders individually or jointly regulatory body that regulates the conduct of UBS Group AG or representing shares with an aggregate minimum nominal value of by other statutory provisions. CHF 62,500 may submit proposals for matters to be placed on the The general rules for entry into our Swiss share register with agenda for consideration at the next general meeting of voting rights are described in article 5 of our AoA. The same rules shareholders. apply to our US transfer agent that operates the US share register At the beginning of January, the invitation to submit such for all UBS Group AG shares in a custodian account in the US, proposals is published in the Swiss Official Gazette of Commerce where some 230,000 US shareholders are indirectly registered via and at ubs.com/agm. Requests for items to be placed on the nominee companies. In order to determine the voting rights of agenda must include the actual motions to be put forward, each shareholder, our share register generally closes two business together with a short explanation. Such requests must be days prior to a general meeting. Our independent proxy agent submitted to the BoD 50 days prior to the general meeting of processes voting instructions from shareholders as long as shareholders, including a statement from the depository bank technically possible, generally also until two business days before confirming the number of shares held by the requesting a general meeting. Such technical closure of our share register shareholder(s) and that these shares are blocked from sale until facilitates the determination of the actual voting rights of every the end of the general meeting of shareholders. The BoD shareholder that issued a voting instruction. Irrespective of this formulates opinions on the proposals, which are published technical closure, shares that are registered in our share register together with the motions. are never immobilized and are freely tradable at any time, irrespective of any issued voting instructions. › Refer to article 5 of the Articles of Association of UBS Group AG, available at ubs.com/governance, for more information about the general rules for entry into our Swiss share register Convocation of general meetings of shareholders Registrations in the share register Board of Directors The BoD of UBS Group AG, led by the Chairman, consists of between 6 and 12 members, as per our AoA. The BoD decides on the strategy of the Group, upon recommendation by the Group Chief Executive Officer (the Group CEO), and is responsible for the overall direction, supervision and control of the Group and its management. It is also responsible for supervising compliance with applicable laws, rules and regulations. The BoD exercises oversight over UBS Group AG and its subsidiaries, and is responsible for establishing a clear Group governance framework to provide effective steering and supervision of the Group, taking into account the material risks to which UBS Group AG and its subsidiaries are exposed. The BoD has ultimate responsibility for the success of the Group and for delivering sustainable shareholder value within a framework of prudent and effective controls. It approves all financial statements and appoints and removes all GEB members. The BoD of UBS AG, led by the Chairman, decides on the strategy of UBS AG upon recommendation by the President of its Executive Board and exercises the ultimate supervision of management. Its ultimate responsibility for the success of UBS AG is exercised subject to the parameters set by the Group. Members of the Board of Directors At the AGM on 8 April 2021, Jeremy Anderson, William C. Dudley, Reto Francioni, Fred Hu, Mark Hughes, Nathalie Rachou, Julie G. Richardson, Dieter Wemmer and Jeanette Wong were re- elected as members of the BoD. Beatrice Weder di Mauro did not stand for re-election; the biography of Ms. Weder di Mauro can be found on page 190 of the UBS Group AG Annual Report 2020, available under “Annual reporting” at ubs.com/investors. Claudia Böckstiegel and Patrick Firmenich were elected for their first terms. At that same AGM, Axel A. Weber was re-elected Chairman, and Julie G. Richardson, Reto Francioni, Dieter Wemmer and Jeanette Wong were elected as members of the Compensation Committee. ADB Altorfer Duss & Beilstein AG was elected as independent proxy agent. Following his re-election, the BoD appointed Jeremy Anderson as Vice Chairman and Senior Independent Director of UBS Group AG. On 20 November 2021, the BoD announced that Colm Kelleher would be nominated for election to the BoD of UBS Group AG and UBS AG to succeed Axel A. Weber as Chairman at the forthcoming AGMs. Mr. Kelleher was the President of Morgan Stanley & Company, and responsible for Institutional Securities and Wealth Management from 2016 to 2019. In his 30-year career with Morgan Stanley, he held various senior management positions, including Chief Financial Officer during the financial crisis in 2008. In addition, the BoD announced that Lukas Gähwiler would be nominated for election to the BoD of UBS Group AG and UBS AG as Vice Chairman at the forthcoming AGMs. Having joined UBS in 2010 as a member of the GEB of UBS AG and President UBS Switzerland, Mr. Gähwiler stepped down from those roles in 2016 and has been Chairman of the board of directors of UBS Switzerland AG since 2017. He will step down from the board of directors of UBS Switzerland AG as of 5 April 2022. Article 31 of our AoA limits the number of mandates that members of the BoD may hold outside UBS Group to four mandates in listed companies and five additional mandates in non-listed companies. Mandates in companies that are controlled by us or that control us are not subject to this limitation. In addition, members of the BoD may hold no more than 10 mandates at UBS’s request and 10 mandates in associations, charitable organizations, foundations, trusts, and employee welfare foundations. As of 31 December 2021, no member of the BoD reached the thresholds described in article 31 of our AoA. The following biographies provide information about the BoD members who were in office in 2021 and the Group Company Secretary. information on mandates, the biographies include information on memberships or other activities or functions, as required by the SIX Swiss Exchange Corporate Governance Directive. In addition to No member of the BoD currently carries out or has carried out over the past three years operational management tasks within the Group; therefore, all members of the Board are non-executive members. All members of UBS Group AG’s BoD are also members of UBS AG’s BoD, and committee membership is the same for both entities. The Senior Independent Director function relates only to UBS Group AG. In 2021, UBS AG’s BoD had three permanent committees: the Audit Committee, the Compensation Committee and the Risk Committee. In addition to those permanent committees, UBS Group AG also had the Corporate Culture and Responsibility Committee and the Governance and Nominating Committee. 192 193 193 Corporate governance and compensationCorporate governance and compensation | Corporate governance Axel A. Weber Chairman of the Board of Directors and non-executive member of the Board since 2012 – Chairperson of the Corporate Culture and Responsibility Committee Education – Master’s degree, economics, University of Constance – Doctorate (Dr. rer. pol.) and habilitation, economics, since 2013 University of Siegen, Germany – Chairperson of the Governance and Nominating Committee since 2012 Nationality: German | Year of birth: 1957 Axel A. Weber was elected Chairman of UBS in 2012. He gained international recognition as the President of the Deutsche Bundesbank. During his six-year tenure there, he also served as a member of the Governing Council of the European Central Bank, a member of the Board of Directors of the Bank for International Settlements, German governor of the International Monetary Fund and a member of the G7 and G20 Ministers and Governors. As an expert in international and monetary economics, Mr. Weber strove to strengthen the Bundesbank’s importance in the group of the 17 European central banks and led the Bundesbank through the events of the global real estate and financial crisis. Before the Deutsche Bundesbank, he had a career as a renowned expert in monetary and currency theories through his academic posts at several German universities. Professional experience 2011 – 2012 2011 Visiting professor, University of Chicago Booth School of Business, USA (on leave, University of Cologne, Germany) Member of the Steering Committee, the European Systemic Risk Board 2010 – 2011 Member of the Steering Committee, the Financial Stability Board President, Deutsche Bundesbank 2004 – 2011 2002 – 2004 Member, German Council of Economic Experts 2001 – 2004 1998 – 2001 1994 – 1998 Professor of International Economics and Director of the Centre for Financial Research, University of Cologne Professor for Applied Monetary Economics and Director of the Center for Financial Studies, Goethe University Frankfurt am Main Professor of Economic Theory, University of Bonn Other activities and functions – Vice Chairman of the Swiss Bankers Association – Member of the Board of Trustees of Avenir Suisse – Member of the Board of the Swiss Finance Council – Chairman of the Board of the Institute of International Finance – Member of the European Financial Services Round Table – Member of the European Banking Group – Member of the International Advisory Councils of the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission – Member of the International Advisory Panel, Monetary Authority of Singapore – Member of the Group of Thirty, Washington, DC – Member of the Advisory Board of the Department of Economics, University of Zurich – European Chairman of the Trilateral Commission Key competencies – Finance, audit, accounting – Risk management, compliance and legal – Regulatory authority, central bank – ESG (environmental, social and governance) Leadership experience – CEO, Chairman 194 194 Corporate governance and compensation | Corporate governance Axel A. Weber Chairman of the Board of Directors and non-executive member of Education the Board since 2012 – Master’s degree, economics, University of Constance – Chairperson of the Corporate Culture and Responsibility Committee – Doctorate (Dr. rer. pol.) and habilitation, economics, – Chairperson of the Governance and Nominating Committee since 2013 since 2012 Nationality: German | Year of birth: 1957 University of Siegen, Germany Other activities and functions – Vice Chairman of the Swiss Bankers Association – Member of the Board of Trustees of Avenir Suisse – Member of the Board of the Swiss Finance Council Axel A. Weber was elected Chairman of UBS in 2012. He gained international recognition as the President of the Deutsche Bundesbank. During his six-year tenure there, he also served as a member of the Governing Council of the European Central Bank, a member of the Board of Directors of the Bank for International Settlements, German governor of the International Monetary Fund and a member of the G7 and G20 Ministers and Governors. As an expert in international and monetary economics, Mr. Weber strove to strengthen the Bundesbank’s importance in the group of the 17 European central banks and led the Bundesbank through the events of the global real estate and financial crisis. Before the Deutsche Bundesbank, he had a career as a renowned expert in monetary and currency theories through his academic posts at several German – Chairman of the Board of the Institute of International Finance – Member of the European Financial Services Round Table – Member of the European Banking Group – Member of the International Advisory Councils of the China Banking and Insurance Regulatory Commission and the China Securities – Member of the International Advisory Panel, Monetary Authority Regulatory Commission of Singapore – Member of the Group of Thirty, Washington, DC – Member of the Advisory Board of the Department of Economics, University of Zurich – European Chairman of the Trilateral Commission universities. Professional experience 2011 – 2012 Visiting professor, University of Chicago Booth School of Business, USA (on leave, University of Cologne, Germany) – Risk management, compliance and legal – Regulatory authority, central bank 2011 Member of the Steering Committee, the European – ESG (environmental, social and governance) Key competencies – Finance, audit, accounting Leadership experience – CEO, Chairman 2010 – 2011 Member of the Steering Committee, the Financial Systemic Risk Board Stability Board 2004 – 2011 President, Deutsche Bundesbank 2002 – 2004 Member, German Council of Economic Experts 2001 – 2004 Professor of International Economics and Director of the Centre for Financial Research, University of Cologne 1998 – 2001 Professor for Applied Monetary Economics and Director of the Center for Financial Studies, Goethe University Frankfurt am Main 1994 – 1998 Professor of Economic Theory, University of Bonn Jeremy Anderson Claudia Böckstiegel Vice Chairman and Senior Independent Director since 2020 and non-executive member of the Board since 2018 – Member of the Governance and Nominating Committee since 2019 – Chairperson of the Audit Committee since 2018 Non-executive member of the Board since 2021 Nationality: Swiss and German | Year of birth: 1964 Claudia Böckstiegel has been General Counsel and a member of the Enlarged Executive Committee of Roche Holding AG since 2020. She started her professional career as an attorney in private practice in Germany, then joined the Swiss pharmaceutical company in Germany in 2001 and subsequently held various global management positions in the legal sector in Switzerland. Ms. Böckstiegel brings a wealth of know-how in a highly regulated sector. Her responsibilities at Roche Holding AG include a broad range of additional topics, such as safety, health & risk advisory, compliance and environment, patents, audit and sustainability. Professional experience 2020 – date 2016 – 2020 2010 – 2016 2005 – 2010 2001 – 2005 1995 – 2001 1992 – 1995 General Counsel and member of the Enlarged Executive Committee, Roche Holding AG Head of Legal Diagnostics, F. Hoffmann-La Roche Ltd., Basel, Switzerland, Roche Group Head Legal Business, Roche Diagnostics International Ltd, Rotkreuz, Switzerland, Roche Group Head Legal Business, Roche Diagnostics GmbH, Mannheim, Germany, Roche Group Legal Counsel, Roche Diagnostics GmbH, Mannheim, Germany, Roche Group Attorney (Partner), Philipp & Littig, Mannheim, Germany Attorney (Associate), Dr. Hermann Büttner, Karlsruhe, Germany Education – Master’s degree, law, Universities of Mannheim and Heidelberg – Master of Laws (LL.M.), Georgetown University, Washington, DC Key competencies – Risk management, compliance and legal – Finance, audit, accounting – ESG (environmental, social and governance) – Regulatory authority, central bank Leadership experience – Executive board leadership Other activities and functions None Nationality: British | Year of birth: 1958 Jeremy Anderson is a financial services veteran, with more than 30 years’ experience working in the banking and insurance sector in an advisory capacity, covering a broad range of topics, including strategy, audit and risk management, technology-enabled transformation, mergers, and bank restructuring. Before retiring from KPMG in 2017, he was its Chairman of Global Financial Services. Mr. Anderson is also an IT expert, having started out as a software developer in the early 1980s, before working in IT consulting and developing a broad knowledge of systems integration and IT outsourcing services, as well as software development. He cemented his reputation as a tech specialist by becoming a founding sponsor of KPMG’s Global Fintech Network in 2014. Professional experience 2010 – 2017 2008 – 2011 2006 – 2011 2004 – 2006 Chairman of Global Financial Services, KPMG International Head of Clients and Markets KPMG Europe, KPMG International Head of Financial Services KPMG Europe, KPMG International Head of Financial Services KPMG UK, KPMG International 2002 – 2004 Member of the Group Management Board and 1985 – 2002 1980 – 1985 Head of UK operations, Atos Origin SA KPMG consulting UK, KPMG Software developer, Triad Computing Systems Education – Bachelor’s degree, economics, University College London Listed company boards – Member of the Board of Prudential plc Other activities and functions – Trustee of the UK’s Productivity Leadership Group – Trustee of Kingham Hill Trust – Trustee of St. Helen’s Bishopsgate Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Finance, audit, accounting – Risk management, compliance and legal – Technology, cybersecurity Leadership experience – Executive board leadership 194 195 195 Corporate governance and compensationCorporate governance and compensation | Corporate governance William C. Dudley Patrick Firmenich Non-executive member of the Board since 2019 – Member of the Governance and Nominating Committee since 2020 – Member of the Corporate Culture and Responsibility Committee Non-executive member of the Board since 2021 – Member of the Audit Committee since 2021 – Member of the Corporate Culture and Responsibility Committee since 2019 – Member of the Risk Committee since 2019 Nationality: American (US) | Year of birth: 1953 since 2021 Nationality: Swiss | Year of birth: 1962 William C. Dudley served as the President and CEO of the Federal Reserve Bank of New York for nine years. He demonstrated exceptional leadership in monetary policy and as a top regulator, including during the years of the global financial crisis. During that period, his additional area of focus included cultural behavior and social and governance topics in the financial services industry. He also served as the Vice Chairman and a permanent member of the Federal Open Market Committee. Mr. Dudley brings a wealth of experience in banking and research thanks to his former management positions at Goldman Sachs Group and Morgan Guaranty Trust. Patrick Firmenich has been Chairman of the Board of Firmenich International SA, the world’s largest privately owned fragrances and flavorings company, since 2016, after leading the company as CEO during a 12-year tenure. He demonstrated his entrepreneurial leadership by significantly advancing the Firmenich group’s global position through organic and in-organic growth and successfully continuously transformed the organization to respond to client needs and the market environment. He developed an ambitious sustainability strategy for the group to lead the industry in health, safety and environmental performance. Before joining Firmenich, he held several positions in the legal and banking sectors, including working as an international investment banking analyst. Professional experience Professional experience 2009 – 2018 2007 – 2009 2006 2002 – 2005 President and CEO, Federal Reserve Bank of New York, USA Executive Vice President and Head Markets Group, Federal Reserve Bank of New York, USA Senior advisor (part-time), Goldman Sachs Group, USA Partner and Director US Economic Research Group, Goldman Sachs Group, USA 2014 – 2016 2002 – 2014 2001 – 2002 1997 – 2001 1996 – 2002 Managing Director and Director US Economic Research 1993 – 1997 1983 – 1996 Group, Goldman Sachs Group, USA Economist at Goldman Sachs Group, Morgan Guaranty Trust Company, and Board of Governors of the Federal Reserve System Education – Bachelor of Arts, New College of Florida – Doctorate, economics, University of California, Berkeley Non-listed company boards – Member of the Board of Treliant LLC Other activities and functions – Senior Advisor to the Griswold Center for Economic Policy Studies, Princeton University – Member of the Group of Thirty – Member of the Council on Foreign Relations – Chair of the Bretton Woods Committee Board of Directors – Member of the Board of the Council for Economic Education Key competencies – Investment banking, capital markets – Risk management, compliance and legal – Regulatory authority, central bank – ESG (environmental, social and governance) Leadership experience – CEO, Chairman 196 196 Vice Chairman of the Board, Firmenich International SA CEO, Firmenich SA, Geneva Corporate Vice President, Special Operations, Firmenich SA, Geneva Vice President Fine Fragrance worldwide and Président Directeur Général, Firmenich & Cie, Paris and Firmenich Inc, New York Vice President Fine Fragrance North America, Firmenich Inc, New York Account Manager, Firmenich & Cie, Paris Analyst, International Investment Banking, Credit Suisse First Boston Production administrator, Firmenich SA de CV, Mexico Attorney, Business Law, Patry, Junet, Simon & Le Fort, Geneva 1990 – 1993 1988 – 1989 1988 1984 – 1986 Education – Master’s degree, law, University of Geneva, admitted to the bar in Geneva – MBA, INSEAD Fontainebleau Non-listed company boards – Member of the Board of Jacobs Holding AG Other activities and functions – Member of the Board of INSEAD and INSEAD World Foundation – Member of the Advisory Council of the Swiss Board Institute Key competencies – Risk management, compliance and legal – Finance, audit, accounting – ESG (environmental, social and governance) – Banking (wealth management, asset management, personal and corporate banking) and insurance Leadership experience – CEO, Chairman Corporate governance and compensation | Corporate governance since 2019 – Member of the Risk Committee since 2019 Nationality: American (US) | Year of birth: 1953 since 2021 Nationality: Swiss | Year of birth: 1962 Patrick Firmenich has been Chairman of the Board of Firmenich William C. Dudley served as the President and CEO of the Federal Reserve International SA, the world’s largest privately owned fragrances and Bank of New York for nine years. He demonstrated exceptional leadership flavorings company, since 2016, after leading the company as CEO during in monetary policy and as a top regulator, including during the years of a 12-year tenure. He demonstrated his entrepreneurial leadership by the global financial crisis. During that period, his additional area of focus significantly advancing the Firmenich group’s global position through included cultural behavior and social and governance topics in the organic and in-organic growth and successfully continuously transformed financial services industry. He also served as the Vice Chairman and a the organization to respond to client needs and the market environment. permanent member of the Federal Open Market Committee. Mr. Dudley He developed an ambitious sustainability strategy for the group to lead brings a wealth of experience in banking and research thanks to his former the industry in health, safety and environmental performance. Before management positions at Goldman Sachs Group and Morgan Guaranty joining Firmenich, he held several positions in the legal and banking Trust. sectors, including working as an international investment banking analyst. Professional experience Professional experience 2009 – 2018 President and CEO, Federal Reserve Bank of New York, 2014 – 2016 Vice Chairman of the Board, Firmenich International SA USA 2002 – 2014 CEO, Firmenich SA, Geneva 2007 – 2009 Executive Vice President and Head Markets Group, 2001 – 2002 Corporate Vice President, Special Operations, Federal Reserve Bank of New York, USA Firmenich SA, Geneva 2006 Senior advisor (part-time), Goldman Sachs Group, USA 1997 – 2001 Vice President Fine Fragrance worldwide and Président 2002 – 2005 Partner and Director US Economic Research Group, Goldman Sachs Group, USA Directeur Général, Firmenich & Cie, Paris and Firmenich Inc, New York 1996 – 2002 Managing Director and Director US Economic Research 1993 – 1997 Vice President Fine Fragrance North America, Group, Goldman Sachs Group, USA Firmenich Inc, New York 1983 – 1996 Economist at Goldman Sachs Group, Morgan Guaranty 1990 – 1993 Account Manager, Firmenich & Cie, Paris Trust Company, and Board of Governors of the Federal 1988 – 1989 Analyst, International Investment Banking, Credit Suisse – Senior Advisor to the Griswold Center for Economic Policy Studies, Non-listed company boards – Member of the Board of Jacobs Holding AG – Member of the Council on Foreign Relations – Chair of the Bretton Woods Committee Board of Directors – Member of the Board of the Council for Economic Education Other activities and functions – Member of the Board of INSEAD and INSEAD World Foundation – Member of the Advisory Council of the Swiss Board Institute Reserve System Education – Bachelor of Arts, New College of Florida – Doctorate, economics, University of California, Berkeley Non-listed company boards – Member of the Board of Treliant LLC Other activities and functions Princeton University – Member of the Group of Thirty Key competencies – Investment banking, capital markets – Risk management, compliance and legal – Regulatory authority, central bank – ESG (environmental, social and governance) Leadership experience – CEO, Chairman 196 1988 Production administrator, Firmenich SA de CV, Mexico 1984 – 1986 Attorney, Business Law, Patry, Junet, Simon & Le Fort, First Boston Geneva – Master’s degree, law, University of Geneva, admitted to the bar Education in Geneva – MBA, INSEAD Fontainebleau Key competencies – Risk management, compliance and legal – Finance, audit, accounting – ESG (environmental, social and governance) – Banking (wealth management, asset management, personal and corporate banking) and insurance Leadership experience – CEO, Chairman William C. Dudley Patrick Firmenich Reto Francioni Fred Hu Non-executive member of the Board since 2019 Non-executive member of the Board since 2021 – Member of the Governance and Nominating Committee since 2020 – Member of the Audit Committee since 2021 – Member of the Corporate Culture and Responsibility Committee – Member of the Corporate Culture and Responsibility Committee Non-executive member of the Board since 2013 – Member of the Compensation Committee since 2019 – Member of the Risk Committee since 2015 Non-executive member of the Board since 2018 – Member of the Governance and Nominating Committee since 2020 – Member of the Risk Committee since 2020 Nationality: Swiss | Year of birth: 1955 Nationality: Chinese | Year of birth: 1963 Reto Francioni, as the former CEO of Deutsche Börse, can draw on many years of experience in the financial world. Prior to his role at Deutsche Börse, he was Chairman of the Supervisory Board and President of the SWX Group, Zurich, placing him at the heart of digitalization within the financial sector. In both positions, he drove a fundamental transformation to reshape the firms as world leaders in technology. Mr. Francioni has been a professor of applied capital markets theory at the University of Basel since 2006 and is the author of several highly respected books on capital markets issues. He has also served as an independent director on the boards of various major corporations. Fred Hu has been the Chairman and CEO of Primavera Capital Group , an Asia-based private investment firm focused on emerging technology and innovative industries, since founding it in 2010. Prior to that, he was a partner and Chairman for Greater China at Goldman Sachs, building the firm’s Asia Pacific franchise. Mr. Hu has a profound understanding of China’s economy and rapidly developing financial system, and vast amount of experience advising and investing in leading firms in the tech, consumer and health care sectors in China and globally. He has worked at the IMF and advised the Chinese government on economic policy. Professional experience 2005 – 2015 2002 – 2005 CEO, Deutsche Börse AG Chairman of the Supervisory Board and President, SWX Group, Zurich Co-CEO and Spokesman for the Board of Directors, Consors AG, Nuremberg Deputy CEO, Deutsche Börse AG, Frankfurt am Main 1999 – 2000 1993 – 2000 Member of the Executive Board, Deutsche Börse AG, 2000 – 2002 1992 – 1993 1989 – 1992 1985 – 1988 1981 – 1984 Frankfurt am Main Director, Corporate Finance, Hoffmann-La Roche, Basel Deputy Director and deputy CEO, Association Tripartite Bourses, Zurich Equity sales and legal, Credit Suisse, New York and Zurich Union Bank of Switzerland Education – Master’s degree and doctorate, law, University of Zurich Listed company boards – Member of the Board of Coca-Cola HBC AG (Senior Independent Non-Executive Director, chair of the nomination committee) Non-listed company boards – Chairman of the Board of Swiss International Air Lines AG – Vice Chairman of the Board of MTIP AG Other activities and functions – Member of the Board of economiesuisse Key competencies – Investment banking, capital markets – Risk management, compliance and legal – Human resources management, including compensation – Technology, cybersecurity Leadership experience – CEO, Chairman Professional experience 2010 – date 2008 – 2010 2004 – 2008 Founder, Chairman & CEO, Primavera Capital Group, China Partner and Chairman of Greater China, Goldman Sachs Partner and Co-Head, Investment Banking, China, Goldman Sachs 2003 – 2004 Managing Director and Co-Head, Investment Banking, 1997 – 2003 1996 – date 1996 – date China, Goldman Sachs Executive Director, then Managing Director and Chief Economist and Strategist, Greater China, Goldman Sachs Co-Director, the National Center for Economic Research Adjunct Professor, Economics, Tsinghua University Education – Master’s degree, engineering science, Tsinghua University – Master’s degree and doctorate, economics, Harvard University Listed company boards – Non-executive Chairman of the Board of Yum China Holdings (chair of the nomination and governance committee) – Member of the Board of ICBC Non-listed company boards – Chairman of Primavera Capital Ltd – Member of the Board of Ant Group – Member of the Board of Minsheng Financial Leasing Co. Other activities and functions – Trustee of the China Medical Board – Governor of the Chinese International School in Hong Kong SAR – Co-Chairman of the Nature Conservancy Asia Pacific Council – Member of the Board of Trustees, the Institute for Advanced Study – Director and member of the Executive Committee of China Venture Capital and Private Equity Association Ltd. Key competencies – Investment banking, capital markets – Risk management, compliance and legal – Technology, cybersecurity – Regulatory authority, central bank Leadership experience – CEO, Chairman 197 197 Corporate governance and compensationCorporate governance and compensation | Corporate governance Mark Hughes Nathalie Rachou Non-executive member of the Board since 2020 – Chairperson of the Risk Committee since 2020 – Member of the Corporate Culture and Responsibility Committee Non-executive member of the Board since 2020 – Member of the Risk Committee since 2020 since 2020 Nationality: French | Year of birth: 1957 Nationality: Canadian, British and American (US) | Year of birth: 1958 Mark Hughes is a veteran in the financial services sector, having spent more than 35 years working for the Royal Bank of Canada (RBC) in Canada, in the US and the UK. In his final role as Group Chief Risk Officer of RBC, he was responsible for the strategic management of risk on an enterprise-wide basis and oversaw all risk functions. During his career, Mr. Hughes has also held senior management positions in the front office and key operational roles. Currently, he is a visiting lecturer at Leeds University and is chair of the Global Risk Institute, bringing an enormous amount of experience as a risk specialist to the Board of Directors of UBS. Professional experience 2014 – 2018 2013 2008 – 2013 2001 – 2008 1999 – 2001 1998 – 1999 1997 – 1998 1982 – 1996 Group Chief Risk Officer and member Group Executive Committee, Royal Bank of Canada Deputy Chief Risk Officer, Royal Bank of Canada Chief Operating Officer, RBC Capital Markets, Royal Bank of Canada Head of Global Credit, Royal Bank of Canada Head of Debt Products, Royal Bank of Canada Senior Vice President and General Manager USA, Royal Bank of Canada Senior Vice President Financial Services, Royal Bank of Canada Various positions, Royal Bank of Canada Nathalie Rachou is a seasoned expert in financial services, having held a number of banking positions, such as CEO of Prime Brokerage and Head of a business line in Capital Markets at Crédit Agricole Indosuez in the UK and in France. In 1999, she founded a London-based asset management company that merged with a French asset manager and continued as a senior adviser until 2020. Alongside these roles, Ms. Rachou brings extensive experience from serving as a board member of Société Générale for 12 years and is currently on the boards of two other listed companies, including the pan-European bourse, Euronext N.V. Professional experience 2015 – 2020 1999 – 2014 1996 – 1999 1991 – 1996 1986 – 1991 1983 – 1986 1978 – 1982 Senior Advisor, Clartan Associés (formerly Rouvier Associés), France Founding partner and CEO, Topiary Finance Ltd., UK Head of Global Foreign Exchange and Currency Options, Crédit Agricole Indosuez (formerly Banque Indosuez), UK Corporate Secretary and Secretary to the Board of Directors, Crédit Agricole Indosuez, France COO, Carr Futures, France (owned by Banque Indosuez), Crédit Agricole Indosuez, France Head of Asset and Liability Management & Market Risks, Crédit Agricole Indosuez, France Position in Forex Exchange Sales, Crédit Agricole Indosuez, France and UK Education – Bachelor of Laws (LL.B.), University of Leeds – MBA, finance, University of Manchester Other activities and functions – Chair of the Board of Directors of the Global Risk Institute – Visiting lecturer at the University of Leeds – Senior advisor to McKinsey & Company Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Risk management, compliance and legal – Technology, cybersecurity Leadership experience – Executive board leadership Education – Master’s degree, management, HEC Paris – MBA, INSEAD Fontainebleau Listed company boards – Member of the Board of Euronext N.V. (chair of the remuneration committee) – Member of the Board of Veolia Environnement SA (chair of the audit committee) Other activities and functions – Member of the Board of the African Financial Institutions Investment Platform Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Risk management, compliance and legal – Finance, audit, accounting 198 198 Corporate governance and compensation | Corporate governance Mark Hughes Nathalie Rachou Julie G. Richardson Dieter Wemmer Non-executive member of the Board since 2020 – Chairperson of the Risk Committee since 2020 – Member of the Corporate Culture and Responsibility Committee Non-executive member of the Board since 2020 – Member of the Risk Committee since 2020 since 2020 Nationality: French | Year of birth: 1957 Non-executive member of the Board since 2017 – Chairperson of the Compensation Committee since 2019 – Member of the Governance and Nominating Committee since 2019 – Member of the Risk Committee since 2017 Non-executive member of the Board since 2016 – Member of the Governance and Nominating Committee since 2020 – Member of the Audit Committee since 2019 – Member of the Compensation Committee since 2018 Nationality: Canadian, British and American (US) | Year of birth: 1958 Nathalie Rachou is a seasoned expert in financial services, having held a Nationality: American (US) | Year of birth: 1963 Nationality: Swiss and German | Year of birth: 1957 Mark Hughes is a veteran in the financial services sector, having spent of a business line in Capital Markets at Crédit Agricole Indosuez in the UK more than 35 years working for the Royal Bank of Canada (RBC) in and in France. In 1999, she founded a London-based asset management Canada, in the US and the UK. In his final role as Group Chief Risk Officer company that merged with a French asset manager and continued as a of RBC, he was responsible for the strategic management of risk on an senior adviser until 2020. Alongside these roles, Ms. Rachou brings enterprise-wide basis and oversaw all risk functions. During his career, Mr. extensive experience from serving as a board member of Société Générale Hughes has also held senior management positions in the front office and for 12 years and is currently on the boards of two other listed companies, key operational roles. Currently, he is a visiting lecturer at Leeds University including the pan-European bourse, Euronext N.V. number of banking positions, such as CEO of Prime Brokerage and Head and is chair of the Global Risk Institute, bringing an enormous amount of experience as a risk specialist to the Board of Directors of UBS. Professional experience Julie G. Richardson spent more than 25 years on Wall Street as a senior investment banker with a focus on telecom, media and technology. She began her career at Merrill Lynch, before moving to JPMorgan, where she headed the telecommunications, media and technology investment banking group. Later, she moved into private equity, as head of the New York office of Providence Equity Partners. Throughout her career, Ms. Richardson has spent significant time with both incumbent and new technology companies, including being a board member of a digital knowledge management company and a leading cloud monitoring firm. Professional experience 2015 – 2020 Senior Advisor, Clartan Associés (formerly Rouvier Associés), France Professional experience 2014 – 2018 Group Chief Risk Officer and member Group Executive 1999 – 2014 Founding partner and CEO, Committee, Royal Bank of Canada Topiary Finance Ltd., UK 2013 Deputy Chief Risk Officer, Royal Bank of Canada 1996 – 1999 Head of Global Foreign Exchange and Currency Options, 2008 – 2013 Chief Operating Officer, RBC Capital Markets, Royal Bank Crédit Agricole Indosuez (formerly Banque Indosuez), UK of Canada 1991 – 1996 Corporate Secretary and Secretary to the 2001 – 2008 Head of Global Credit, Royal Bank of Canada Board of Directors, Crédit Agricole Indosuez, France 2012 – 2014 2003 – 2012 1998 – 2003 1999 – 2001 Head of Debt Products, Royal Bank of Canada 1986 – 1991 COO, Carr Futures, France (owned by Banque Indosuez), 1986 – 1998 Senior advisor, Providence Equity Partners, New York Partner and Head of the New York office, Providence Equity Partners, New York Vice Chairman of the Investment Banking division of JPMorgan Chase & Co. and Head of its Global Telecommunications, Media and Technology group Various position at Merrill Lynch, final position: Managing Director Media and Communications Investment Banking Education – Bachelor’s degree, business administration, University of Wisconsin–Madison Listed company boards – Member of the Board of Yext (chair of the audit committee) – Member of the Board of Datadog (chair of the audit committee) Key competencies – Investment banking, capital markets – Risk management, compliance and legal – Human resources management, including compensation – Technology, cybersecurity 1998 – 1999 Senior Vice President and General Manager USA, Crédit Agricole Indosuez, France Royal Bank of Canada 1983 – 1986 Head of Asset and Liability Management & Market Risks, 1997 – 1998 Senior Vice President Financial Services, Royal Bank Crédit Agricole Indosuez, France of Canada 1978 – 1982 Position in Forex Exchange Sales, Crédit Agricole Indosuez, 1982 – 1996 Various positions, Royal Bank of Canada France and UK Education – Bachelor of Laws (LL.B.), University of Leeds – MBA, finance, University of Manchester Other activities and functions – Chair of the Board of Directors of the Global Risk Institute – Visiting lecturer at the University of Leeds – Senior advisor to McKinsey & Company Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Risk management, compliance and legal – Technology, cybersecurity Leadership experience – Executive board leadership Education – Master’s degree, management, HEC Paris – MBA, INSEAD Fontainebleau Listed company boards – Member of the Board of Euronext N.V. (chair of the remuneration committee) – Member of the Board of Veolia Environnement SA (chair of the audit committee) Other activities and functions – Member of the Board of the African Financial Institutions Investment Platform Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Risk management, compliance and legal – Finance, audit, accounting Dieter Wemmer began his esteemed career in the insurance sector with the Zurich Group in 1986, retiring in 2017 as CFO of Allianz. As a long-serving CFO of two large multi-national companies in the financial services sector, he brings deep experience across a broad range of highly relevant topics to the table. Mr. Wemmer brings to the BoD knowledge covering accounting, finance and audit, including capital markets, investments, risk management, as well as asset management. His know-how includes hands-on experience in M&A and management of large organizations with a dedication to strategy. Professional experience 2013 – 2017 2012 – 2013 2007 – 2011 2010 – 2011 2004 – 2007 2003 – 2004 1999 – 2003 1997 – 1999 CFO, Allianz SE Member of the Board of Management, responsible for the insurance business in France, Benelux, Italy, Greece and Turkey and for the “Global Property & Casualty” Center of Competence, Allianz SE CFO, Zurich Insurance Group Regional Chairman of Europe, Zurich Insurance Group CEO of the Europe General Insurance business and member of Zurich’s Group Executive Committee, Zurich Insurance Group COO of Europe General Insurance, Zurich Insurance Group Head of Mergers and Acquisitions, Zurich Insurance Group Head of Financial Controlling, Zurich Insurance Group Education – Master’s degree and doctorate, mathematics, University of Cologne Listed company boards – Member of the Board of Ørsted A/S (chair of the audit and risk committee) Non-listed company boards – Chairman of Marco Capital Holdings Limited, Malta and subsidiaries Other activities and functions – Member of the Berlin Center of Corporate Governance Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Finance, audit, accounting – Risk management, compliance and legal Leadership experience – Executive board leadership 198 199 199 Corporate governance and compensationCorporate governance and compensation | Corporate governance Jeanette Wong Non-executive member of the Board since 2019 – Member Compensation Committee since 2020 – Member of the Corporate Culture and Responsibility Committee since 2020 – Member of the Audit Committee since 2019 Nationality: Singaporean | Year of birth: 1960 Jeanette Wong has spent more than 30 years working in the financial sector in Singapore. She retired from DBS Group in 2019, where she was Group Executive responsible for the institutional banking business, a post which encompassed corporate banking, global transaction services, strategic advisory and mergers and acquisitions. Prior to that, she held the position of CFO at DBS Bank. During a 16-year career with JPMorgan, Ms. Wong helped build up its Asia and emerging markets business. She brings extensive experience from serving as a member of the board of directors of two highly valued listed companies. Professional experience 2008 – 2019 2003 – 2008 2003 1997 – 2002 1986 – 1997 Group Executive institutional banking business, DBS Bank, Singapore CFO, DBS Bank Chief Administration Officer, DBS Bank, Singapore Country Manager Singapore, JPMorgan Chase, Singapore Various roles in Global Markets and Emerging Markets Sales and Trading business, Asia, JPMorgan Chase, Singapore Markus Baumann Group Company Secretary since 2017 Nationality: Swiss | Year of birth: 1963 Markus Baumann joined UBS in 1979 as a banking apprentice and has now been with the firm for more than 40 years. Earlier in his career, he worked in Japan for four years, as Corporate Planning Officer and assistant to the CEO. He then worked as COO EMEA for UBS Asset Management and has since held a broad range of leadership roles across the Group in Switzerland, the US and Japan, including COO of Group Internal Audit from 2006 to 2015. Professional experience 2017 – date Group Company Secretary of UBS Group AG and Company Secretary of UBS AG Chief of Staff to the Chairman of the Board of Directors, UBS COO, Group Internal Audit, UBS Head Global Reporting & Controlling, Global Asset Management, UBS Head Management Support CEO EMEA, Global Asset Management, UBS COO EMEA, Global Asset Management, UBS Various positions, Union Bank of Switzerland 2015 – 2016 2006 – 2015 2005 – 2006 2002 – 2004 1998 – 2002 1979 – 1997 Education – Swiss Federal Diploma as a Business Analyst – MBA, INSEAD Fontainebleau 1984 – 1986 Manager, Private Banking, Citibank, Singapore 1982 – 1984 Manager, Corporate Banking, Paribas, Singapore Education – Bachelor’s degree, business administration, the National University of Singapore – MBA, University of Chicago Listed company boards – Member of the Board of Prudential plc – Member of the Board of Singapore Airlines Limited Non-listed company boards – Member of the Board Risk Committee of GIC Pte Ltd – Member of the Board of Jurong Town Corporation – Member of the Board of PSA International Other activities and functions – Chairman of the CareShield Life Council – Member of the Securities Industry Council – Member of the Board of Trustees of the National University of Singapore Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Finance, audit, accounting – ESG (environmental, social and governance) Leadership experience – Executive board leadership 200 200 – Member of the Corporate Culture and Responsibility Committee Nationality: Swiss | Year of birth: 1963 Organizational principles and structure Elections and terms of office Shareholders annually elect each member of the BoD individually, as well as the Chairman and the members of the Compensation Committee, based on proposals from the BoD. As set out in the Organization Regulations, BoD members are normally expected to serve for at least three years. BoD members are limited to serving for a maximum of 10 consecutive terms of office; in exceptional circumstances the BoD may extend that limit. › Refer to “Skills, expertise and training of the Board of Directors” in this section for more information Following each AGM, the BoD meets to appoint one or more Vice Chairmen, a Senior Independent Director, the BoD committee members (other than the Compensation Committee members, who are elected by the shareholders) and the respective committee Chairpersons. At the same meeting the BoD appoints the Group Company Secretary, who, pursuant the Organization Regulations, acts as secretary to the BoD and its committees. to Pursuant to the AoA and the Organization Regulations, the BoD meets as often as business requires, but it must meet at least six times a year. Due to the continued COVID-19 pandemic, all meetings were organized as video calls, with the exception of the meeting held in October 2021. Additional video calls were organized during the reporting period to facilitate social engagement and interaction between the members of the BoD. During 2021, a total of 24 BoD meetings were held, 12 of which were attended by GEB members. Average participation in the BoD Markus Baumann Group Company Secretary since 2017 Markus Baumann joined UBS in 1979 as a banking apprentice and has now been with the firm for more than 40 years. Earlier in his career, he worked in Japan for four years, as Corporate Planning Officer and assistant to the CEO. He then worked as COO EMEA for UBS Asset Management and has since held a broad range of leadership roles across the Group in Switzerland, the US and Japan, including COO of Group Internal Audit from 2006 to 2015. Professional experience 2017 – date Group Company Secretary of UBS Group AG and Company Secretary of UBS AG 2015 – 2016 Chief of Staff to the Chairman of the Board of Directors, UBS 2006 – 2015 2005 – 2006 COO, Group Internal Audit, UBS Head Global Reporting & Controlling, Global Asset Management, UBS 2002 – 2004 Head Management Support CEO EMEA, Global Asset Management, UBS 1998 – 2002 1979 – 1997 COO EMEA, Global Asset Management, UBS Various positions, Union Bank of Switzerland Education – Swiss Federal Diploma as a Business Analyst – MBA, INSEAD Fontainebleau Corporate governance and compensation | Corporate governance Jeanette Wong Non-executive member of the Board since 2019 – Member Compensation Committee since 2020 since 2020 – Member of the Audit Committee since 2019 Nationality: Singaporean | Year of birth: 1960 Jeanette Wong has spent more than 30 years working in the financial sector in Singapore. She retired from DBS Group in 2019, where she was Group Executive responsible for the institutional banking business, a post which encompassed corporate banking, global transaction services, strategic advisory and mergers and acquisitions. Prior to that, she held the position of CFO at DBS Bank. During a 16-year career with JPMorgan, Ms. Wong helped build up its Asia and emerging markets business. She brings extensive experience from serving as a member of the board of directors of two highly valued listed companies. Professional experience 2008 – 2019 Group Executive institutional banking business, DBS Bank, Singapore 2003 – 2008 CFO, DBS Bank 2003 1997 – 2002 1986 – 1997 Chief Administration Officer, DBS Bank, Singapore Country Manager Singapore, JPMorgan Chase, Singapore Various roles in Global Markets and Emerging Markets Sales and Trading business, Asia, JPMorgan Chase, Singapore 1984 – 1986 Manager, Private Banking, Citibank, Singapore 1982 – 1984 Manager, Corporate Banking, Paribas, Singapore – Bachelor’s degree, business administration, the National University Education of Singapore – MBA, University of Chicago Listed company boards – Member of the Board of Prudential plc – Member of the Board of Singapore Airlines Limited Non-listed company boards – Member of the Board Risk Committee of GIC Pte Ltd – Member of the Board of Jurong Town Corporation – Member of the Board of PSA International Other activities and functions – Chairman of the CareShield Life Council – Member of the Securities Industry Council – Member of the Board of Trustees of the National University of Singapore Key competencies – Banking (wealth management, asset management, personal and corporate banking) and insurance – Investment banking, capital markets – Finance, audit, accounting – ESG (environmental, social and governance) Leadership experience – Executive board leadership meetings was 99%. In addition to the BoD meetings attended by GEB members, the Group CEO attended some of the meetings of the BoD without GEB participation. The meetings had an average duration of 130 minutes and covered both UBS Group AG and UBS AG. Additionally, 10 ad hoc calls were held, 6 of which were attended by GEB members. The BoD held a number of strategy workshops throughout the year, during which the results of the new CEO’s in-depth strategy review were covered. These strategy workshops included deep dives on each business division and geographical region, and topics such as the definition of the purpose, vision and strategic imperatives, as well as the digitalization of the business, sustainable finance, cultural and behavioral aspects, including agile approaches to ways of working. The strategy discussions were completed in October 2021, when the overarching strategy and implementation plans were agreed upon. At the BoD meetings, each committee Chairperson provides the BoD with an update on current activities of his or her committee and important committee issues. In 2021, four UBS AG BoD meetings were held with members of the Executive Board in attendance. Standalone meetings are held regularly to discuss and agree on finance, risk, compliance, operational risk, regulatory and other topics related to UBS AG. We also continued with the coordination and exchange of information between UBS Group AG and its significant group entities. Joint meetings between the BoD of UBS Group AG and the boards of directors of the significant group entities, as well as between the respective chairs of the risk and audit committees, have been held. As in prior years, an annual workshop, attended by independent members of the boards of the Group and significant group entities, was held. 200 201 201 Corporate governance and compensationCorporate governance and compensation | Corporate governance Performance assessment Every third year, an external assessment of the effectiveness of the BoD is conducted. In 2022, this review concluded that the UBS BoD and committees operate effectively, in line with best practice, and set a high standard in comparison with leading international peers. The review also confirmed that the BoD agenda covers all important and relevant topics and that these are addressed professionally and in great depth. It further found that the BoD members are independent, highly committed and of the highest integrity, and that the Chairman provides effective leadership and direction. The review emphasized that the cooperation between the BoD and the GEB is based on mutual trust, respect and constructive dialogue. The mix of expertise in the BoD is broad- based and the quality of BoD members is high. The BoD and GEB have responded well to the economic environment, including successfully managing the firm through the COVID-19 pandemic and other significant challenges, while maintaining an appropriate focus on control and regulatory issues. The review highlights the successful CEO transition and onboarding and the well-planned and professionally executed Chairman succession process. No significant weaknesses were identified in the review, areas to be further focused on included the maintaining of a balanced agenda that provides sufficient room for business performance, strategic review and growth initiatives. BoD committees The committees listed on the following pages assist the BoD in the performance of its responsibilities. These committees and their charters are described in our Organization Regulations, available at ubs.com/governance. The committees meet as often as their business requires, but no less than four times a year in the case of the Audit Committee, the Risk Committee and the Compensation Committee, and no less than two times a year in the case of the Corporate Culture and Responsibility Committee and the Governance and Nominating Committee. Topics of common interest or affecting more than one committee are discussed at joint committee meetings. During 2021, a total of nine joint committee meetings were held for UBS Group AG (seven joint committee meetings were held simultaneously for UBS AG). The Risk Committee held two meetings with the Compensation Committee, two with the Corporate Culture and Responsibility Committee, and five with the Audit Committee. Board of Directors Members in 2021 Axel A. Weber, Chairman Jeremy Anderson Claudia Böckstiegel1 William C. Dudley Patrick Firmenich1 Reto Francioni Fred Hu Mark Hughes Nathalie Rachou Julie G. Richardson Beatrice Weder di Mauro2 Dieter Wemmer Jeanette Wong Meeting attendance without GEB3 Meeting attendance with GEB4 Key responsibilities include: The Board has ultimate responsibility for the success of the Group and for delivering sustainable shareholder value within a framework of prudent and effective controls. It decides on the Group’s strategy and the necessary financial and human resources upon recommendation of the Group CEO and sets the Group’s values and standards to ensure that its obligations to shareholders and other stakeholders are met. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 12/12 12/12 10/10 12/12 10/10 12/12 11/12 12/12 12/12 12/12 2/2 12/12 12/12 100% 100% 100% 100% 100% 100% 92% 100% 100% 100% 100% 100% 100% 12/12 12/12 100% 100% 8/8 100% 12/12 100% 8/8 100% 12/12 11/12 12/12 12/12 12/12 100% 92% 100% 100% 100% 4/4 100% 12/12 12/12 100% 100% 11 Claudia Böckstiegel and Patrick Firmenich were elected to the Board at the 2021 AGM; indicated are their attended and total meetings after their election. 22 Beatrice Weder di Mauro did not stand for re-election at the 2021 AGM; indicated are her attended and total meetings up to the 2021 AGM. 33 Additionally, four ad hoc calls took place in 2021. 44 Additionally, six ad hoc calls took place in 2021. 202 202 Corporate governance and compensation | Corporate governance Performance assessment BoD committees Every third year, an external assessment of the effectiveness of the The committees listed on the following pages assist the BoD in BoD is conducted. In 2022, this review concluded that the UBS the performance of its responsibilities. These committees and BoD and committees operate effectively, in line with best practice, their charters are described in our Organization Regulations, and set a high standard in comparison with leading international available at ubs.com/governance. The committees meet as often peers. The review also confirmed that the BoD agenda covers all as their business requires, but no less than four times a year in the important and relevant topics and that these are addressed case of the Audit Committee, the Risk Committee and the professionally and in great depth. It further found that the BoD Compensation Committee, and no less than two times a year in members are independent, highly committed and of the highest the case of the Corporate Culture and Responsibility Committee integrity, and that the Chairman provides effective leadership and and the Governance and Nominating Committee. Topics of direction. The review emphasized that the cooperation between common interest or affecting more than one committee are the BoD and the GEB is based on mutual trust, respect and discussed at joint committee meetings. constructive dialogue. The mix of expertise in the BoD is broad- During 2021, a total of nine joint committee meetings were based and the quality of BoD members is high. The BoD and GEB held for UBS Group AG (seven joint committee meetings were have responded well to the economic environment, including held simultaneously for UBS AG). The Risk Committee held two successfully managing the firm through the COVID-19 pandemic meetings with the Compensation Committee, two with the and other significant challenges, while maintaining an Corporate Culture and Responsibility Committee, and five with appropriate focus on control and regulatory issues. The review the Audit Committee. highlights the successful CEO transition and onboarding and the well-planned and professionally executed Chairman succession process. No significant weaknesses were identified in the review, areas to be further focused on included the maintaining of a balanced agenda that provides sufficient room for business performance, strategic review and growth initiatives. Board of Directors Axel A. Weber, Chairman Jeremy Anderson Claudia Böckstiegel1 William C. Dudley Patrick Firmenich1 Reto Francioni Fred Hu Mark Hughes Nathalie Rachou Julie G. Richardson Dieter Wemmer Jeanette Wong 12/12 12/12 10/10 12/12 10/10 12/12 11/12 12/12 12/12 12/12 2/2 12/12 12/12 100% 100% 100% 100% 100% 100% 92% 100% 100% 100% 100% 100% 100% 12/12 11/12 12/12 12/12 12/12 12/12 12/12 100% 92% 100% 100% 100% 100% 100% Beatrice Weder di Mauro2 4/4 100% Members in 2021 without GEB3 with GEB4 Key responsibilities include: Meeting attendance Meeting attendance 12/12 12/12 100% 100% The Board has ultimate responsibility for the success of the Group and for delivering sustainable shareholder value within a framework of prudent and effective controls. It decides on the Group’s strategy and 8/8 100% the necessary financial and human resources upon recommendation of the Group CEO and sets the Group’s values and standards to ensure that its obligations to shareholders and other stakeholders are met. 12/12 100% 8/8 100% › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Claudia Böckstiegel and Patrick Firmenich were elected to the Board at the 2021 AGM; indicated are their attended and total meetings after their election. 22 Beatrice Weder di Mauro did not stand for re-election at the 2021 AGM; indicated are her attended and total meetings up to the 2021 AGM. 33 Additionally, four ad hoc calls took place in 2021. 44 Additionally, six ad hoc calls took place in 2021. Audit Committee Throughout 2021, the Audit Committee consisted of four BoD members, all of whom were determined by the BoD to be fully independent. As a group, members of the Audit Committee must have the necessary qualifications and skills to perform all their duties and together must possess financial literacy and experience in banking and risk management. The Audit Committee itself does not perform audits; instead, it oversees the work of the external auditors, Ernst & Young Ltd, who in turn are responsible for auditing the annual financial statements of UBS Group AG and UBS AG and for reviewing the quarterly financial statements. In particular, the Audit Committee monitors the integrity of the financial statements of UBS Group AG and UBS AG and any announcements related to financial performance, and reviews significant financial reporting judgments contained in them, before recommending their approval to the BoD or proposing any adjustments the Audit Committee considers appropriate. The Audit Committee oversees the relationship with, and assesses the qualifications, expertise, effectiveness, independence and performance of, the external auditors and the lead audit partner, and supports the BoD in reaching decisions on the appointment, reappointment or dismissal of the external auditors and the rotation of the lead audit partner. The BoD then submits proposals for shareholder approval at the AGM. During 2021, the Audit Committee held 13 committee meetings, with a participation rate of 100%. The meetings had an average duration of approximately 145 minutes and covered both UBS Group AG and UBS AG. Additional attendees included the Chairman of the BoD, the Group CEO, the Group CFO, the Group Controller and Chief Accounting Officer, the Head Group Internal Audit (GIA) and the external auditors. The Chairperson and the committee continued to maintain regular contact with core supervisory authorities. All Audit Committee members have accounting or related financial management expertise and, in compliance with the rules established pursuant to the 2002 US Sarbanes–Oxley Act, at least one member qualifies as a financial expert. The NYSE standards on corporate governance and Rule 10A-3 under the US Securities Exchange Act set more stringent independence requirements for members of audit committees than for the other members of the BoD. Throughout 2021, all members of the Audit Committee, in addition to satisfying our independence criteria, satisfied these requirements, in that they did not receive, directly or indirectly, any consulting, advisory or compensatory fees from any member of the Group other than in their capacity as a BoD member, did not hold, directly or indirectly, UBS Group AG shares in excess of 5% of the outstanding capital, and did not serve on the audit committees of more than two other public companies. Audit Committee Members in 2021 Meeting attendance3 Key responsibilities include: Jeremy Anderson (Chairperson) 13/13 100% Patrick Firmenich1 Beatrice Weder di Mauro2 Dieter Wemmer Jeanette Wong 9/9 4/4 13/13 13/13 100% 100% 100% 100% The function of the Audit Committee is to support the Board in fulfilling its oversight duty relating to financial reporting and internal controls over financial reporting, the effectiveness of the external and internal audit functions, and the effectiveness of whistleblowing procedures. Management is responsible for the preparation, presentation and integrity of the financial statements, while the external auditors are responsible for auditing financial statements. The Audit Committee’s responsibility is one of oversight and review. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Patrick Firmenich was elected to this committee at the 2021 AGM; indicated are his attended and total meetings after his election. 22 Beatrice Weder di Mauro did not stand for re-election at the 2021 AGM; indicated are her attended and total meetings up to the 2021 AGM. 33 Additionally, the Audit Committee held one ad hoc call. 202 203 203 Corporate governance and compensationCorporate governance and compensation | Corporate governance Compensation Committee The Compensation Committee consisted of four independent BoD members throughout 2021, as indicated in the table below. In addition to the key responsibilities indicated in the same table, the compensation the Compensation Committee disclosures included in this report. reviews During 2021, the Compensation Committee held nine meetings, with an average participation rate of 97%. The meetings had an average duration of approximately 90 minutes and covered both UBS Group AG and UBS AG. All meetings were held in the presence of the Chairman and the Group CEO and most were attended by external advisors. In 2021, the Chairperson met regularly with core supervisory authorities. › Refer to “Compensation for the Board of Directors” in the “Compensation” section on page 252 of this report for more information about the Compensation Committee’s decision- making procedures Corporate Culture and Responsibility Committee In 2021, the Corporate Culture and Responsibility Committee consisted of the Chairperson and four independent BoD members. The Group CEO, the Group Chief Regulatory Officer, the President Asset Management and GEB lead for Sustainability and Impact, and the Chief Sustainability Officer are permanent guests of the Corporate Culture and Responsibility Committee. During 2021, six meetings were held, with a participation rate of 100%. The average duration of each of the meetings was approximately 80 minutes. Compensation Committee Members in 2021 Meeting attendance1 Key responsibilities include: Julie G. Richardson (Chairperson) Reto Francioni Dieter Wemmer Jeanette Wong 9/9 8/9 9/9 9/9 100% 89% 100% 100% The Compensation Committee is responsible for: (i) supporting the Board in its duties to set guidelines on compensation and benefits; (ii) approving the total compensation for the Chairman and the non-independent Board members; (iii) proposing, upon proposal of the Chairman, financial and non-financial performance targets and objectives for the Group CEO for approval by the Board and reviewing, upon the proposal of the Group CEO, the performance framework for the other GEB members; (iv) proposing, upon proposal of the Chairman, the Group CEO’s performance assessment for approval by the Board, as well as informing the Board of the performance assessments of all GEB members, including the Group CEO; (v) proposing, upon proposal of the Chairman, the total compensation for the Group CEO for approval by the Board; and (vi)proposing, upon proposal of the Group CEO, the individual total compensation for the other GEB members for approval by the Board. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Additionally, the Compensation Committee held four ad hoc calls. Corporate Culture and Responsibility Committee Members in 2021 Meeting attendance Key responsibilities include: Axel A. Weber (Chairperson) William C. Dudley Patrick Firmenich1 Mark Hughes Beatrice Weder di Mauro2 Jeanette Wong 6/6 6/6 4/4 6/6 2/2 6/6 100% 100% 100% 100% 100% 100% The Corporate Culture and Responsibility Committee supports the Board in its duties to safeguard and advance the Group’s reputation for responsible and sustainable conduct. Its function is forward-looking in that it monitors and reviews societal trends and transformational developments and assesses their potential relevance for the Group. In undertaking this assessment, it reviews stakeholder concerns and expectations pertaining to the societal performance of UBS and to the development of its corporate culture. The Corporate Culture and Responsibility Committee’s function also encompasses the monitoring of the current state and implementation of the programs and initiatives within the Group pertaining to corporate culture and corporate responsibility, including sustainability. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Following the 2021 AGM, Patrick Firmenich became a member of this committee; indicated are his attended and total meetings after his election. 22 Beatrice Weder di Mauro did not stand for re-election at the 2021 AGM; indicated are her attended and total meetings up to the 2021 AGM. 204 204 Corporate governance and compensation | Corporate governance Compensation Committee Corporate Culture and Responsibility Committee The Compensation Committee consisted of four independent In 2021, the Corporate Culture and Responsibility Committee BoD members throughout 2021, as indicated in the table below. consisted of the Chairperson and four independent BoD In addition to the key responsibilities indicated in the same table, members. The Group CEO, the Group Chief Regulatory Officer, the Compensation Committee reviews the compensation the President Asset Management and GEB lead for Sustainability disclosures included in this report. and Impact, and the Chief Sustainability Officer are permanent During 2021, the Compensation Committee held nine guests of the Corporate Culture and Responsibility Committee. meetings, with an average participation rate of 97%. The During 2021, six meetings were held, with a participation rate of meetings had an average duration of approximately 90 minutes 100%. The average duration of each of the meetings was and covered both UBS Group AG and UBS AG. All meetings were approximately 80 minutes. held in the presence of the Chairman and the Group CEO and most were attended by external advisors. In 2021, the Chairperson met regularly with core supervisory authorities. › Refer to “Compensation for the Board of Directors” in the “Compensation” section on page 252 of this report for more information about the Compensation Committee’s decision- making procedures Compensation Committee Members in 2021 Meeting attendance1 Key responsibilities include: Julie G. Richardson (Chairperson) The Compensation Committee is responsible for: Reto Francioni Dieter Wemmer Jeanette Wong 9/9 8/9 9/9 9/9 100% 89% 100% 100% (i) supporting the Board in its duties to set guidelines on compensation and benefits; (ii) approving the total compensation for the Chairman and the non-independent Board members; (iii) proposing, upon proposal of the Chairman, financial and non-financial performance targets and objectives for the Group CEO for approval by the Board and reviewing, upon the proposal of the Group CEO, the performance framework for the other GEB members; (iv) proposing, upon proposal of the Chairman, the Group CEO’s performance assessment for approval by the Board, as well as informing the Board of the performance assessments of all GEB members, including the Group CEO; (v) proposing, upon proposal of the Chairman, the total compensation for the Group CEO for approval by the Board; and (vi)proposing, upon proposal of the Group CEO, the individual total compensation for the other GEB members for approval by the Board. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Additionally, the Compensation Committee held four ad hoc calls. Corporate Culture and Responsibility Committee Members in 2021 Meeting attendance Key responsibilities include: Axel A. Weber (Chairperson) William C. Dudley Patrick Firmenich1 Mark Hughes Beatrice Weder di Mauro2 Jeanette Wong 6/6 6/6 4/4 6/6 2/2 6/6 100% 100% 100% 100% 100% The Corporate Culture and Responsibility Committee supports the Board in its duties to safeguard and advance the Group’s reputation for responsible and sustainable conduct. Its function is forward-looking in that it monitors and reviews societal trends and transformational developments 100% and assesses their potential relevance for the Group. In undertaking this assessment, it reviews stakeholder concerns and expectations pertaining to the societal performance of UBS and to the development of its corporate culture. The Corporate Culture and Responsibility Committee’s function also encompasses the monitoring of the current state and implementation of the programs and initiatives within the Group pertaining to corporate culture and corporate responsibility, including sustainability. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 11 Following the 2021 AGM, Patrick Firmenich became a member of this committee; indicated are his attended and total meetings after his election. 22 Beatrice Weder di Mauro did not stand for re-election at the 2021 AGM; indicated are her attended and total meetings up to the 2021 AGM. Governance and Nominating Committee In 2021, the Governance and Nominating Committee consisted of the Chairperson and five independent members. During 2021, nine meetings were held, with a participation rate of 100%. The average duration of each of the meetings was approximately 75 minutes. The Group CEO attended meetings as appropriate. Risk Committee In 2021, the Risk Committee consisted of six independent members. During 2021, the Risk Committee held 11 committee meetings, with a participation rate of 100%. The average duration of each of the meetings was approximately 205 minutes, covering both UBS Group AG and UBS AG. The Group CEO, the Group CFO, the Group Chief Risk Officer, Group COO and later the Group Chief Digital and Information Officer, the Group Treasurer, the Group Chief Compliance and Governance Officer, the Group General Counsel, and the Head GIA attended the meetings. In 2021, the Chairperson or the full committee met with core supervisory authorities. Ad hoc committees The Special Committee and the Strategy Committee are two ad hoc committees, which have a standing composition and hold meetings as and when required. Leading up the 2021 AGM, the Special Committee was composed of four BoD members. Jeremy Anderson chaired the Special Committee, with Nathalie Rachou, Julie G. Richardson, and Axel A. Weber as its members; after the AGM, Claudia Böckstiegel joined the Special Committee. Its primary purpose is to oversee activities related to key litigation and investigation matters, review management’s respective proposals and send to the BoD recommendations for decisions. In 2021, the key focus was the French cross-border matter. The Group CEO and the Group General Counsel are permanent guests. During 2021, six meetings were held, covering both UBS Group AG and UBS AG. The Strategy Committee is composed of four BoD members. Its primary purpose is to support management and the BoD with regard to the assessment of strategic considerations and to assist with the planning of the annual strategy meetings for the BoD and the GEB. The committee sends recommendations for decisions to the BoD. Axel A. Weber chaired the Strategy Committee, with William C. Dudley, Fred Hu and Dieter Wemmer as its members. During 2021, one meeting was held, covering both UBS Group AG and UBS AG. The Group CEO, the Group CFO and the Head Corporate Development & Performance were present. Governance and Nominating Committee Members in 2021 Meeting attendance1 Key responsibilities include: Axel A. Weber (Chairperson) Jeremy Anderson William C. Dudley Fred Hu Julie G. Richardson Dieter Wemmer 9/9 9/9 9/9 9/9 9/9 9/9 100% 100% 100% 100% 100% 100% 11 Additionally, the Governance and Nominating Committee held five ad hoc calls. Risk Committee The function of the Governance and Nominating Committee is to support the Board in fulfilling its duty to establish best practices in corporate governance across the Group, including conducting a Board assessment, establishing and maintaining a process for appointing new Board and GEB members, as well as for the annual performance assessment of the Board. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information Members in 2021 Meeting attendance1 Key responsibilities include: Mark Hughes (Chairperson) William C. Dudley Reto Francioni Fred Hu Nathalie Rachou Julie G. Richardson 11/11 11/11 11/11 11/11 11/11 11/11 100% 100% 100% 100% 100% 100% 11 Additionally, the Risk Committee held four ad hoc calls. The function of the Risk Committee is to oversee and support the Board in fulfilling its duty to set and supervise an appropriate risk management and control framework in the areas of: (i) (ii) balance sheet, treasury and capital management, including funding, financial and non-financial risks; and liquidity and equity attribution. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information 204 205 205 Corporate governance and compensationCorporate governance and compensation | Corporate governance Roles and responsibilities of the Chairman of the Board of Directors Important business connections of independent members of the Board of Directors As a global financial services provider and a major Swiss bank, we enter into business relationships with many large companies, including some in which our BoD members have management or independent board responsibilities. The Governance and Nominating Committee determines in each instance whether the nature of the Group’s business relationship with such a company might compromise our BoD members’ capacity to express independent judgment. Our Organization Regulations require three-quarters of the UBS Group AG BoD members and one-third of those at UBS AG to be independent. For this purpose, independence is determined in accordance with FINMA Circular 2017/1 “Corporate governance – banks” and the NYSE rules. In 2021, our BoD met the standards of the Organization Regulations for the percentage of directors who are considered independent under the criteria described above. Since our Chairman has a full-time contract with UBS Group AG, he is not considered independent. No other BoD member has a significant business connection to UBS or any of its subsidiaries. No BoD member currently carries out, or has carried out over the past three years, operational management tasks within the Group. All relationships and transactions with UBS Group AG’s independent BoD members are conducted in the ordinary course of business and are on the same terms as those prevailing at the time for comparable transactions with non-affiliated persons. All relationships and transactions with BoD members’ associated companies are conducted at arm’s length. › Refer to “Note 31 Related parties” in the “Consolidated financial statements” section on page 397 of this report for more information Checks and balances: Board of Directors and Group Executive Board We operate under a strict dual board structure, as mandated by Swiss banking law. The separation of responsibilities between the BoD and the GEB is clearly defined in the Organization Regulations. The BoD decides on the strategy of the Group, upon recommendations by the Group CEO, and exercises ultimate supervision over management; whereas the GEB, headed by the Group CEO, has executive management responsibility. The functions of Chairman and Group CEO are assigned to two different people, leading to a separation of power. This structure establishes checks and balances and preserves the institutional independence of the BoD from the executive management of the Group, for which responsibility is delegated to the GEB, under the leadership of the Group CEO. No member of one board may simultaneously be a member of the other. Supervision and control of the GEB remain with the BoD. The authorities and responsibilities of the two bodies are governed by the AoA and the Organization Regulations. At the 2022 AGM, Axel A. Weber will step down and Colm Kelleher will stand for election as the full-time Chairman of the BoD. The Chairman coordinates tasks within the BoD, calls BoD meetings and sets their agendas. He presides over all general meetings of shareholders and works with the committee Chairpersons to coordinate the work of all BoD committees. Together with the Group CEO, the Chairman undertakes responsibility for UBS’s reputation, and is responsible for effective communication with shareholders and other stakeholders, including government officials, and public organizations. This is in addition to establishing and maintaining close working relationships with the Group CEO and other GEB members, and providing advice and support when appropriate. › Refer to “Employees” in the “How we create value for our regulators stakeholders” section on page 44 and the fold-out pages of this report for information about our Pillars, Principles and Behaviors In 2021, the Chairman met regularly with core supervisory authorities in all major locations where UBS is active. Meetings with important supervisory authorities were scheduled on an ad hoc or needs-driven basis. Roles and responsibilities of the Vice Chairmen and the Senior Independent Director The BoD appoints one or more Vice Chairmen and a Senior Independent Director. If the BoD appoints more than one Vice Chairman, at least one of them must be independent. Both the Vice Chairman and the Senior Independent Director support the Chairman with regard to his responsibilities and authorities and provide him with advice. In conjunction with the Chairman and the Governance and Nominating Committee, they facilitate good Group-wide corporate governance, as well as balanced leadership and control within the Group, the Board and the committees. Jeremy Anderson has been the Vice Chairman and Senior Independent Director since 2020 and it is planned that he will remain Senior Independent Director following the 2022 AGM. Lukas Gähwiler will be appointed as Vice Chairman following the 2022 AGM. The Vice Chairman is required to lead and has led meetings of the BoD in the temporary absence of the Chairman. Together with the Governance and Nominating Committee, he is tasked with the ongoing monitoring and the annual evaluation of the Chairman. He also represents UBS on behalf of the Chairman in meetings with internal or external stakeholders. The Senior Independent Director enables and supports communication and the flow of information among the independent BoD members. At least twice a year, he organizes and leads a meeting of the independent BoD members without the participation of the Chairman. In 2021, two independent BoD meetings were held, covering both UBS Group AG and UBS AG, with an average participation rate of 81% and an average duration of approximately 85 minutes. The Senior Independent Director also relays to the Chairman any issues or concerns raised by the independent BoD members and acts as a point of contact for shareholders and stakeholders seeking discussions with an independent BoD member. 206 206 Corporate governance and compensation | Corporate governance Roles and responsibilities of the Chairman of the Board of Important business connections of independent members Skills, expertise and training of the Board of Directors Directors of the Board of Directors The BoD is composed of members with a broad spectrum of skills, educational backgrounds, experience and expertise from a range of sectors that reflect the nature and scope of the firm’s business. With a view to recruiting needs, the Governance and Nominating Committee uses a competencies and experience matrix to identify any gaps in the competencies considered most relevant to the BoD, taking into consideration the firm’s business exposure, risk profile, strategy and geographic reach. We asked our BoD members to select their four key competencies from the following eight categories and to indicate whether they have ever been a CEO or chairperson of a listed company or a member of the executive board of such a company: Key competencies – banking (wealth management, asset management, personal stakeholders” section on page 44 and the fold-out pages of this Regulations for the percentage of directors who are considered and corporate banking) and insurance – investment banking, capital markets – finance, audit, accounting – risk management, compliance and legal – human resources management, including compensation – technology, cybersecurity – regulatory authority, central bank – environmental, social and governance (ESG) Leadership experience – experience as CEO or chairperson – executive board leadership experience (e.g., as CFO, chief risk officer or COO of a listed company) The Governance and Nominating Committee reviews these categories and ratings annually to confirm that the BoD continues to possess the most relevant experience and competencies to perform its duties. With regard to the BoD composition after the 2021 AGM, members thereof identified all of the target competencies as being their key competencies. Particularly strong levels of experience and expertise existed in these areas: – financial services – risk management, compliance and legal – finance, audit, accounting Furthermore, 10 of the 12 BoD members have held or currently hold chairperson, CEO or other executive board-level leadership positions. Moreover, education remained an important priority for our BoD members. In addition to a comprehensive induction program for new BoD members, continuous training and topical deep dives are part of the BoD agenda. › Refer to “Risk governance” in the “Risk management and control” section on page 103 of this report for information about our risk governance framework tasked with the ongoing monitoring and the annual evaluation of functions of Chairman and Group CEO are assigned to two Investment banking, capital markets Terms of office¹ Geographic diversity ² Gender 4 6 1 1 < 3 years 3 – 6 years 7 – 9 years > 9 years 42% Switzerland 17% Europe 25% USA / Canada 17% Asia 67% male 33% female Competencies and experience ³ Key competencies Banking 4 and insurance 0 2 4 6 8 10 Finance, audit, accounting Risk management, compliance and legal HR management, including compensation Technology, cybersecurity Regulatory authority, central bank ESG 5 Leadership experience 0 2 4 6 8 10 Chief executive officer or chairman Executive board 6 1 Terms of office until the 2022 AGM. 2 In the case of dual-nationals, the domicile applies. 3 The number of BoD members identifying a key competency as one of his / her key competencies; each member identified up to four key competencies (although not every sub-area of the respective competency might be applicable), plus one leadership experience. 4 Wealth management, asset management, and personal and corporate banking. 5 Environmental, social and governance. 6 For example, a CFO, chief risk officer or COO of a listed company. At the 2022 AGM, Axel A. Weber will step down and Colm As a global financial services provider and a major Swiss bank, we Kelleher will stand for election as the full-time Chairman of the enter into business relationships with many large companies, BoD. The Chairman coordinates tasks within the BoD, calls BoD including some in which our BoD members have management or meetings and sets their agendas. He presides over all general independent board responsibilities. The Governance and meetings of shareholders and works with the committee Nominating Committee determines in each instance whether the Chairpersons to coordinate the work of all BoD committees. nature of the Group’s business relationship with such a company Together with the Group CEO, the Chairman undertakes might compromise our BoD members’ capacity to express responsibility for UBS’s reputation, and is responsible for effective independent judgment. communication with shareholders and other stakeholders, Our Organization Regulations require three-quarters of the including government officials, regulators and public UBS Group AG BoD members and one-third of those at UBS AG organizations. This is in addition to establishing and maintaining to be independent. For this purpose, independence is determined close working relationships with the Group CEO and other GEB in accordance with FINMA Circular 2017/1 “Corporate members, and providing advice and support when appropriate. governance – banks” and the NYSE rules. › Refer to “Employees” in the “How we create value for our In 2021, our BoD met the standards of the Organization report for information about our Pillars, Principles and Behaviors independent under the criteria described above. Since our Chairman has a full-time contract with UBS Group AG, he is not In 2021, the Chairman met regularly with core supervisory considered independent. No other BoD member has a significant authorities in all major locations where UBS is active. Meetings business connection to UBS or any of its subsidiaries. No BoD with important supervisory authorities were scheduled on an ad member currently carries out, or has carried out over the past hoc or needs-driven basis. Roles and responsibilities of the Vice Chairmen and the Senior Independent Director three years, operational management tasks within the Group. All relationships and transactions with UBS Group AG’s independent BoD members are conducted in the ordinary course of business and are on the same terms as those prevailing at the The BoD appoints one or more Vice Chairmen and a Senior time for comparable transactions with non-affiliated persons. All Independent Director. If the BoD appoints more than one Vice relationships and transactions with BoD members’ associated Chairman, at least one of them must be independent. Both the companies are conducted at arm’s length. Vice Chairman and the Senior Independent Director support the › Refer to “Note 31 Related parties” in the “Consolidated financial Chairman with regard to his responsibilities and authorities and statements” section on page 397 of this report for more provide him with advice. In conjunction with the Chairman and information the Governance and Nominating Committee, they facilitate good Group-wide corporate governance, as well as balanced leadership and control within the Group, the Board and the committees. Executive Board Checks and balances: Board of Directors and Group Jeremy Anderson has been the Vice Chairman and Senior We operate under a strict dual board structure, as mandated by Independent Director since 2020 and it is planned that he will Swiss banking law. The separation of responsibilities between the remain Senior Independent Director following the 2022 AGM. BoD and the GEB is clearly defined in the Organization Lukas Gähwiler will be appointed as Vice Chairman following the Regulations. The BoD decides on the strategy of the Group, upon 2022 AGM. The Vice Chairman is required to lead and has led recommendations by the Group CEO, and exercises ultimate meetings of the BoD in the temporary absence of the Chairman. supervision over management; whereas the GEB, headed by the Together with the Governance and Nominating Committee, he is Group CEO, has executive management responsibility. The the Chairman. He also represents UBS on behalf of the Chairman different people, leading to a separation of power. This structure in meetings with internal or external stakeholders. The Senior establishes checks and balances and preserves the institutional Independent Director enables and supports communication and independence of the BoD from the executive management of the the flow of information among the independent BoD members. Group, for which responsibility is delegated to the GEB, under the At least twice a year, he organizes and leads a meeting of the leadership of the Group CEO. No member of one board may independent BoD members without the participation of the simultaneously be a member of the other. Chairman. In 2021, two independent BoD meetings were held, Supervision and control of the GEB remain with the BoD. The covering both UBS Group AG and UBS AG, with an average authorities and responsibilities of the two bodies are governed by participation rate of 81% and an average duration of the AoA and the Organization Regulations. approximately 85 minutes. The Senior Independent Director also relays to the Chairman any issues or concerns raised by the independent BoD members and acts as a point of contact for shareholders and stakeholders seeking discussions with an independent BoD member. 206 207 207 Corporate governance and compensationCorporate governance and compensation | Corporate governance Succession planning Succession planning is one of the key responsibilities of both the BoD and the GEB. Across all divisions and regions, an inclusive talent development and succession planning process is in place that aims to foster the personal development and Group-wide mobility of our employees. Although the recruiting process for BoD and GEB members takes into account a broad spectrum of factors, such as skills, backgrounds, experience and expertise, our approach with regard to diversity considerations does not constitute a diversity policy within the meaning of the EU Directive on Non-Financial Reporting, and Swiss law does not require UBS to maintain such a policy. launched several strategic In 2021, the Chairman and the members of the BoD and the GEB initiatives with the close involvement of the BoD and with the aim of further strengthening UBS. The succession plans for the GEB and the management layer below it are managed under the lead of the Group CEO. The BoD reviews and approves the succession plans of the GEB. For the BoD, the Chairman leads a systematic succession planning process as illustrated in the chart below. Our strategy and the business environment constitute the main drivers in our succession planning process for new BoD members, as they define the key competencies required on the BoD. Taking the diversity and the tenure of the existing BoD into account, the Governance and Nominating Committee defines the recruiting profile for the search. Both external and internal sources contribute to identifying suitable candidates. The Chairman and the members of the Governance and Nominating Committee meet with potential candidates and, with the support of the full BoD, nominations are submitted to the AGM for approval. New BoD members follow an in-depth onboarding process designed to enable them to integrate efficiently and become effective in their new role. Due to this succession planning process, the composition of the BoD is in line with the demanding requirements of a leading global financial services firm. The succession of both the CEO and Chairman, as well as of GEB members, was smoothly planned and is being carried out, demonstrating the strength and success of the succession planning at UBS. Board of Directors’ succession planning process Strategy / environment Onboarding Existing board composition AGM election Search Selection 208 208 Corporate governance and compensation | Corporate governance Succession planning is one of the key responsibilities of both the as they define the key competencies required on the BoD. Taking BoD and the GEB. Across all divisions and regions, an inclusive the diversity and the tenure of the existing BoD into account, the talent development and succession planning process is in place Governance and Nominating Committee defines the recruiting that aims to foster the personal development and Group-wide profile for the search. Both external and internal sources mobility of our employees. Although the recruiting process for contribute to identifying suitable candidates. The Chairman and BoD and GEB members takes into account a broad spectrum of the members of the Governance and Nominating Committee factors, such as skills, backgrounds, experience and expertise, our meet with potential candidates and, with the support of the full approach with regard to diversity considerations does not BoD, nominations are submitted to the AGM for approval. New constitute a diversity policy within the meaning of the EU Directive BoD members follow an in-depth onboarding process designed to on Non-Financial Reporting, and Swiss law does not require UBS enable them to integrate efficiently and become effective in their to maintain such a policy. new role. Due to this succession planning process, the In 2021, the Chairman and the members of the BoD and the composition of the BoD is in line with the demanding GEB launched several strategic initiatives with the close requirements of a leading global financial services firm. involvement of the BoD and with the aim of further strengthening The succession of both the CEO and Chairman, as well as of UBS. The succession plans for the GEB and the management layer GEB members, was smoothly planned and is being carried out, below it are managed under the lead of the Group CEO. The BoD demonstrating the strength and success of the succession reviews and approves the succession plans of the GEB. planning at UBS. For the BoD, the Chairman leads a systematic succession planning process as illustrated in the chart below. Succession planning Our strategy and the business environment constitute the main drivers in our succession planning process for new BoD members, Information and control instruments with regard to the Group Executive Board The BoD is kept informed of the GEB’s activities in various ways, including regular meetings between the Chairman, the Group CEO and GEB members. The Group CEO and other GEB members also participate in BoD meetings to update its members on all significant issues. The BoD also receives regular comprehensive reports, covering financial, capital, funding, liquidity, regulatory, compliance and legal developments, as well as performance against plan and forecasts for the remainder of the year. For important developments, BoD members are also updated by the GEB in between meetings. In addition, the Chairman receives the meeting material and minutes of the GEB meetings. BoD members may request from other BoD or GEB members any information about matters concerning the Group that they require in order to fulfill their duties. When these requests are raised outside BoD meetings, such requests must go through the Group Company Secretary and be addressed to the Chairman. in discharging The BoD is supported its governance responsibilities by GIA, which independently assesses whether risk management, control and governance processes are designed and operating sustainably and effectively. The Head GIA reports directly to the Chairman. In addition, GIA has a functional reporting line to the Audit Committee in accordance with its responsibilities as set forth in our Organization Regulations. The Audit Committee assesses the independence and performance of GIA and the effectiveness of both the Head GIA and GIA as an organization, approves GIA’s annual audit plan and objectives and monitors GIA’s discharge of these objectives. The committee is also in regular contact with the Head GIA. GIA issues quarterly reports that provide an overview of significant audit results and key issues, as well as themes and trends, based on results of individual audits, continuous risk assessment and issue assurance. The reports are provided to the Chairman, the members of the Audit and the Risk Committees, the GEB and other stakeholders. The Head GIA regularly updates the Chairman and the Audit Committee on GIA’s activities, processes, audit plan execution, important developments. GIA issues an annual Activity Report, which is provided to the Chairman and the Audit Committee to support their assessment of GIA’s effectiveness. requirements and other resourcing › Refer to “Group Internal Audit” in this section for more information › Refer to “Internal risk reporting” in the “Risk management and control” section on page 108 of this report for information about reporting to the BoD 208 209 209 Corporate governance and compensationCorporate governance and compensation | Corporate governance Group Executive Board The BoD delegates the management of the business to the Group Executive Board (the GEB). Responsibilities, authorities and organizational principles of the Group Executive Board As of 31 December 2021, the GEB, under the leadership of the Group CEO, consisted of 12 members. It has executive management responsibility for the steering of the Group and its business and assumes overall responsibility for developing the strategies of the Group, business divisions and Group Functions and implements the BoD approved strategies. The GEB is also the risk council of the Group, with overall responsibility for risk establishing and supervising management and control principles, as well as for managing the risk profile of the Group, as determined by the BoD and the Risk Committee. implementation of the In 2021, the GEB held a total of 66 meetings for UBS Group AG. At UBS AG, management of the business is also delegated, and its Executive Board, under the leadership of its President, has executive management responsibility for UBS AG and its business. In 2021, all members of the GEB were members of UBS AG’s Executive Board, with the exception of Sabine Keller-Busse, who served as President UBS Switzerland AG. The Executive Board held 66 combined meetings with the GEB and four standalone meetings for UBS AG in 2021. › Refer to the Organization Regulations of UBS Group AG, available at ubs.com/governance, for more information about the authorities of the Group Executive Board Changes to the Group Executive Board Effective 1 February 2021, Axel P. Lehmann ended his tenure at UBS and Sabine Keller-Busse succeeded to the posts of President Personal & Corporate Banking and President UBS Switzerland. In addition to his responsibility as Co-President Global Wealth Management, Iqbal Khan assumed the role of President UBS EMEA from Sabine Keller-Busse as of 1 February 2021. Effective 1 April 2021, Robert Karofsky was appointed sole President Investment Bank, following Piero Novelli’s decision to step down as Co-President Investment Bank as of 31 March 2021. Effective 1 May 2021, Mike Dargan was appointed Group Chief Digital and Information Officer (CDIO) and member of the GEB. The Group CDIO organization succeeded the function of the Group Chief Operating Officer. Effective 1 November 2021, and after 13 years of service, Markus U. Diethelm stepped down from his role as Group General Counsel and member of the GEB; he remains with UBS into 2022 as a senior advisor for selected legacy litigation matters. Barbara Levi assumed the role of Group General Counsel 210 210 and member of the GEB. Ms. Levi joined UBS from Rio Tinto Group, where she served as Chief Legal Officer & External Affairs and before that as Group General Counsel and a member of the Executive Committee. On 1 December 2021, UBS announced that Kirt Gardner will step down from his role as Group CFO in May 2022. Sarah Youngwood will join UBS and the GEB in March 2022 and will take over as Group CFO in May 2022. Ms. Youngwood has been CFO of JPMorgan Chase’s consumer and community banking line of business since 2016. She also led Finance for its Global Technology unit. The biographies on the following pages provide information about the GEB members in office as of 31 December 2021. The biographies of Piero Novelli and Markus U. Diethelm can be found on page 208 and 203 of the UBS Group AG Annual Report 2020, available under “Annual reporting” at ubs.com/investors. In addition to information on mandates, the biographies include memberships and other activities or functions, as required by the SIX Swiss Exchange Corporate Governance Directive. In line with Swiss law, article 36 of UBS Group AG’s Articles of Association limits the number of mandates that GEB members may hold outside UBS Group to one mandate in a listed company and five additional mandates in non-listed companies. Mandates in companies that are controlled by UBS or that control UBS are not subject to this limitation. In addition, GEB members may not hold more than 10 mandates at a time at the request of the in associations, charitable company and eight mandates organizations, trusts and employee welfare foundations. On 31 December 2021, no member of the GEB reached the aforementioned thresholds. foundations, Responsibilities and authorities of the Asset and Liability Committees The Asset and Liability Committees (the ALCOs) of UBS Group AG and UBS AG are sub-committees of the GEB and the Executive Board that are responsible for managing assets and liabilities in line with the strategy, risk appetite, regulatory commitments and the interests of shareholders and other stakeholders. The ALCO of UBS Group AG proposes the framework for capital management, capital allocation, funding and liquidity risk, and proposes limits and targets for the Group to the BoD for approval. It oversees the balance sheet management of the Group, its business divisions and Group Functions. In 2021, the ALCOs of UBS Group AG and UBS AG held 11 meetings. Management contracts We have not entered into management contracts with any companies or natural persons that do not belong to the Group. Corporate governance and compensation | Corporate governance Group Executive Board The BoD delegates the management of the business to the Group and member of the GEB. Ms. Levi joined UBS from Rio Tinto Executive Board (the GEB). Responsibilities, authorities and organizational principles Executive Committee. of the Group Executive Board Group, where she served as Chief Legal Officer & External Affairs and before that as Group General Counsel and a member of the On 1 December 2021, UBS announced that Kirt Gardner will step down from his role as Group CFO in May 2022. Sarah Committee. AG. As of 31 December 2021, the GEB, under the leadership of the Youngwood will join UBS and the GEB in March 2022 and will Group CEO, consisted of 12 members. It has executive take over as Group CFO in May 2022. Ms. Youngwood has been management responsibility for the steering of the Group and its CFO of JPMorgan Chase’s consumer and community banking line business and assumes overall responsibility for developing the of business since 2016. She also led Finance for its Global strategies of the Group, business divisions and Group Functions Technology unit. and implements the BoD approved strategies. The GEB is also the The biographies on the following pages provide information risk council of the Group, with overall responsibility for about the GEB members in office as of 31 December 2021. The establishing and supervising the implementation of risk biographies of Piero Novelli and Markus U. Diethelm can be found management and control principles, as well as for managing the on page 208 and 203 of the UBS Group AG Annual Report 2020, risk profile of the Group, as determined by the BoD and the Risk available under “Annual reporting” at ubs.com/investors. In In 2021, the GEB held a total of 66 meetings for UBS Group memberships and other activities or functions, as required by the addition to information on mandates, the biographies include SIX Swiss Exchange Corporate Governance Directive. At UBS AG, management of the business is also delegated, and In line with Swiss law, article 36 of UBS Group AG’s Articles of its Executive Board, under the leadership of its President, has Association limits the number of mandates that GEB members executive management responsibility for UBS AG and its business. may hold outside UBS Group to one mandate in a listed company In 2021, all members of the GEB were members of UBS AG’s and five additional mandates in non-listed companies. Mandates Executive Board, with the exception of Sabine Keller-Busse, who in companies that are controlled by UBS or that control UBS are served as President UBS Switzerland AG. The Executive Board held not subject to this limitation. In addition, GEB members may not 66 combined meetings with the GEB and four standalone hold more than 10 mandates at a time at the request of the meetings for UBS AG in 2021. › Refer to the Organization Regulations of UBS Group AG, company and eight mandates in associations, charitable organizations, foundations, trusts and employee welfare available at ubs.com/governance, for more information about foundations. On 31 December 2021, no member of the GEB the authorities of the Group Executive Board reached the aforementioned thresholds. Changes to the Group Executive Board Responsibilities and authorities of the Asset and Liability Effective 1 February 2021, Axel P. Lehmann ended his tenure at Committees Personal & Corporate Banking and President UBS Switzerland. In and UBS AG are sub-committees of the GEB and the Executive addition to his responsibility as Co-President Global Wealth Board that are responsible for managing assets and liabilities in Management, Iqbal Khan assumed the role of President UBS line with the strategy, risk appetite, regulatory commitments and EMEA from Sabine Keller-Busse as of 1 February 2021. Effective the interests of shareholders and other stakeholders. The ALCO 1 April 2021, Robert Karofsky was appointed sole President of UBS Group AG proposes the framework for capital Investment Bank, following Piero Novelli’s decision to step down management, capital allocation, funding and liquidity risk, and as Co-President Investment Bank as of 31 March 2021. Effective proposes limits and targets for the Group to the BoD for approval. 1 May 2021, Mike Dargan was appointed Group Chief Digital and It oversees the balance sheet management of the Group, its Information Officer (CDIO) and member of the GEB. The Group business divisions and Group Functions. In 2021, the ALCOs of CDIO organization succeeded the function of the Group Chief UBS Group AG and UBS AG held 11 meetings. Operating Officer. Effective 1 November 2021, and after 13 years of service, Markus U. Diethelm stepped down from his role as Management contracts Group General Counsel and member of the GEB; he remains with UBS into 2022 as a senior advisor for selected legacy litigation We have not entered into management contracts with any matters. Barbara Levi assumed the role of Group General Counsel companies or natural persons that do not belong to the Group. Ralph Hamers Christian Bluhm Group Chief Executive Officer, member of the GEB since 2020 Group Chief Risk Officer, member of the GEB since 2016 Nationality: Dutch | Year of birth: 1966 Nationality: German | Year of birth: 1969 Ralph Hamers has been Group CEO of UBS Group AG and President of the Executive Board of UBS AG since November 2020. Before joining UBS, he served as CEO and Chairman of the Executive Board of ING Group. During his time as CEO of ING, he steered the bank to profitability after the financial crisis and supported the firm’s digital transformation. He also played a leading role in driving sustainability efforts in the financial industry, and firmly continues to do so. Christian Bluhm has been Group Chief Risk Officer since 2016. He held several positions in academia before starting his banking career in 1999 with Deutsche Bank in credit risk management, and subsequently working for Hypovereinsbank and Credit Suisse in the same area. Before joining UBS, he used his expertise and skills as Chief Risk & Financial Officer at FMS Wertmanagement. Mr. Bluhm is responsible for the development of the Group’s risk management and control framework for various risk categories and implementation of its independent control frameworks. Professional experience 2020 – date 2013 – 2020 Group CEO of UBS Group AG and President of the Executive Board of UBS AG CEO and Chairman of the Executive Board, ING Supervisory Board member of NN Group (2014 – 2015); Management Board Banking and Management Board NN Group (2013 – 2014) 2011 – 2013 2010 – 2011 2007 – 2010 2005 – 2007 2002 – 2005 1999 – 2002 CEO of ING Belgium and Luxembourg, ING Head of Network Management for Retail Banking Direct & International, ING Global Head of the Commercial Banking network, ING CEO of ING Bank Netherlands, ING General Manager of the ING Bank branch network, ING General Manager of ING Romania, ING Professional experience 2016 – date 2012 – 2015 Group Chief Risk Officer of UBS Group AG and Chief Risk Officer of UBS AG Spokesman of the Executive Board, FMS Wertmanagement Chief Risk & Financial Officer, FMS Wertmanagement 2008 – 2009 2010 – 2015 2004 – 2009 Managing Director, Credit Risk Management (Switzerland and Private Banking worldwide), Credit Suisse Head Credit Risk Management Analytics & Instruments, Credit Suisse Head of Credit Portfolio Management, Credit Suisse Head Structured Finance Analytics, Group Credit Portfolio Management, Hypovereinsbank Credit Risk Management, Deutsche Bank 2004 – 2008 1999 – 2000 2001 – 2004 UBS and Sabine Keller-Busse succeeded to the posts of President The Asset and Liability Committees (the ALCOs) of UBS Group AG Tilburg University mathematics, University of Erlangen-Nuremberg Education – Master’s degree, business econometrics and operations research, Education – Master’s degree, mathematics and informatics, and doctorate, Other activities and functions – Member of the Board of the Swiss-American Chamber of Commerce – Member of the Institut International d’Etudes Bancaires – Member of the IMD Foundation Board – Member of the McKinsey Advisory Council – Member of the World Economic Forum International Business Council – Governor of the World Economic Forum (Financial Services) Other activities and functions – Member of the Board of UBS Switzerland AG – Member of the Foundation Board of the UBS Pension Fund – Member of the Foundation Board – International Financial Risk Institute 210 211 211 Corporate governance and compensationCorporate governance and compensation | Corporate governance Mike Dargan Kirt Gardner Group Chief Digital and Information Officer, member of the GEB since 2021 Nationality: British | Year of birth: 1977 Group Chief Financial Officer, member of the GEB since 2016 Nationality: American (US) | Year of birth: 1959 Mike Dargan was appointed Group Chief Digital and Information Officer (CDIO) in May 2021. The Group CDIO organization consists of the Group Technology teams and Group Corporate Services. In October 2021, he took up the additional role of UBS GEB sponsor to co-lead the AI, Data and Analytics center of expertise, along with Robert Karofsky. From his former roles at Standard Chartered Bank, Mr. Dargan brings proven experience in technology strategy and operations. Kirt Gardner became Group CFO in 2016. Earlier in his career, he worked for the management and technology consulting firms BearingPoint and Barents Group in the US, Asia, Latin America and Europe. Before joining UBS as CFO Wealth Management in 2013, Mr. Gardner held various leadership positions at Citigroup, including CFO and Head of Strategy within Global Transaction Services, Head of Strategy, Planning and Risk Strategy for the Corporate and Institutional Division, and Head of Global Strategy and Cost Management for the Consumer Bank. Professional experience 2016 – date 2013 – 2015 2010 – 2013 2006 – 2010 2004 – 2006 Group CFO of UBS Group AG and CFO of UBS AG CFO Wealth Management, UBS CFO and Head of Strategy Global Transaction Services, Citigroup Head of Strategy, Planning and Risk Strategy for the Corporate and Institutional Division, Citigroup Head of Global Strategy and Cost Management for the Consumer Bank, Citigroup Global Head of Financial Services Strategy, BearingPoint 2000 – 2004 1994 – 2000 Managing Director and Head of Financial Services Consulting, Barents Group Education – Master’s degree, international studies, University of Pennsylvania – MBA, finance, the Wharton School Other activities and functions – Member of the Board of UBS Business Solutions AG Professional experience May 2021 – date Group CDIO, UBS Group AG and UBS AG Oct. 2021 – date 2016 – 2021 2015 – 2016 2014 – 2015 2013 – 2014 2009 – 2013 2005 – 2009 1999 – 2005 President of the Executive Board, UBS Business Solutions AG Head Group Technology, UBS CIO for Corporate and Institutional Banking, Standard Chartered Bank Global Group Technology and Operations Head for Global Markets, Wealth Management, Private Banking and Securities Services, Group Technology and Operations Engineering, Standard Chartered Bank CIO for Financial Markets, Standard Chartered Bank Global Head of Strategy and Corporate M&A, Global Markets, Standard Chartered Bank Head Corporate Strategy & M&A, EMEA and Pacific Rim, Merrill Lynch Head of Corporate and Institutional Banking Practice, Asia Pacific, Oliver Wyman Education – Master’s degree, politics, philosophy and economics, St. John’s College, Oxford University Non-listed company boards – Member of the Board of Directors of Done Next Holdings AG Other activities and functions – Member of the Board of UBS Business Solutions AG – Member of the Board of Trustees of the Inter-Community School Zurich 212 212 Corporate governance and compensation | Corporate governance member of the GEB since 2021 Nationality: British | Year of birth: 1977 Mike Dargan was appointed Group Chief Digital and Information Officer for the management and technology consulting firms BearingPoint and (CDIO) in May 2021. The Group CDIO organization consists of the Group Barents Group in the US, Asia, Latin America and Europe. Before joining Technology teams and Group Corporate Services. In October 2021, he UBS as CFO Wealth Management in 2013, Mr. Gardner held various took up the additional role of UBS GEB sponsor to co-lead the AI, Data leadership positions at Citigroup, including CFO and Head of Strategy and Analytics center of expertise, along with Robert Karofsky. From his within Global Transaction Services, Head of Strategy, Planning and Risk former roles at Standard Chartered Bank, Mr. Dargan brings proven Strategy for the Corporate and Institutional Division, and Head of Global experience in technology strategy and operations. Strategy and Cost Management for the Consumer Bank. Kirt Gardner became Group CFO in 2016. Earlier in his career, he worked Professional experience Professional experience May 2021 – date Group CDIO, UBS Group AG and UBS AG 2016 – date Group CFO of UBS Group AG and CFO of UBS AG Oct. 2021 – date President of the Executive Board, 2013 – 2015 CFO Wealth Management, UBS 2016 – 2021 2015 – 2016 UBS Business Solutions AG Head Group Technology, UBS CIO for Corporate and 2010 – 2013 CFO and Head of Strategy Global Transaction Services, Citigroup 2006 – 2010 Head of Strategy, Planning and Risk Strategy for the Institutional Banking, Standard Chartered Bank Corporate and Institutional Division, Citigroup 2014 – 2015 Global Group Technology and Operations Head for 2004 – 2006 Head of Global Strategy and Cost Management for the Global Markets, Wealth Management, Private Banking Consumer Bank, Citigroup and Securities Services, Group Technology and Operations Engineering, Standard Chartered Bank 2000 – 2004 Global Head of Financial Services Strategy, BearingPoint 1994 – 2000 Managing Director and Head of Financial Services 2013 – 2014 2009 – 2013 CIO for Financial Markets, Standard Chartered Bank Global Head of Strategy and Corporate M&A, Global Markets, Standard Chartered Bank Education Consulting, Barents Group 2005 – 2009 Head Corporate Strategy & M&A, EMEA and Pacific – Master’s degree, international studies, University of Pennsylvania 1999 – 2005 Head of Corporate and Institutional Banking Practice, Rim, Merrill Lynch Asia Pacific, Oliver Wyman – MBA, finance, the Wharton School Other activities and functions – Member of the Board of UBS Business Solutions AG Education – Master’s degree, politics, philosophy and economics, St. John’s College, Oxford University Non-listed company boards – Member of the Board of Directors of Done Next Holdings AG Other activities and functions – Member of the Board of UBS Business Solutions AG – Member of the Board of Trustees of the Inter-Community School Zurich Mike Dargan Kirt Gardner Suni Harford Robert Karofsky Group Chief Digital and Information Officer, Group Chief Financial Officer, member of the GEB since 2016 President Asset Management, member of the GEB since 2019 President Investment Bank, member of the GEB since 2018 Nationality: American (US) | Year of birth: 1959 Nationality: American (US) | Year of birth: 1962 Nationality: American (US) | Year of birth: 1967 Suni Harford was appointed President Asset Management in 2019 and is the Chair of UBS Optimus Foundation. Ms. Harford has been the UBS GEB lead for Sustainability and Impact since May 2021. She started her Wall Street career at Merrill Lynch & Co., in investment banking, before embarking on a 24-year career at Citigroup Inc., the last nine years of which she was the Regional Head of Markets for North America. Ms. Harford then joined UBS, bringing with her a broad experience from across the industry, including in research, client coverage and risk management, and successfully led UBS Asset Management’s integrated investments capabilities, driving performance for its clients. Robert Karofsky was appointed Co-President of the Investment Bank in 2018. He became sole President in April 2021. Before joining UBS, he acquired know-how in investment banking as an analyst and trader, working for various financial institutions such as Morgan Stanley, Deutsche Bank, and AllianceBernstein. He then became Global Head of Equities at UBS, responsible for driving UBS’s growth strategy for equities globally. In October 2021, Mr. Karofsky was appointed to the additional role of UBS GEB sponsor to co-lead the AI, Data and Analytics center of expertise, along with Mike Dargan. Professional experience 2019 – date 2017 – 2019 2008 – 2017 2004 – 2008 President Asset Management, UBS Group AG and UBS AG Head of Investments, Asset Management, UBS Regional Head of Markets for North Americas, Citigroup Inc. Global Head of Fixed Income Research, Citigroup Inc. Education – Bachelor’s degree, physics and mathematics, Denison University, Ohio – MBA, Tuck School of Business, Dartmouth College Other activities and functions – Chairman of the Board of Directors of UBS Asset Management AG – Chair of the Board of UBS Optimus Foundation – Member of the Leadership Council of the Bob Woodruff Foundation Professional experience Apr. 2021 – date 2018 – Mar. 2021 Co-President Investment Bank, UBS President Investment Bank, UBS Group AG and UBS AG 2015 – 2021 2014 – 2018 2011 – 2014 2008 – 2010 2005 – 2008 1994 – 2005 President UBS Securities LLC, UBS Global Head Equities, UBS Global Head of Equity Trading, AllianceBernstein Co-Head of Global Equities, Deutsche Bank Head of North American Equities, Deutsche Bank Head of North American Trading, Morgan Stanley Education – Bachelor’s degree, economics, Hobart and William Smith Colleges – MBA, finance and statistics, University of Chicago’s Booth School of Business Other activities and functions – Member of the Board of UBS Americas Holding LLC – Member of the Board of UBS Optimus Foundation – Trustee of the UBS Americas Inc. Political Action Committee 212 213 213 Corporate governance and compensationCorporate governance and compensation | Corporate governance Sabine Keller-Busse Iqbal Khan President Personal & Corporate Banking and President UBS Switzerland, member of the GEB since 2016 Co-President Global Wealth Management and President UBS EMEA, member of the GEB since 2019 Nationality: Swiss and German | Year of birth: 1965 Nationality: Swiss | Year of birth: 1976 Sabine Keller-Busse was appointed President Personal & Corporate Banking and President UBS Switzerland in 2021, heading the leading Universal Bank in Switzerland. In her previous role, Group COO, she oversaw global functions such as technology, operations, human resources and corporate services. She has been pivotal in driving business alignment, and digital and cultural transformation, while also facilitating business growth as President UBS Europe, Middle East and Africa. Ms. Keller-Busse also brings in-depth experience regarding financial market infrastructure, having served on the Board of SIX Group for nine years. Iqbal Khan has been Co-President Global Wealth Management, which he leads with Tom Naratil, since 2019. He was appointed President UBS EMEA in February 2021. Mr. Khan joined Ernst & Young (EY) in 2001, holding many leadership positions and becoming the youngest ever partner of the firm’s Swiss arm; when leaving EY, he was lead auditor of UBS. In 2013, he moved to Credit Suisse, holding senior leadership positions as CFO Private Banking & Wealth Management and later CEO International Wealth Management. Professional experience Feb. 2021 – date Feb. 2021 – date 2018 – 2021 2019 – 2021 2016 – 2021 2014 – 2017 2010 – 2014 2008 – 2010 1995 – 2008 President Personal & Corporate Banking and President UBS Switzerland, UBS Group AG President of the Executive Board, UBS Switzerland AG Group COO of UBS and President of the Executive Board, UBS Business Solutions AG President UBS Europe, Middle East and Africa, UBS Member of the Executive Board of UBS AG Group Head Human Resources, UBS COO UBS Switzerland, UBS Head Private Clients Region Zurich, Credit Suisse Partner (2002), McKinsey & Company Education – Master’s degree and doctorate, economics, University of St. Gallen Listed company boards – Member of the Board of Zurich Insurance Group Other activities and functions – Member of the Foundation Council of the UBS International Center of Economics in Society – Member of the Board and Board Committee of Zurich Chamber of Commerce – Member of the Board of the University Hospital Zurich Foundation Professional experience 2019 – date Feb. 2021 – date 2015 – 2019 2013 – 2015 2011 – 2013 2009 – 2011 2001 – 2009 Co-President Global Wealth Management, UBS Group AG and UBS AG President UBS Europe, Middle East and Africa, UBS Group AG and UBS AG CEO International Wealth Management, Credit Suisse CFO Private Banking & Wealth Management, Credit Suisse Managing Partner Assurance and Advisory Services – Financial Services, Ernst & Young Industry Lead Partner Banking and Capital Markets, Switzerland and EMEA Private Banking, Ernst & Young Various positions in Ernst & Young Education – Swiss Certified Public Accountant – Advanced Master of International Business Law degree (LLM), University of Zurich Other activities and functions – Member of the Supervisory Board of UBS Europe SE – Member of the Board of UBS Optimus Foundation – Member of the Board of Room to Read Switzerland 214 214 Corporate governance and compensation | Corporate governance President Personal & Corporate Banking and Co-President Global Wealth Management and President UBS Switzerland, member of the GEB since 2016 President UBS EMEA, member of the GEB since 2019 Nationality: Swiss and German | Year of birth: 1965 Nationality: Swiss | Year of birth: 1976 Sabine Keller-Busse was appointed President Personal & Corporate Iqbal Khan has been Co-President Global Wealth Management, which he Banking and President UBS Switzerland in 2021, heading the leading leads with Tom Naratil, since 2019. He was appointed President UBS Universal Bank in Switzerland. In her previous role, Group COO, she EMEA in February 2021. Mr. Khan joined Ernst & Young (EY) in 2001, oversaw global functions such as technology, operations, human holding many leadership positions and becoming the youngest ever resources and corporate services. She has been pivotal in driving business partner of the firm’s Swiss arm; when leaving EY, he was lead auditor of alignment, and digital and cultural transformation, while also facilitating UBS. In 2013, he moved to Credit Suisse, holding senior leadership business growth as President UBS Europe, Middle East and Africa. Ms. positions as CFO Private Banking & Wealth Management and later CEO Keller-Busse also brings in-depth experience regarding financial market International Wealth Management. infrastructure, having served on the Board of SIX Group for nine years. Professional experience Professional experience 2019 – date Co-President Global Wealth Management, Feb. 2021 – date President Personal & Corporate Banking and UBS Group AG and UBS AG President UBS Switzerland, UBS Group AG Feb. 2021 – date President UBS Europe, Middle East and Africa, Feb. 2021 – date President of the Executive Board, UBS Switzerland AG UBS Group AG and UBS AG 2018 – 2021 Group COO of UBS and President of the Executive CEO International Wealth Management, Credit Suisse 2015 – 2019 2013 – 2015 Board, UBS Business Solutions AG CFO Private Banking & Wealth Management, President UBS Europe, Middle East and Africa, UBS Credit Suisse Member of the Executive Board of UBS AG 2011 – 2013 Managing Partner Assurance and Advisory Services – Group Head Human Resources, UBS COO UBS Switzerland, UBS Head Private Clients Region Zurich, Credit Suisse Partner (2002), McKinsey & Company Financial Services, Ernst & Young 2009 – 2011 Industry Lead Partner Banking and Capital Markets, Switzerland and EMEA Private Banking, Ernst & Young 2001 – 2009 Various positions in Ernst & Young 2019 – 2021 2016 – 2021 2014 – 2017 2010 – 2014 2008 – 2010 1995 – 2008 Education – Master’s degree and doctorate, economics, University of St. Gallen Listed company boards – Member of the Board of Zurich Insurance Group Other activities and functions – Member of the Foundation Council of the UBS International Center – Member of the Board and Board Committee of Zurich Chamber of Economics in Society of Commerce – Member of the Board of the University Hospital Zurich Foundation Education – Swiss Certified Public Accountant – Advanced Master of International Business Law degree (LLM), University of Zurich Other activities and functions – Member of the Supervisory Board of UBS Europe SE – Member of the Board of UBS Optimus Foundation – Member of the Board of Room to Read Switzerland Sabine Keller-Busse Iqbal Khan Edmund Koh Barbara Levi President UBS Asia Pacific, member of the GEB since 2019 Group General Counsel, member of the GEB since 2021 Nationality: Singaporean | Year of birth: 1960 Nationality: Italian | Year of birth: 1971 Edmund Koh has been President UBS Asia Pacific since 2019. He is a financial sector veteran, with more than 30 years in senior roles in financial services, including as Head Wealth Management Asia Pacific, Country Head Singapore and Head Wealth Management South East Asia and Asia Pacific Hub for UBS. Before working for DBS Bank in Singapore, Mr. Koh was CEO for Prudential Assurance and Alverdine Pte Ltd, both companies based in Singapore. He joined UBS from Taiwan-based Ta Chong Bank, where he served as President and Director. Professional experience 2019 – date 2012 – 2018 2016 – 2018 President UBS Asia Pacific at UBS Group AG and UBS AG Head Wealth Management Asia Pacific, UBS Country Head Singapore, UBS Head Wealth Management South East Asia and Asia Pacific Hub, UBS President and Director, Ta Chong Bank, Taiwan 2008 – 2012 2001 – 2008 Managing Director and Regional Head, Consumer Banking 2012 – 2015 Group, DBS Bank, Singapore Education – Bachelor’s degree, psychology, University of Toronto Non-listed company boards – Member of the Board of Trustees of the Wealth Management Institute, Singapore – Member of the Board of Next50 Limited, Singapore – Member of the Board of Medico Suites (S) Pte Ltd Other activities and functions – Member of a sub-committee of the Singapore Ministry of Finance’s Committee on the Future Economy – Member of the Financial Centre Advisory Panel of the Monetary Authority of Singapore – Council member of the Asian Bureau of Finance and Economic Research – Council member of the KidSTART program of the Early Childhood Development Agency, Singapore (until 31 January 2022) – Trustee of the Cultural Matching Fund, Singapore – Member of University of Toronto’s International Leadership Council for Asia Barbara Levi has been Group General Counsel since November 2021. A qualified attorney-at-law, she has been admitted to the Supreme Court of the United States, the New York State bar and the bar of Milan, Italy, and has worked in several law firms in New York and Milan. Ms. Levi began her corporate career with Novartis Group in 2004 and worked there for 16 years, holding a number of senior legal roles across Europe. Before joining UBS, she served as Chief Legal Officer & External Affairs at Rio Tinto Group and, before that, as General Counsel. In both roles, she was a member of that company’s executive committee. Professional experience Nov. 2021 – date Group General Counsel for UBS Group AG and UBS AG 2021 2020 – 2021 2019 2016 – 2019 2014 – 2016 2013 – 2014 2009 – 2013 Chief Legal Officer & External Affairs, Rio Tinto Group Group General Counsel, Rio Tinto Group Group Legal Head, M&A and Strategic Transactions, Novartis Global General Counsel, Sandoz International GmbH, Novartis Global Legal Head, Product Strategy & Commercialization, Novartis Global Legal Head, TechOps, Primary Care and Established Medicines, Novartis Head of Legal & Compliance, Region Asia-Pacific, Middle East, and African Countries, Region Group Emerging Markets, Novartis Education – Master’s degree, law, University of Milan – LL.M., banking, corporate and finance law, Fordham University School of Law, New York Other activities and functions – Member of the Employers’ Board of the Global Institute for Women’s Leadership, King’s College London – Member of the Board of Directors of the European General Counsel Association 214 215 215 Corporate governance and compensationCorporate governance and compensation | Corporate governance Tom Naratil Markus Ronner Co-President Global Wealth Management and President UBS Americas, member of the GEB since 2011 (UBS Group AG: 2014, UBS AG: 2011) Nationality: American (US) | Year of birth: 1961 Group Chief Compliance and Governance Officer, member of the GEB since 2018 Nationality: Swiss | Year of birth: 1965 Tom Naratil has been Co-President Global Wealth Management since 2018, which he leads with Iqbal Khan. He also is CEO of UBS Americas Holding LLC. He started his career in finance in 1983, when he joined the brokerage firm Paine Webber Jackson & Curtis, and is an experienced veteran in the banking sector. UBS acquired Paine Webber in 2000; since then, Mr. Naratil has held various senior management positions at UBS Group, including CFO and COO. He served as President Wealth Management Americas from 2016 and was also appointed President UBS Americas at UBS Group AG and UBS AG in 2016. Markus Ronner has been Group Chief Compliance and Governance Officer since 2018. He has been with UBS for 40 years and held various positions across the firm, including manager of the Group-wide too-big- to-fail program, COO Wealth Management & Swiss Bank, Head Products and Services of Wealth Management & Swiss Bank, COO Asset Management, and Head Group Internal Audit. In his current position, he is responsible at the Group level for compliance and operational risk control, governmental and regulatory affairs, as well as investigations and governance matters. Professional experience Professional experience 2018 – date Group Chief Compliance and Governance Officer, UBS Group AG and UBS AG Head Group Regulatory and Governance, UBS 2012 – 2018 2011 – 2013 Manager Group-wide too-big-to-fail program, UBS 2010 – 2011 2009 – 2010 2007 – 2009 2001 – 2007 COO Wealth Management & Swiss Bank, UBS Head Products and Services of Wealth Management & Swiss Bank, UBS COO Asset Management, UBS Head Group Internal Audit, UBS Education – Swiss Banking Diploma Other activities and functions None 2018 – date 2016 – date 2016 – date 2016 – 2018 2015 – 2016 2014 – 2015 2011 – 2015 2009 – 2011 1983 – 2009 Co-President Global Wealth Management, UBS Group AG and UBS AG President UBS Americas, UBS Group AG and UBS AG CEO of UBS Americas Holding LLC President Wealth Management Americas, UBS President of the Executive Board, UBS Business Solutions AG Group COO, UBS Group CFO, UBS CFO and Chief Risk Officer, Wealth Management Americas, UBS Various positions at PaineWebber and UBS Education – Bachelor’s degree, history, Yale University – MBA, economics, New York University Other activities and functions – Member of the Board of UBS Americas Holding LLC – Member of the Board of the American Swiss Foundation 216 216 Change of control and defense measures Our Articles of Association do not provide any measures for delaying, deferring or preventing a change of control. Clauses on change of control Duty to make an offer Pursuant to the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015, an investor who has acquired (whether directly, indirectly or in concert with third parties) more than 331⁄3% of all voting rights of a company listed in Switzerland, whether such rights are exercisable or not, is required to submit a takeover offer for all listed shares outstanding. We have not elected to change or opt out of this rule. Neither the full-time contract with the Chairman of the BoD nor any employment contracts with GEB members or employees holding key functions within the company contain change of control clauses. All employment contracts with GEB members stipulate a notice period of six months. During the notice period, GEB members are entitled to their salaries and the continuation of existing employment benefits and may be eligible to be considered for a discretionary performance award based on their contribution during their tenure. In case of a change of control, we may, at our discretion, accelerate the vesting of and / or relax applicable forfeiture provisions of employees’ awards. › Refer to the “Compensation” section of this report on page 222 for more information Corporate governance and compensation | Corporate governance Tom Naratil Markus Ronner Co-President Global Wealth Management and Group Chief Compliance and Governance Officer, President UBS Americas, member of the GEB since 2011 member of the GEB since 2018 (UBS Group AG: 2014, UBS AG: 2011) Nationality: American (US) | Year of birth: 1961 Nationality: Swiss | Year of birth: 1965 Tom Naratil has been Co-President Global Wealth Management since Officer since 2018. He has been with UBS for 40 years and held various 2018, which he leads with Iqbal Khan. He also is CEO of UBS Americas positions across the firm, including manager of the Group-wide too-big- Holding LLC. He started his career in finance in 1983, when he joined the to-fail program, COO Wealth Management & Swiss Bank, Head Products brokerage firm Paine Webber Jackson & Curtis, and is an experienced and Services of Wealth Management & Swiss Bank, COO Asset veteran in the banking sector. UBS acquired Paine Webber in 2000; since Management, and Head Group Internal Audit. In his current position, he then, Mr. Naratil has held various senior management positions at UBS is responsible at the Group level for compliance and operational risk Group, including CFO and COO. He served as President Wealth control, governmental and regulatory affairs, as well as investigations and Markus Ronner has been Group Chief Compliance and Governance Management Americas from 2016 and was also appointed President UBS governance matters. Americas at UBS Group AG and UBS AG in 2016. Professional experience Professional experience 2018 – date Group Chief Compliance and Governance Officer, 2018 – date Co-President Global Wealth Management, UBS Group AG and UBS AG UBS Group AG and UBS AG 2016 – date 2016 – date President UBS Americas, UBS Group AG and UBS AG CEO of UBS Americas Holding LLC 2016 – 2018 President Wealth Management Americas, UBS 2012 – 2018 Head Group Regulatory and Governance, UBS 2011 – 2013 Manager Group-wide too-big-to-fail program, UBS 2010 – 2011 COO Wealth Management & Swiss Bank, UBS 2009 – 2010 Head Products and Services of Wealth Management & 2015 – 2016 President of the Executive Board, UBS Business Solutions AG 2014 – 2015 Group COO, UBS 2011 – 2015 Group CFO, UBS 2009 – 2011 CFO and Chief Risk Officer, Wealth Management Americas, UBS 1983 – 2009 Various positions at PaineWebber and UBS Education – Bachelor’s degree, history, Yale University – MBA, economics, New York University Other activities and functions – Member of the Board of UBS Americas Holding LLC – Member of the Board of the American Swiss Foundation Swiss Bank, UBS 2007 – 2009 COO Asset Management, UBS 2001 – 2007 Head Group Internal Audit, UBS Education – Swiss Banking Diploma Other activities and functions None 216 217 217 Corporate governance and compensationCorporate governance and compensation | Corporate governance Auditors Audit is an integral part of corporate governance. While safeguarding their independence, the external auditors closely coordinate their work with Group Internal Audit (GIA). The Audit Committee and, ultimately, the BoD supervise the effectiveness of audit work. › Refer to “Board of Directors” in this section for more information about the Audit Committee External independent auditors The AGM in 2021 re-elected Ernst & Young Ltd (EY) as auditors for the Group for a one-year term of office. EY assumes virtually all auditing functions according to laws, regulatory requests and the AoA. Bob Jacob is the EY lead partner in charge of the overall coordination of the UBS Group financial and regulatory audits and the co-signing partner of the financial audit. In 2020, Maurice McCormick became the lead audit partner for the financial statement audit and has an incumbency limit of five years. In 2021, Hannes Smit became the Lead Auditor to the Swiss Financial Market Supervisory Authority (FINMA) with an incumbency limit of seven years. Daniel Martin has been the co- signing partner for the FINMA audit since 2019, with an incumbency limit of seven years. During 2021, the Audit Committee held 13 meetings with the external auditors. Review of UBS Group AG and UBS AG audit engagement EU rules require UBS Europe SE to rotate its external auditor in the financial year 2024. In connection with this required change, and in consideration of governance best practices, the Board of Directors considered whether it would propose to shareholders a rotation of the Group auditor concurrent with the change at UBS Europe SE. Under the direction of the Audit Committee, UBS conducted a formal review of the Group audit engagement including soliciting proposals from potential auditors. Based on the results of this assessment, the Board of Directors has decided to retain Ernst & Young as the Group’s external auditor. Audit effectiveness assessment The Audit Committee assesses the performance, effectiveness and independence of the external auditors on an annual basis. The assessment is generally based on interviews with senior management and survey feedback from stakeholders across the Group. Assessment criteria include quality of service delivery, quality and competence of the audit team, value added as part of the audit, insightfulness, and the overall relationship with EY. Based on its own analysis and the assessment results, including feedback received as part of the review of the Group audit engagement described above, the Audit Committee concluded that EY’s audit has been effective. Fees paid to external independent auditors UBS Group AG and its subsidiaries (including UBS AG) paid the following fees (including expenses) to their external independent auditors. USD million Audit Global audit fees Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators) TToottaall aauuddiitt11 Non-audit Audit-related fees of which: assurance and attestation services of which: control and performance reports of which: consultation concerning financial accounting and reporting standards Tax fees For the year ended 3311..1122..2211 31.12.20 5533 88 6611 99 44 55 00 11 53 10 64 8 3 5 0 1 All other fees TToottaall nnoonn--aauuddiitt11 11 Total audit and non-audit fees amounted to USD 72 million for UBS Group AG consolidated as of 31 December 2021 (31 December 2020: USD 73 million), of which USD 43 million related to UBS AG consolidated (31 December 2020: USD 46 million). 1100 00 0 9 218 218 Corporate governance and compensation | Corporate governance Auditors Audit is an integral part of corporate governance. While Review of UBS Group AG and UBS AG audit engagement safeguarding their independence, the external auditors closely EU rules require UBS Europe SE to rotate its external auditor in the coordinate their work with Group Internal Audit (GIA). The Audit financial year 2024. In connection with this required change, and Committee and, ultimately, the BoD supervise the effectiveness of in consideration of governance best practices, the Board of audit work. › Refer to “Board of Directors” in this section for more information about the Audit Committee External independent auditors Directors considered whether it would propose to shareholders a rotation of the Group auditor concurrent with the change at UBS Europe SE. Under the direction of the Audit Committee, UBS conducted a formal review of the Group audit engagement including soliciting proposals from potential auditors. Based on the results of this assessment, the Board of Directors has decided The AGM in 2021 re-elected Ernst & Young Ltd (EY) as auditors to retain Ernst & Young as the Group’s external auditor. for the Group for a one-year term of office. EY assumes virtually all auditing functions according to laws, regulatory requests and Audit effectiveness assessment the AoA. Bob Jacob is the EY lead partner in charge of the overall The Audit Committee assesses the performance, effectiveness coordination of the UBS Group financial and regulatory audits and and independence of the external auditors on an annual basis. the co-signing partner of the financial audit. In 2020, Maurice The assessment is generally based on interviews with senior McCormick became the lead audit partner for the financial management and survey feedback from stakeholders across the statement audit and has an incumbency limit of five years. In Group. Assessment criteria include quality of service delivery, 2021, Hannes Smit became the Lead Auditor to the Swiss quality and competence of the audit team, value added as part of Financial Market Supervisory Authority (FINMA) with an the audit, insightfulness, and the overall relationship with EY. incumbency limit of seven years. Daniel Martin has been the co- Based on its own analysis and the assessment results, including signing partner for the FINMA audit since 2019, with an feedback received as part of the review of the Group audit incumbency limit of seven years. engagement described above, the Audit Committee concluded During 2021, the Audit Committee held 13 meetings with the that EY’s audit has been effective. external auditors. Fees paid to external independent auditors UBS Group AG and its subsidiaries (including UBS AG) paid the following fees (including expenses) to their external independent Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators) of which: assurance and attestation services of which: control and performance reports of which: consultation concerning financial accounting and reporting standards 11 Total audit and non-audit fees amounted to USD 72 million for UBS Group AG consolidated as of 31 December 2021 (31 December 2020: USD 73 million), of which USD 43 million related to UBS AG consolidated (31 December 2020: USD 46 million). For the year ended 3311..1122..2211 31.12.20 5533 88 6611 99 44 55 00 11 00 1100 53 10 64 8 3 5 0 1 0 9 auditors. USD million Audit Global audit fees TToottaall aauuddiitt11 Non-audit Audit-related fees Tax fees All other fees TToottaall nnoonn--aauuddiitt11 218 Special auditors for potential capital increases At the AGM on 8 April 2021, BDO AG was reappointed as special auditors for a three-year term of office. Special auditors provide audit opinions in connection with potential capital increases independently from other auditors. Services performed and fees The Audit Committee oversees all services provided to UBS by the external auditors. For services requiring the approval from the Audit Committee, a preapproval may be granted either for a specific mandate or in the form of a blanket preapproval authorizing a limited and well-defined type and scope of services. The fees (including expenses) paid to EY are set forth in the table on the previous page. In addition, EY received USD 34.1 million in 2021 (USD 32.7 million in 2020) for services performed on behalf of our investment funds, many of which have independent fund boards or trustees. Audit work includes all services necessary to perform the audit for the Group in accordance with applicable laws and generally accepted auditing standards, as well as other assurance services that conventionally only the auditor can provide. These include statutory and regulatory audits, attestation services and the review of documents to be filed with regulatory bodies. The additional services classified as audit in 2021 included several engagements for which EY was mandated at the request of FINMA. Audit-related work consists of assurance and related services traditionally performed by auditors, such as attestation services related to financial reporting, internal control reviews and performance standard reviews, as well as consultation concerning financial accounting and reporting standards. Tax work involves services performed by professional staff in EY’s tax division and includes tax compliance and tax consultation with respect to our own affairs. “Other” services are permitted services, which include technical IT security control reviews and assessments. Group Internal Audit GIA performs the internal auditing role for the Group. It is an independent function that provides expertise and insights to confirm controls are functioning correctly and highlight where UBS needs to better manage current and emerging risks. In 2021, it operated with an average headcount of 586 full-time equivalent employees. in discharging GIA supports the BoD its governance responsibilities by taking a dynamic approach to audit, issue assurance and risk assessment, calling attention to key risks in order to drive action to prevent unexpected loss or damage to the firm’s reputation. To support the achievement of UBS’s objectives, GIA independently, objectively and systematically assesses the: soundness of the Group’s risk and control culture; (i) reliability and financial and operational (ii) information, including whether activities are properly, accurately and completely recorded, and the quality of underlying data and models; and integrity of (iii) design, operating effectiveness and sustainability of: – processes to define strategy and risk appetite, as well as the overall adherence to the approved strategy; including whether – governance processes; risk management, – appropriately identified and managed; internal controls, commensurate with the risks taken; remediation activities; and – specifically whether – – processes to comply with legal and requirements, internal policies, and constitutional documents and contracts. risks are they are regulatory the Group’s Audit reports that include significant issues are provided to the Group CEO, relevant GEB members and other responsible management. The Chairman, the Audit Committee and the Risk Committee of the BoD are regularly informed of such issues. In addition, GIA provides independent assurance on the effective and sustainable remediation of control deficiencies within its mandate, taking a prudent and conservative risk-based approach and assessing at the issue level whether the root cause and the potential exposure for the firm have been holistically and sustainably addressed. GIA also cooperates closely with risk control functions and internal and external legal advisors on investigations into major control issues. To ensure GIA’s independence from management, the Head GIA reports to the Chairman of the BoD and to the Audit Committee, which assesses annually whether GIA has sufficient resources to perform its function, as well as its independence and performance. In the Audit Committee’s assessment, GIA is sufficiently resourced to fulfill its mandate and complete its auditing objectives. GIA’s role, position, responsibilities and accountability are set out in our Organization Regulations and the Charter for GIA, available at ubs.com/governance. The Charter also applies to UBS AG’s internal audit function. GIA has unrestricted access to all accounts, books, records, systems, property and personnel, and must be provided with all information and data that it needs to fulfill its auditing responsibilities. GIA also conducts special audits at the request of the Audit Committee, or other BoD members, committees or the Group CEO in consultation with the Audit Committee. GIA enhances the efficiency of its work through coordination and close cooperation with the external auditors. 219 219 Corporate governance and compensationCorporate governance and compensation | Corporate governance Information policy We provide regular information to our shareholders and to the wider financial community. – consistency within each reporting period and between reporting periods; Financial reports for UBS Group AG are expected to be published on the following dates: First quarter 2022 Second quarter 2022 Third quarter 2022 26 April 2022 26 July 2022 25 October 2022 – simplicity that allows readers to gain a good understanding of the performance of our businesses; – relevance, by focusing not only on what is required by regulation or statute but also on what is relevant to our stakeholders; and – best practice that leads to improved standards. We regard the continuous improvement of our disclosures as The annual general meetings of the shareholders of UBS Group AG will take place on the following dates: an ongoing commitment. Financial reporting policies 2022 2023 6 April 2022 5 April 2023 › Refer to the corporate calendar at ubs.com/investors for future financial report publication and other key dates, including UBS AG’s financial report publication dates We meet with institutional investors worldwide throughout the year and regularly hold results presentations, attend and present at investor conferences, and, from time to time, host investor days. When appropriate, investor meetings are hosted by senior management and are attended by members of our Investor Relations team. We use various technologies, such as webcasting, audio links and cross-location videoconferencing, to widen our audience and maintain contact with shareholders globally. We make our publications available to all shareholders simultaneously to provide them with equal access to our financial information. All our financial publications are available at ubs.com/investors. Shareholders may opt to receive a printed copy of our annual report. Additionally, they may also access our digital annual review at ubs.com/annualreview, which reflects on specific initiatives and achievements of the Group and provides an overview of the Group’s activities during the year, as well as key financial information. › Refer to ubs.com/investors for a complete set of published reporting documents and a selection of senior management industry conference presentations › Refer to the “Information sources” section on page 436 of this report for more information › Refer to “Corporate information” and “Contacts” on page 6 of this report for more information Financial disclosure principles We fully support transparency, and consistent and informative disclosure. We aim to communicate our strategy and results in a manner that enables stakeholders to gain a good understanding of how our Group operates, what our growth prospects are, and the risks that our businesses and our strategy entail. We assess feedback from analysts and investors on a regular basis and, where appropriate, reflect this in our disclosures. To continue achieving these goals, we apply the following principles in our financial reporting and disclosure: – transparency that enhances the understanding of economic drivers and builds trust and credibility; 220 We report our Group’s results for each financial quarter, including a breakdown of results by business division and disclosures or key developments relating to risk management and control, capital, liquidity and funding management. Each quarter, we publish quarterly financial reports for UBS Group AG, on the same day as the earnings releases. The consolidated financial statements of UBS Group AG and UBS AG are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. › Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section on page 292 of this report for more information about the basis of accounting We are committed to maintaining the transparency of our reported results and to allowing analysts and investors to make meaningful comparisons with prior periods. If there is a major reorganization of our business divisions or if changes to accounting standards or interpretations lead to a material change in the Group’s reported results, our results are restated for previous periods as required by applicable accounting standards. These restatements show how our results would have been reported on the new basis and provide clear explanations of all relevant changes. US disclosure requirements As a foreign private issuer, we must file reports and other information, including certain financial reports, with the US Securities and Exchange Commission (the SEC) under the US federal securities laws. We file an annual report on Form 20-F and furnish our quarterly financial reports and other material information under cover of Form 6-K to the SEC. These reports are available at ubs.com/investors and on the SEC’s website, sec.gov. An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934 has been carried out, under the supervision of management, including the Group CEO, the Group CFO and the Group Controller and Chief Accounting Officer. Based on that evaluation, the Group CEO and the Group CFO concluded that our disclosure controls and procedures were effective as of 31 December 2021. No significant changes have been made to our internal controls or to other factors that could significantly affect these controls subsequent to the date of their evaluation. › Refer to the “Consolidated financial statements” section on page 267 of this report for more information Compensation Compensation Julie G. Richardson Chairperson of the Compensation Committee of the Board of Directors Dear Shareholders, The Board of Directors (the BoD) and I wish to thank you for your support once again at last year’s Annual General Meeting (the AGM) and for sharing your views on our compensation practices over the past year. As the Chairperson of the Compensation Committee, I am pleased to present our Compensation Report for 2021. The arrival of our new CEO in late 2020 and the launch of our purpose in early 2021 resulted in a review of our Total Reward Principles and compensation framework to ensure that they are fully aligned with our purpose and strategic imperatives. Throughout 2021, the BoD Compensation Committee also continued to oversee that reward reflects performance, that risk- taking is appropriate and that employee interests are aligned with those of our stakeholders. Following these reviews, we applied selected enhancements to our principles while keeping our overall compensation framework broadly unchanged, as we concluded that it still remains well suited to support us in achieving our ambitions for the Group and that it provides strong alignment with shareholders’ interests. Nevertheless, we have updated our Group-wide performance management approach, including evolving our Group Executive Board (GEB) performance review to reflect our strategic refresh, digital initiatives and elevated focus on sustainability. The restructured approach fosters an even greater focus on GEB priorities and the success of the overall Group by assessing all GEB members against Group financial targets. Strategy execution We made significant progress in delivering on our strategic vision and putting clients at the center of all we do. The benefits of delivering our ecosystem to clients in a seamless way as One UBS are visible in our financial performance for 2021. Our clients continued to put their trust in us, as was evident from the ongoing momentum in flows and volume growth throughout the year. Together with favorable market conditions and investor sentiment, this led to growth across the firm. Our business momentum, our focus on fueling growth and disciplined execution led to strong financial results. Sustainability is core to our purpose and ecosystem; to help us maximize our impact and direct capital to where it is needed most, we are focusing on three key areas to drive the sustainability transition: Planet, People and Partnerships. As a result, our sustainability focus and impact investing assets grew 78% in 2021 and amounted to USD 251 billion. Furthermore, UBS was again named as a member of the Dow Jones Sustainability Index and we are proud to be recognized once again for our industry leadership in the Environmental dimension. › Refer to “Financial and operating performance” in our Annual Report 2021 for further details about our Group and business division performance Alignment to purpose – Our purpose articulates why we do what we do, and why it matters. Our culture impacts how we do things, and it is firmly grounded in our three keys to success: our Pillars, Principles and Behaviors. We refreshed our three keys to success in 2021 to reflect our purpose, client promise and strategic imperatives, and to help ensure that our culture advances our strategic goals. – For the past decade, those keys have defined how we work together and what we stand for, as a firm and as individuals. They continue to drive daily business decisions and are integrated into our people management processes, including hiring, performance management, compensation, promotion, talent development, training, and succession planning. – Following the launch of the purpose, we reviewed our Total Reward Principles, performance management approach, and compensation framework to ensure they are fully aligned with our purpose and strategic imperatives. While we made modest adjustments, no fundamental changes were made to our compensation framework for 2021 as a result of our review. – Fair and effective people management processes are key for our long-term success. Our global performance management approach underwent a comprehensive review in 2021 as part of our broader strategic refresh. Consequently, we made changes to our year-end review, objective-setting and employee feedback processes that aim to support our strategic priorities, to reinforce our high performance culture and to be simpler and more transparent. Additionally, our GEB performance review process includes more tangible measurement on quantitative outcomes and a greater focus on strategy, digitalization and sustainability matters. Find out more: ubs.com/global/en/our-firm/our-purpose 222 222 Compensation Julie G. Richardson Chairperson of the Compensation Committee of the Board of Directors Dear Shareholders, evolving our Group Executive Board (GEB) performance review to reflect our strategic refresh, digital initiatives and elevated focus on sustainability. The restructured approach fosters an even greater focus on GEB priorities and the success of the overall Group by assessing all GEB members against Group financial targets. Strategy execution We made significant progress in delivering on our strategic vision and putting clients at the center of all we do. The benefits of delivering our ecosystem to clients in a seamless way as One UBS The Board of Directors (the BoD) and I wish to thank you for your are visible in our financial performance for 2021. support once again at last year’s Annual General Meeting (the Our clients continued to put their trust in us, as was evident AGM) and for sharing your views on our compensation practices from the ongoing momentum in flows and volume growth over the past year. As the Chairperson of the Compensation throughout the year. Together with favorable market conditions Committee, I am pleased to present our Compensation Report for and investor sentiment, this led to growth across the firm. Our The arrival of our new CEO in late 2020 and the launch of our execution led to strong financial results. purpose in early 2021 resulted in a review of our Total Reward Sustainability is core to our purpose and ecosystem; to help us Principles and compensation framework to ensure that they are maximize our impact and direct capital to where it is needed most, fully aligned with our purpose and strategic imperatives. we are focusing on three key areas to drive the sustainability Throughout 2021, the BoD Compensation Committee also transition: Planet, People and Partnerships. As a result, our continued to oversee that reward reflects performance, that risk- sustainability focus and impact investing assets grew 78% in 2021 taking is appropriate and that employee interests are aligned with and amounted to USD 251 billion. Furthermore, UBS was again those of our stakeholders. Following these reviews, we applied named as a member of the Dow Jones Sustainability Index and selected enhancements to our principles while keeping our overall we are proud to be recognized once again for our industry compensation framework broadly unchanged, as we concluded leadership in the Environmental dimension. that it still remains well suited to support us in achieving our ambitions for the Group and that it provides strong alignment with shareholders’ interests. Nevertheless, we have updated our Group-wide performance management approach, including › Refer to “Financial and operating performance” in our Annual Report 2021 for further details about our Group and business division performance Alignment to purpose – Our purpose articulates why we do what we do, and why it matters. Our culture impacts how we do things, and it is firmly grounded in our three keys to success: our Pillars, Principles and Behaviors. We refreshed our three keys to success in 2021 to reflect our purpose, client promise and strategic imperatives, and to help ensure that our culture advances our strategic goals. – For the past decade, those keys have defined how we work together and what we stand for, as a firm and as individuals. They continue to drive daily business decisions and are integrated into our people management processes, including hiring, performance management, compensation, promotion, talent development, training, and succession planning. – Following the launch of the purpose, we reviewed our Total Reward Principles, performance management approach, and compensation framework to ensure they are fully aligned with our purpose and strategic imperatives. While we made modest adjustments, no fundamental changes were made to our compensation framework for 2021 as a result of our review. – Fair and effective people management processes are key for our long-term success. Our global performance management approach underwent a comprehensive review in 2021 as part of our broader strategic refresh. Consequently, we made changes to our year-end review, objective-setting and employee feedback processes that aim to support our strategic priorities, to reinforce our high performance culture and to be simpler and more transparent. Additionally, our GEB performance review process includes more tangible measurement on quantitative outcomes and a greater focus on strategy, digitalization and sustainability matters. Find out more: ubs.com/global/en/our-firm/our-purpose 222 Financial performance Commitment to return capital to shareholders In 2021, the ongoing momentum in flows and volume growth Financial performance together with favorable market conditions and investor sentiment In 2021, the ongoing momentum in flows and volume growth led to growth across the firm. Our financial results outperformed together with favorable market conditions and investor sentiment our financial targets and we saw the highest profit before tax led to growth across the firm. Our financial results outperformed since 2006. This growth outpaces our performance award pool our financial targets and we saw the highest profit before tax development. We also maintained our high level of return on since 2006. This growth outpaces our performance award pool CET1 capital. development. We also maintained our high level of return on CET1 capital. Group proﬁt before tax Return on CET1 capital USD billion in % +25% excluding provision for French cross-border matter We remain committed to returning excess capital to our Commitment to return capital to shareholders shareholders. We repurchased USD 2.6 billion of shares in 2021 We remain committed to returning excess capital to our and we intend to repurchase up to USD 5 billion during 2022. For shareholders. We repurchased USD 2.6 billion of shares in 2021 2021, the BoD intends to propose a dividend of USD 0.50 per and we intend to repurchase up to USD 5 billion during 2022. For share for approval at the Annual General Meeting of shareholders 2021, the BoD intends to propose a dividend of USD 0.50 per in 2022. share for approval at the Annual General Meeting of shareholders in 2022. Cost / income ratio in % +16% + 0.1ppts + 0.4 ppts 8.2 9.5 17.4 17.5 73.3 73.6 2020 2021 2020 2021 2020 2021 Group performance award pool GEB performance award pool Per capita GEB performance award pool 2021. business momentum, our focus on fueling growth and disciplined USD billion CHF million CHF million +10% – 6% –1% 3.3 3.7 85.0 79.8 6.4 6.3 2021 performance award pool 2020 2021 2020 The performance award pool continues to reflect our strict pay- 2021 performance award pool for-performance philosophy, our disciplined approach in The performance award pool continues to reflect our strict pay- managing compensation over business cycles and alignment to in for-performance philosophy, our disciplined approach shareholder interests. managing compensation over business cycles and alignment to The 2021 performance award pool was USD 3.7 billion, an shareholder interests. increase of 10% compared with 2020. It factors in the strong The 2021 performance award pool was USD 3.7 billion, an financial performance, as well as the financial and reputational increase of 10% compared with 2020. It factors in the strong impact resulting from the loss related to the default of a US-based financial performance, as well as the financial and reputational client of our prime brokerage business. The seriousness of this impact resulting from the loss related to the default of a US-based event led to a significant downward revision of the Group client of our prime brokerage business. The seriousness of this performance award pool. As a reminder regarding the French event led to a significant downward revision of the Group cross-border matter, in 2019 we reflected this matter in our performance award pool. As a reminder regarding the French compensation decisions, including linking a meaningful portion of cross-border matter, in 2019 we reflected this matter in our GEB compensation (as well as the Chairman’s compensation) to compensation decisions, including linking a meaningful portion of the final outcome of this matter which is still not resolved. GEB compensation (as well as the Chairman’s compensation) to Furthermore, our performance award pool decision also the final outcome of this matter which is still not resolved. reflected our achievements relative to non-financial objectives, Furthermore, our performance award pool decision also such as our good progress toward delivering on our sustainability reflected our achievements relative to non-financial objectives, strategy, as well as the positive total shareholder return (TSR) of such as our good progress toward delivering on our sustainability UBS shares. It also reflected other factors, such as the growing strategy, as well as the positive total shareholder return (TSR) of competition to attract and retain a talented and diverse workforce UBS shares. It also reflected other factors, such as the growing that continues to deliver on our purpose and strategy. competition to attract and retain a talented and diverse workforce For 2021, the GEB performance award pool was CHF 79.8 that continues to deliver on our purpose and strategy. million, a reduction of 1% on a per capita basis and a reduction For 2021, the GEB performance award pool was CHF 79.8 of 6% overall. This decrease in an otherwise exceptionally good million, a reduction of 1% on a per capita basis and a reduction financial year contrasts with the Group pool increase of 10%. The of 6% overall. This decrease in an otherwise exceptionally good decision for the GEB pool considers the excellent financial result financial year contrasts with the Group pool increase of 10%. The offset by a proportionally larger downward adjustment than the decision for the GEB pool considers the excellent financial result Group pool to reflect the accountability of the GEB for the loss offset by a proportionally larger downward adjustment than the resulting from the default of a US-based client of our prime Group pool to reflect the accountability of the GEB for the loss brokerage business. resulting from the default of a US-based client of our prime brokerage business. 2021 2021 2020 › Refer to the “2021 key compensation themes” section of this report for more information about the compensation impact › Refer to the “2021 key compensation themes” section of this resulting from the significant loss event, the French cross-border report for more information about the compensation impact matter, environmental, social and governance (ESG) resulting from the significant loss event, the French cross-border achievements, and other key compensation themes matter, environmental, social and governance (ESG) achievements, and other key compensation themes more information › Refer to the “Group compensation” section of this report for › Refer to the “Group compensation” section of this report for 2022 Annual General Meeting more information At the 2022 AGM on 6 April, we will seek your support on the 2022 Annual General Meeting following compensation-related items: At the 2022 AGM on 6 April, we will seek your support on the – the maximum aggregate amount of compensation for the BoD following compensation-related items: – the maximum aggregate amount of compensation for the BoD – the maximum aggregate amount of fixed compensation for for the period from the 2022 AGM to the 2023 AGM; for the period from the 2022 AGM to the 2023 AGM; the GEB for 2023; – the maximum aggregate amount of fixed compensation for – the aggregate amount of variable compensation for the GEB the GEB for 2023; for 2021; and – the aggregate amount of variable compensation for the GEB – shareholder endorsement in an advisory vote for this for 2021; and Compensation Report. in an advisory vote for this – shareholder endorsement On behalf of the Compensation Committee and the BoD, I Compensation Report. thank you again for your feedback and we respectfully ask for On behalf of the Compensation Committee and the BoD, I your continued support at the upcoming AGM. thank you again for your feedback and we respectfully ask for your continued support at the upcoming AGM. Julie G. Richardson Chairperson of the Compensation Committee of the Julie G. Richardson Board of Directors Chairperson of the Compensation Committee of the Board of Directors 223 223 223 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation 2021 key compensation themes The feedback we seek from our shareholders on compensation- related topics is very important to us, as we are committed to maintaining a strong link between the interests of our employees and those of our shareholders. We continued engaging with shareholders during 2021 and received overall positive feedback about our compensation framework. The text below summarizes key compensation themes for 2021 and provides answers to the questions we most frequently receive from shareholders. Summary of 2021 key compensation themes / responses to frequently asked questions How do the refreshed financial targets announced in February 2022 impact compensation? The compensation decisions for 2021 reflect the achievements relative to the 2021 objectives that were set in early 2021 and consider the previous externally communicated targets. Similarly, we have set objectives for 2022 that consider the refreshed targets as communicated in February 2022. In addition, for our Long-Term Incentive Plan (LTIP) awards for 2021 performance, we have reviewed the three-year average return on common equity tier 1 (RoCET1) performance metric to reflect our strategic return ambitions, our revised financial targets and cost of capital. Specifically, for our awards granted in early 2022 for 2021 performance, the required performance threshold for the minimum payout has been raised to 8%, from 6% in prior-year awards, to reflect our new financial targets. The required RoCET1 performance for a maximum payout is set at 18%, which represents the upper end of our target range. The raised threshold also increases the mid-point of the payout thresholds to better reflect our cost of capital. The linear payout design between threshold and maximum level supports our growth ambitions and our focus on delivering sustainable performance without encouraging excessive risk-taking. How was the loss resulting from the default of a US-based client of our prime brokerage business reflected in the compensation process? Despite our excellent financial performance in 2021, our reputation and financial results were negatively impacted by a significant USD 861 million pre-tax loss that we incurred in the first half of 2021 related to the default of a US-based client of our prime brokerage business. We conducted a thorough review of the event and its root causes, and took decisive actions reflecting the significance of the event and its impact on our shareholders and reputation. The outcomes of the review and the actions taken by management were reviewed by the Joint Risk and Compensation Committees, as well as other internal governance bodies, as appropriate. The 2021 Group performance award pool was reduced significantly as a consequence of this event. Our funding approach for the performance award pool resulted in a direct and substantial reduction, which was supplemented by an additional and significant negative adjustment to the pool. Overall, compensation was reduced by an amount equivalent to over half of the post-tax loss. This reduction had a direct impact on compensation for business and control functions, as well as for the Group Executive Board (the GEB). The GEB performance award pool had a proportionally larger downward adjustment than the Group pool, to reflect the accountability of the GEB for the event. The GEB per-capita performance pool decreased in an otherwise exceptionally good financial year. On an individual level, we conducted a detailed accountability review of employees involved in the event. The fact-finding for the review was supported by external legal counsel, as well as our internal investigation functions. The accountability review covered 30 employees, including relevant individuals in the GEB. The outcomes of the review impacted performance reviews and compensation decisions substantially, where appropriate. 224 224 Advisory vote Corporate governance and compensation | Compensation 2021 key compensation themes The feedback we seek from our shareholders on compensation- The text below summarizes key compensation themes for 2021 related topics is very important to us, as we are committed to and provides answers to the questions we most frequently receive maintaining a strong link between the interests of our employees from shareholders. and those of our shareholders. We continued engaging with shareholders during 2021 and received overall positive feedback about our compensation framework. Summary of 2021 key compensation themes / responses to frequently asked questions How was the loss resulting from the default of a US-based How do the refreshed financial targets announced in client of our prime brokerage business reflected in the February 2022 impact compensation? compensation process? The compensation decisions for 2021 reflect the achievements Despite our excellent financial performance in 2021, our relative to the 2021 objectives that were set in early 2021 and reputation and financial results were negatively impacted by a consider the previous externally communicated targets. Similarly, significant USD 861 million pre-tax loss that we incurred in the we have set objectives for 2022 that consider the refreshed first half of 2021 related to the default of a US-based client of our targets as communicated in February 2022. prime brokerage business. In addition, for our Long-Term Incentive Plan (LTIP) awards for We conducted a thorough review of the event and its root 2021 performance, we have reviewed the three-year average causes, and took decisive actions reflecting the significance of the return on common equity tier 1 (RoCET1) performance metric to event and its impact on our shareholders and reputation. The reflect our strategic return ambitions, our revised financial targets outcomes of the review and the actions taken by management and cost of capital. were reviewed by the Joint Risk and Compensation Committees, Specifically, for our awards granted in early 2022 for 2021 as well as other internal governance bodies, as appropriate. performance, the required performance threshold for the The 2021 Group performance award pool was reduced minimum payout has been raised to 8%, from 6% in prior-year significantly as a consequence of this event. Our funding awards, to reflect our new financial targets. The required RoCET1 approach for the performance award pool resulted in a direct and performance for a maximum payout is set at 18%, which substantial reduction, which was supplemented by an additional represents the upper end of our target range. The raised threshold and significant negative adjustment to the pool. Overall, also increases the mid-point of the payout thresholds to better compensation was reduced by an amount equivalent to over half reflect our cost of capital. The linear payout design between of the post-tax loss. This reduction had a direct impact on threshold and maximum level supports our growth ambitions and compensation for business and control functions, as well as for our focus on delivering sustainable performance without the Group Executive Board (the GEB). encouraging excessive risk-taking. The GEB performance award pool had a proportionally larger downward adjustment than the Group pool, to reflect the accountability of the GEB for the event. The GEB per-capita performance pool decreased in an otherwise exceptionally good financial year. On an individual level, we conducted a detailed accountability review of employees involved in the event. The fact-finding for the review was supported by external legal counsel, as well as our internal investigation functions. The accountability review covered 30 employees, including relevant individuals in the GEB. The outcomes of the review impacted performance reviews and compensation decisions substantially, where appropriate. What progress has been made on resolving the French cross-border matter and how is this reflected in GEB compensation? In December 2021, UBS filed an appeal with the French Supreme Court regarding the decision of the Court of Appeal relating to the French cross-border matter. This matter remains ongoing and was considered in the decision-making process for our 2021 performance award pool. The use of the RoCET1 metric aims to ensure the cost of litigation matters, including the French cross-border matter, has an ongoing and direct impact on the compensation awarded and realized by our most senior including the GEB. Additionally, when determining the 2019 performance award pool, the impact of the French cross-border matter was considered in our decision making. leaders, Furthermore, as outlined in our 2019 Compensation Report, up to CHF 7.9 million, or 30%, of the 2019 LTIP awards at grant for GEB members active in March 2017, as well as the Chairman of the BoD’s unvested share award, continues to be at risk and directly linked to the final resolution of the French cross-border matter. In addition, a malus clause allows the Compensation Committee to assess any new information that becomes available in the future and to retrospectively reduce the 2019 LTIP award by up to the full amount if such new information would have impacted our compensation decision in 2019. This matter continues to be ongoing and, once resolved, the final outcome will be reflected in the final amounts delivered to relevant current and former employees. Impact of litigation matters on the LTIP (all years) ) LTIP design P I T L ( n a l P e v i t n e c n I m r e T - g n o L Added measure for 2019 LTIP award (GEB members active in March 2017) Performance metric (RoCET1 directly impacted by litigation costs) Fact-based adjustment (up to CHF 7.3 million of the 2019 LTIP at grant is directly linked to the ﬁ nal resolution of the French cross-border matter) Malus adjustment (2019 LTIP award may be reduced based on new information that would have impacted the compensation for 2019) (As disclosed in the Compensation Report 2019.) How does UBS support diversity and pay fairness? Ensuring fair treatment and strengthening our commitment to diversity, equity and inclusion (DE&I) are vital to our sustainable business success. We find diverse teams better understand and relate to the needs of our equally diverse clients. Through the diversity of our employees’ backgrounds and experiences, we drive innovation and better decision making. Gender diversity is a key priority for the firm. We are particularly focused on increasing the representation of women at senior management levels. We take a multi-pronged approach in this respect, analyzing and adapting various factors that support the hiring, development and retention of women at all levels. Increasing the ethnic minority diversity of our workforce, and a related commitment to support underrepresented talent and communities, is also a top priority across all business divisions and regions. We focus on four areas: accountability and transparency; investing in our talent; improving our culture; and leveraging our business strengths in underrepresented communities. Compensating employees fairly and consistently is key to ensuring equal opportunities. We pay for performance, and we take pay equity seriously. A strong commitment to both is embedded in our compensation policies, and we regularly conduct both internal reviews and independent external audits as quality checks. Additionally, these reviews also allow us to maintain our certification status from the EQUAL-SALARY Foundation for our equal pay practices in Switzerland, the US, the UK, Hong Kong SAR and Singapore. How is litigation considered in the compensation process? Litigation and regulatory matters, and their resolution and remediation, are taken into consideration throughout the compensation decision-making process. The Compensation Committee distinguishes between current matters, where the underlying issues are within the responsibility of management, and legacy matters, where management is accountable for resolving them but not responsible for the underlying issue. Current matters have a direct impact on the performance award pool, individual performance assessments and resulting compensation decisions, as well as the payout of deferred awards. For legacy matters, the Compensation Committee seeks to incentivize management to resolve these matters in the best interest of shareholders and we hold management accountable for the effective and efficient resolution of these matters. Therefore, the performance and compensation assessment reflects management’s responsibility for achieving a resolution without creating an incentive to settle inappropriately or take excessive risks on such matters. In addition, the use of RoCET1, which includes both current and legacy matters, in our performance assessment for GEB performance, as well as the LTIP design, supports the focus on ensuring the cost of litigation matters has in our compensation plans a direct impact on the compensation awarded to and realized by our most senior leaders, including the GEB. 224 225 225 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation How does UBS promote and support the health and well- being of employees? Supporting employee health and well-being remained a priority in 2021. We are committed to helping employees thrive in their current roles and deliver sustainable performance over time. Regular “pulse” surveys gauged employees’ views on remote work, stress, communication and other aspects. Resources to support holistic well-being featured a bespoke eLearning curriculum, physical and mental health initiatives, volunteering opportunities, increased certain local benefits offerings, and financial education events. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more information How does UBS respond to the increasing competition for talent? We continue to see increasing competition for talent. These pressures come from our direct competitors but also other organizations including technology, consulting and new entrants or disruptors, such as fintech firms. As a recognized employer of choice, we continue to broaden and deepen our talent pools through ongoing talent development and continued investment in our employees. We take careful consideration to reflect pay for performance and competitive pay in our decision making. Furthermore, as our compensation approach includes substantial deferral, we balance incentivizing performance with retention in order to promote a sustainable workforce. How is ESG considered in the compensation process? ESG objectives are considered in the compensation determination process in objective setting, performance award pool funding, performance evaluation and compensation decisions. ESG-related objectives have been embedded in our Pillars and Principles since they were established in 2011. In 2021, we revised the Group CEO and GEB scorecards and further enhanced the link between ESG and compensation by introducing explicit sustainability objectives under “Strategic & Growth” in the non- financial goal category. These sustainability objectives are linked to our priorities, and their progress is measured via robust quantitative metrics and qualitative criteria. Sustainability objectives are individually assessed for each GEB member, and consequently directly impact their performance assessments and compensation decisions. In addition, in the performance award pool funding across the Group, ESG is also reflected through an assessment of progress made toward targets linked to our focus areas of Planet, People (including progress made toward our diversity ambitions) and Partnerships, alongside other key dimensions. Therefore ESG into consideration when the Compensation Committee assesses not only what results were achieved but also how they were achieved. is taken For 2021, we established robust and concrete targets, and made good progress toward achieving them. We continue to increase our focus on this topic. › Refer to “Environmental, Social and Governance considerations” in the “Compensation philosophy and governance” section of this report for more information 226 226 How is ESG considered in the compensation process? How does UBS promote and support the health and well- ESG objectives are considered in the compensation determination being of employees? process in objective setting, performance award pool funding, Supporting employee health and well-being remained a priority in performance evaluation and compensation decisions. 2021. We are committed to helping employees thrive in their ESG-related objectives have been embedded in our Pillars and current roles and deliver sustainable performance over time. the Group CEO and GEB scorecards and further enhanced the link work, stress, communication and other aspects. Resources to between ESG and compensation by introducing explicit support holistic well-being featured a bespoke eLearning sustainability objectives under “Strategic & Growth” in the non- curriculum, physical and mental health initiatives, volunteering financial goal category. These sustainability objectives are linked opportunities, increased certain local benefits offerings, and to our priorities, and their progress is measured via robust financial education events. quantitative metrics and qualitative criteria. Sustainability objectives are individually assessed for each GEB member, and › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for more consequently directly impact their performance assessments and information compensation decisions. In addition, in the performance award pool funding across the How does UBS respond to the increasing competition for Group, ESG is also reflected through an assessment of progress talent? made toward targets linked to our focus areas of Planet, People We continue to see increasing competition for talent. These (including progress made toward our diversity ambitions) and pressures come from our direct competitors but also other Partnerships, alongside other key dimensions. organizations including technology, consulting and new entrants Therefore ESG is taken into consideration when the or disruptors, such as fintech firms. As a recognized employer of Compensation Committee assesses not only what results were choice, we continue to broaden and deepen our talent pools achieved but also how they were achieved. through ongoing talent development and continued investment For 2021, we established robust and concrete targets, and in our employees. We take careful consideration to reflect pay for made good progress toward achieving them. We continue to performance and competitive pay in our decision making. increase our focus on this topic. › Refer to “Environmental, Social and Governance considerations” Furthermore, as our compensation approach includes substantial deferral, we balance incentivizing performance with retention in in the “Compensation philosophy and governance” section of order to promote a sustainable workforce. this report for more information Advisory vote Corporate governance and compensation | Compensation Principles since they were established in 2011. In 2021, we revised Regular “pulse” surveys gauged employees’ views on remote Say-on-pay votes at the AGM Say-on-pay In line with the Swiss Ordinance against Excessive Compensation in Listed Stock Corporations, we seek binding shareholder approval for the aggregate compensation awarded to the GEB and the BoD. Prospective approval of the fixed compensation of the BoD and GEB provides the firm and its governing bodies with the certainty needed to operate effectively. Retrospective approval of the GEB’s variable compensation aligns their compensation with performance and contribution. These binding votes on compensation and the advisory vote on our compensation report reflect our commitment to shareholders having their say on pay. › Refer to “Provisions of the Articles of Association related to compensation” in the “Supplemental information” section of this report for more information Audited | Approved fixed compensation At the 2020 AGM, shareholders approved a maximum aggregate fixed compensation amount of CHF 33.0 million for GEB members for the 2021 performance year. This budget reflects base salaries, role-based allowances in response to EU Capital Requirements Directive IV, and estimated standard contributions to retirement benefit plans, as well as other benefits. Our expenses related to fixed compensation for our continuing GEB members were within the budget; however, the amount of fixed compensation related to the hiring of Barbara Levi as new Group General Counsel resulted in exceeding this budget. Therefore, as authorized by article 46 para. 5 of our Articles of Association, an amount of CHF 2.2 million was used to pay the portion of her fixed compensation (including replacement awards) that exceeded the approved amount.  › Refer to “2021 total compensation for the GEB members” in the “Compensation for GEB members” section of this report Say on pay – compensation-related votes at the 2021 AGM 2021 AGM say-on-pay voting schemes 2021 AGM actual shareholder votes Binding vote on GEB variable compensation Shareholders approved CHF 85,000,000 for the 2020 financial year1,2,3 Binding vote on GEB fixed compensation Shareholders approved CHF 33,000,000 for the 2022 financial year1,2,3 Binding vote on BoD compensation Shareholders approved CHF 13,000,000 for the period from the 2021 AGM to the 2022 AGM1,2,4 Vote “for” 84.8% 91.8% 91.1% Advisory vote on the Compensation Report Shareholders approved the UBS Group AG Compensation Report 2020 in an advisory vote 85.7% 11 Local currencies are converted into Swiss francs at the exchange rates stated in “Note 33 Currency translation rates” in the “Consolidated financial statements” section of our Annual Report 2021. 22 Excludes the portion related to the legally required employer’s social security contributions. 33 As stated in “Group Executive Board” in the “Corporate governance” section of our Annual Report 2021, twelve GEB members were in office on 31 December 2021 and thirteen GEB members on 31 December 2020. 44 Twelve BoD members were in office on 31 December 2021. 226 227 227 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Compensation-related proposals for 2022 At the 2022 AGM, we will ask our shareholders to vote on the variable compensation for the GEB for 2021, the fixed compensation for the GEB for 2023 and the compensation for the BoD from the 2022 AGM to the 2023 AGM. In addition, we will also ask shareholders for an advisory vote on our Compensation Report, which describes our compensation policy, including framework and governance. The table below outlines our compensation proposals, including supporting rationales, that we plan to submit to the 2022 AGM for binding votes (in line with the Swiss Ordinance against Excessive Compensation in Listed Stock Corporations and our Articles of Association (AoA)). Compensation-related proposals for binding votes at the 2022 AGM Item Proposal Rationale GEB variable compensation GEB fixed compensation The Board of Directors proposes an aggregate amount of variable compensation of CHF 79,750,000 for the members of the GEB for the 2021 financial year. The proposed amount reflects a reduction of 1% on a per capita basis and a reduction of 6% overall compared with the previous year. This decrease in an otherwise exceptionally good financial year contrasts with the Group pool increase of 10%. The decision for the GEB pool considers the excellent financial result offset by a proportionally larger downward adjustment than the Group pool to reflect the accountability of the GEB for the loss resulting from the default of a US-based client of our prime brokerage business. The Board of Directors proposes a maximum aggregate amount of fixed compensation of CHF 33,000,000 for the members of the GEB for the 2023 financial year. The proposed amount is unchanged from the previous year, reflecting consistency in planning over time and unchanged base salaries for the Group CEO and other GEB members. In addition to the base salaries, it also includes role-based allowances in response to EU Capital Requirements Directive IV, estimated standard contributions to retirement benefit plans, and other benefits. The proposed amount provides flexibility in light of potential changes of GEB composition or roles, competitive considerations where potential additional role-based allowances may be required, and other factors (e.g., changes in FX rates or benefits). BoD compensation The Board of Directors proposes a maximum aggregate amount of compensation of CHF 13,000,000 for the members of the Board of Directors for the period from the 2022 AGM to the 2023 AGM. The proposed amount is unchanged compared with the previous period and includes the total compensation of the nominated Chairman and Vice Chairman. For the new Chairman we expect his total compensation would be approximately CHF 0.4 million lower compared with the current Chairman (a reduction of approximately 8%). The fees for BoD members other than the nominated Chairman and Vice Chairman are unchanged. 228 228 Advisory vote Corporate governance and compensation | Compensation Compensation-related proposals for 2022 The table below outlines our compensation proposals, including supporting rationales, that we plan to submit to the Compensation philosophy and governance At the 2022 AGM, we will ask our shareholders to vote on the 2022 AGM for binding votes (in line with the Swiss Ordinance variable compensation for the GEB for 2021, the fixed against Excessive Compensation in Listed Stock Corporations and compensation for the GEB for 2023 and the compensation for the our Articles of Association (AoA)). Our compensation philosophy Total Reward Principles This ensures that the interests of our employees are aligned with those of our clients and other stakeholders. Our Total Reward Principles provide a strong link to our strategic imperatives and encourage employees to live our strong and inclusive culture that is grounded in our three keys to success: our Pillars, Principles and Behaviors. to These guiding principles underpin our approach compensation and define our compensation framework. In 2021, following the launch of our purpose, we reviewed our Total Reward Principles and compensation framework to confirm they are fully aligned with our purpose and support our strategic imperatives. Therefore, our compensation approach supports our capital strength and risk management, and provides for simplification and efficiency. It encourages employees to focus on client centricity, connectivity and sustainable impact in everything we do. Moreover, we reward behaviors that help build and protect the firm’s reputation, specifically accountability with integrity, collaboration and innovation. Compensation for each employee is based on individual, team, business division and Group performance, within the context of the markets in which we operate. Total Reward Principles Our Total Reward Principles apply to all employees globally, but vary in certain locations according to local legal requirements and regulations and practices. The table below provides a summary of our Total Reward Principles. Support our purpose and strategy Our compensation approach supports the firm’s purpose and strategy, fosters engagement among employees and aligns their long-term interests with those of clients and stakeholders. Attract, retain and connect a diverse, talented workforce We embrace a culture of diversity, equity, and inclusiveness. Pay at UBS is fair, reflects equal treatment and is competitive. In this way, our investment in a connected workforce supports the sustainability of the organization. Apply a pay-for-performance approach to support development and our ways of working The setting of clear objectives and a thorough evaluation of what was achieved and how it was achieved, combined with effective communication, promote clarity, accountability and establish a strong link between pay and performance. This approach emphasizes our Behaviors, which are accountability with integrity, collaboration and innovation. Reinforce sustainable growth and support long- term value creation Compensation is appropriately balanced between fixed and variable elements and delivered over an appropriate period to support our growth ambitions and sustainable performance. Support risk awareness and appropriate risk- taking Our compensation structure encourages employees to have a focus on risk management and behave consistently with the firm’s risk framework and appetite, thereby anticipating and managing risks effectively to protect our capital and reputation. Our Total Reward approach At UBS, we apply a holistic Total Reward approach, generally consisting of fixed compensation (base salary and role-based allowances, if applicable), performance awards, pension contributions and benefits. Our Total Reward approach is structured to support sustainable results and growth ambitions. For employees whose total compensation exceeds certain levels, performance awards are delivered in a combination of cash, deferred contingent capital awards and deferred share- based awards. A substantial portion of performance awards is deferred and vests over a five-year period (or longer for certain regulated employees). This deferral approach supports alignment of employee and investor interests, our capital base and the creation of sustainable shareholder value. › Refer to “Compensation elements for all employees” in the “Group compensation” section of this report for more information Total Reward Total compensation Performance award Deferred Contingent Capital Plan Base salary / fixed compensation Deferred share-based awards: – Long-Term Incentive Plan (GEB and selected senior management) – Equity Ownership Plan (all other employees, as applicable) Cash Note: illustrative Pension and benefits m r e t - r e g n o L - r e t r o h S m r e t 229 229 BoD from the 2022 AGM to the 2023 AGM. In addition, we will also ask shareholders for an advisory vote on our Compensation Report, which describes our compensation policy, including framework and governance. Compensation-related proposals for binding votes at the 2022 AGM Item Proposal Rationale GEB variable compensation The Board of Directors proposes an The proposed amount reflects a reduction of 1% on a per capita basis and a reduction of 6% aggregate amount of variable overall compared with the previous year. This decrease in an otherwise exceptionally good financial compensation of CHF 79,750,000 year contrasts with the Group pool increase of 10%. The decision for the GEB pool considers the for the members of the GEB for the excellent financial result offset by a proportionally larger downward adjustment than the Group 2021 financial year. pool to reflect the accountability of the GEB for the loss resulting from the default of a US-based client of our prime brokerage business. GEB fixed The Board of Directors proposes a The proposed amount is unchanged from the previous year, reflecting consistency in planning over compensation maximum aggregate amount of time and unchanged base salaries for the Group CEO and other GEB members. In addition to the fixed compensation of base salaries, it also includes role-based allowances in response to EU Capital Requirements CHF 33,000,000 for the members Directive IV, estimated standard contributions to retirement benefit plans, and other benefits. The of the GEB for the 2023 financial proposed amount provides flexibility in light of potential changes of GEB composition or roles, year. competitive considerations where potential additional role-based allowances may be required, and other factors (e.g., changes in FX rates or benefits). BoD The Board of Directors proposes a The proposed amount is unchanged compared with the previous period and includes the total compensation maximum aggregate amount of compensation of the nominated Chairman and Vice Chairman. For the new Chairman we expect compensation of CHF 13,000,000 his total compensation would be approximately CHF 0.4 million lower compared with the current for the members of the Board of Chairman (a reduction of approximately 8%). The fees for BoD members other than the nominated Directors for the period from the Chairman and Vice Chairman are unchanged. 2022 AGM to the 2023 AGM. 228 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Compensation governance Board of Directors and Compensation Committee The BoD is ultimately responsible for approving the compensation strategy and principles proposed by the Compensation Committee, which determines compensation-related matters in line with the principles set forth in the AoA. to thereof, approve implementation As determined in the AoA and the firm’s Organization Regulations, the Compensation Committee supports the BoD with its duties to set guidelines on compensation and benefits, to certain oversee compensation and to scrutinize executive compensation. The Compensation Committee consists of independent BoD members, who are elected annually by shareholders at the AGM, is responsible for governance and oversight of our and compensation process and practices. This includes the alignment between pay and performance, and ensuring the compensation framework supports appropriate risk awareness and management, as well as appropriate risk-taking. In 2021, to additionally support the connection between the Compensation Committee and the Risk Committee, the Compensation Committee Chairperson was also a member of the Risk Committee. that Annually, and on behalf of the BoD, the Compensation Committee: – reviews our Total Reward Principles; – approves key features of the compensation framework and plans for the non-independent Board members and GEB members; – reviews performance award funding throughout the year and proposes, upon proposal of the Group CEO, the final annual Group performance award pool for BoD approval; – upon proposal of the Group CEO, reviews the performance framework of the other GEB members; – upon proposal of the Group CEO, proposes the performance assessments and the individual total compensation for the other GEB members for approval by the BoD; – upon proposal of the Chairman, proposes financial and non- financial performance targets and objectives for the Group CEO and the Group CEO’s performance assessment for approval by the Board; – approves the total compensation for the Chairman and the non-independent Board members; – proposes, upon proposal of the Chairman, the total compensation for the Group CEO for approval by the Board; – proposes to the BoD the maximum aggregate amounts of BoD compensation and GEB fixed compensation and the aggregate amount of variable compensation for the GEB for approval by the general meeting of the shareholders; – upon proposal of the Chairman, proposes the remuneration / fee framework for independent Board members for approval by the Board; 230 230 – upon proposal of the Chairman and Group CEO, approves the remuneration / fee frameworks for external supervisory board members of Significant Group Entities and be informed of remuneration / fee frameworks for external supervisory board members of Significant Regional Entities; and – proposes to the BoD for approval the annual compensation report and approves other material public disclosures on UBS compensation matters. The Compensation Committee is required to meet at least four times each year. All meetings in 2021 were held in the presence of the Chairman and the Group CEO and most were attended by external advisors. Individuals, including the Chairman and the Group CEO, are not permitted to attend a meeting or participate in a discussion on their own performance and compensation. After the meetings, the Chairperson of the Compensation Committee reports to the BoD on the Compensation Committee’s activities and discussions and, if necessary, submits proposals for approval by the full BoD. Compensation Committee meeting minutes are also sent to all members of the BoD. On 31 December 2021, the members of the Compensation (Chairperson), Reto Committee were Julie G. Richardson Francioni, Dieter Wemmer and Jeanette Wong. › Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2021 for more information External advisors The Compensation Committee may retain external advisors to support it in fulfilling its duties. In 2021, HCM International Ltd. (HCM) provided independent advice on compensation matters. HCM holds no other mandates with UBS. Additionally, Willis Towers Watson provided the Compensation Committee with data on market trends and pay levels. Various subsidiaries of Willis Towers Watson provide similar information to Human Resources in relation to compensation for employees. Willis Towers Watson holds no other compensation-related mandates with UBS. The Risk Committee’s role in compensation risk reflects appropriately The Risk Committee, a committee of the BoD, works closely with the Compensation Committee to ensure that our compensation framework and management, and ensures appropriate risk-taking. It supervises and sets appropriate risk management and risk control principles and is regularly briefed on how risk is factored into the compensation process. It also monitors the involvement of Group in Risk Control and Compliance and Operational Risk the compensation and compensation process. risk-related aspects of awareness reviews › Refer to ubs.com/governance for more information Advisory vote Corporate governance and compensation | Compensation Compensation governance Compensation Committee 2021 / 2022 key activities and timeline May June July Sept Oct Nov¹ Dec¹ Jan Feb Board of Directors and Compensation Committee – upon proposal of the Chairman and Group CEO, approves the SSttrraatteeggyy,, ppoolliiccyy aanndd ggoovveerrnnaannccee Total Reward Principles The BoD is ultimately responsible for approving the compensation members of Significant Group Entities and be informed of strategy and principles proposed by the Compensation remuneration / fee frameworks for external supervisory board Committee, which determines compensation-related matters in members of Significant Regional Entities; and line with the principles set forth in the AoA. – proposes to the BoD for approval the annual compensation Compensation disclosure and stakeholder communication matters AGM reward-related items Compensation Committee governance As determined in the AoA and the firm’s Organization report and approves other material public disclosures on UBS AAnnnnuuaall ccoommppeennssaattiioonn rreevviieeww remuneration / fee frameworks for external supervisory board Sustainability / ESG in the compensation process Accruals and full-year forecast of the performance award pool funding Performance targets and performance assessment of the Group CEO and GEB members Group CEO and GEB members’ salaries and individual performance awards Update on market practice, trends and peer group matters Pay for performance, including governance on certain higher-paid employees, and non-standard compensation arrangements Board of Directors remuneration   CCoommppeennssaattiioonn ffrraammeewwoorrkk Compensation framework and deferred compensation matters RRiisskk aanndd rreegguullaattoorryy Risk management in the compensation approach and joint meeting with BoD Risk Committee Regulatory activities impacting employees and engagement with regulators                                                     Annually, and on behalf of the BoD, the Compensation Francioni, Dieter Wemmer and Jeanette Wong. 11 The Compensation Committee held two meetings in November 2021 and three meetings in December 2021. › Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2021 for more information Compensation governance The table below provides an overview of compensation governance by specific role. Recipients Compensation recommendations proposed by Approved by Chairman of the BoD Chairperson of the Compensation Committee Compensation Committee1 Independent BoD members (remuneration / fee framework) Compensation Committee and Chairman of the BoD BoD1 Group CEO Compensation Committee and Chairman of the BoD Other GEB members Compensation Committee and Group CEO BoD1 BoD1 Key Risk Takers (KRTs) / senior employees Respective GEB member and functional management team Individual compensation for KRTs and senior employees: Group CEO 11 Aggregate variable compensation and maximum aggregate amount of fixed compensation for the GEB, as well as aggregate remuneration for the BoD, are subject to shareholder approval. Regulations, the Compensation Committee supports the BoD compensation matters. with its duties to set guidelines on compensation and benefits, to oversee implementation thereof, to approve certain The Compensation Committee is required to meet at least four compensation and to scrutinize executive compensation. The times each year. All meetings in 2021 were held in the presence Compensation Committee consists of independent BoD of the Chairman and the Group CEO and most were attended by members, who are elected annually by shareholders at the AGM, external advisors. Individuals, including the Chairman and the and is responsible for governance and oversight of our Group CEO, are not permitted to attend a meeting or participate compensation process and practices. This includes the alignment in a discussion on their own performance and compensation. between pay and performance, and ensuring that the After the meetings, the Chairperson of the Compensation compensation framework supports appropriate risk awareness Committee reports to the BoD on the Compensation Committee’s and management, as well as appropriate risk-taking. In 2021, to activities and discussions and, if necessary, submits proposals for additionally support the connection between the Compensation approval by the full BoD. Compensation Committee meeting Committee and the Risk Committee, the Compensation minutes are also sent to all members of the BoD. Committee Chairperson was also a member of the Risk On 31 December 2021, the members of the Compensation Committee were Julie G. Richardson (Chairperson), Reto Committee. Committee: members; – reviews our Total Reward Principles; – approves key features of the compensation framework and plans for the non-independent Board members and GEB External advisors – reviews performance award funding throughout the year and The Compensation Committee may retain external advisors to proposes, upon proposal of the Group CEO, the final annual support it in fulfilling its duties. In 2021, HCM International Ltd. Group performance award pool for BoD approval; (HCM) provided independent advice on compensation matters. – upon proposal of the Group CEO, reviews the performance HCM holds no other mandates with UBS. Additionally, Willis framework of the other GEB members; Towers Watson provided the Compensation Committee with data – upon proposal of the Group CEO, proposes the performance on market trends and pay levels. Various subsidiaries of Willis assessments and the individual total compensation for the Towers Watson provide similar information to Human Resources other GEB members for approval by the BoD; in relation to compensation for employees. Willis Towers Watson – upon proposal of the Chairman, proposes financial and non- holds no other compensation-related mandates with UBS. financial performance targets and objectives for the Group CEO and the Group CEO’s performance assessment for The Risk Committee’s role in compensation approval by the Board; – approves the total compensation for the Chairman and the The Risk Committee, a committee of the BoD, works closely with non-independent Board members; the Compensation Committee to ensure that our compensation – proposes, upon proposal of the Chairman, the total framework appropriately reflects risk awareness and compensation for the Group CEO for approval by the Board; management, and ensures appropriate risk-taking. It supervises – proposes to the BoD the maximum aggregate amounts of BoD and sets appropriate risk management and risk control principles compensation and GEB fixed compensation and the aggregate and is regularly briefed on how risk is factored into the amount of variable compensation for the GEB for approval by compensation process. It also monitors the involvement of Group the general meeting of the shareholders; Risk Control and Compliance and Operational Risk in – upon proposal of the Chairman, proposes the remuneration / compensation and reviews risk-related aspects of the fee framework for independent Board members for approval compensation process. by the Board; › Refer to ubs.com/governance for more information 230 231 231 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Environmental, Social and Governance considerations ESG in the compensation determination process Fair pay and pay for performance Compensating employees fairly and consistently is key to ensuring equal opportunities. We pay for performance, and we take pay equity seriously. A strong commitment to both is embedded in our compensation policies, and we conduct both internal reviews and independent external audits as quality checks. If we uncover gaps that cannot be explained by business factors or appropriate personal factors – such as experience, role, responsibility, performance or location – we explore the root causes of those gaps and address them. Additionally, our regular monitoring and review processes also allow us to maintain our certification status with the EQUAL- SALARY Foundation for our equal pay practices in Switzerland, the US, the UK, Hong Kong SAR and Singapore. The firm also successfully completed an equal pay analysis in Switzerland in 2020, as required by the Swiss Federal Act on Gender Equality. The results of the analysis confirmed that we are fully compliant with Swiss equal pay standards. These holistic certifications are a testament to our well-established equal opportunity environment and the strength of our human resources practices, including performance and reward. In 2021, we continued to monitor pay fairness and addressed any unexplained gaps to ensure that all employees are paid fairly. ESG objectives are considered in the compensation determination process in objective setting, performance award pool funding, performance evaluation and compensation decisions. ESG-related objectives have been embedded in our Pillars and Principles since they were established in 2011. In 2021, we revised the Group CEO and GEB scorecards and further enhanced the link between ESG and compensation by introducing explicit sustainability objectives under “Strategic & Growth” in the non- financial goal category. These sustainability objectives are linked to our priorities, and their progress is measured via robust quantitative metrics and qualitative criteria. The table below provides an overview of our metrics and progress achieved in 2021. Sustainability objectives are individually assessed for each GEB member, and consequently directly impact their performance assessments and compensation decisions. In addition, in the performance award pool funding across the Group, ESG is also reflected through an assessment of progress made against targets linked to our focus areas of Planet, People (including progress made against our diversity ambitions) and Partnerships, alongside other key dimensions. Therefore ESG is taken into consideration when the Compensation Committee assesses not only what results were achieved but also how they were achieved. For 2021, we established robust and concrete targets, and made good progress toward achieving them. We continue to increase our focus on this topic. › Refer to “GEB performance assessments“ in the “Compensation for GEB members” section of this report for more information about the GEB performance measurement process › Refer to “Our focus on sustainability and climate,” “Employees” and “Society” in the “How we create value for our stakeholders” section of our Annual Report 2021 for more information › Refer to ubs.com/gri for more information about ESG-related topics 232 232 Advisory vote Corporate governance and compensation | Compensation Environmental, Social and Governance considerations Our targets and progress ESG in the compensation determination process Fair pay and pay for performance ESG objectives are considered in the compensation determination Compensating employees fairly and consistently is key to ensuring process in objective setting, performance award pool funding, equal opportunities. We pay for performance, and we take pay performance evaluation and compensation decisions. equity seriously. A strong commitment to both is embedded in our ESG-related objectives have been embedded in our Pillars and compensation policies, and we conduct both internal reviews and Principles since they were established in 2011. In 2021, we revised independent external audits as quality checks. If we uncover gaps the Group CEO and GEB scorecards and further enhanced the link that cannot be explained by business factors or appropriate between ESG and compensation by introducing explicit personal factors – such as experience, role, responsibility, sustainability objectives under “Strategic & Growth” in the non- performance or location – we explore the root causes of those gaps financial goal category. These sustainability objectives are linked and address them. to our priorities, and their progress is measured via robust Additionally, our regular monitoring and review processes also quantitative metrics and qualitative criteria. The table below allow us to maintain our certification status with the EQUAL- provides an overview of our metrics and progress achieved in SALARY Foundation for our equal pay practices in Switzerland, the 2021. Sustainability objectives are individually assessed for each US, the UK, Hong Kong SAR and Singapore. The firm also GEB member, and consequently directly impact their performance successfully completed an equal pay analysis in Switzerland in 2020, assessments and compensation decisions. as required by the Swiss Federal Act on Gender Equality. The results In addition, in the performance award pool funding across the of the analysis confirmed that we are fully compliant with Swiss Group, ESG is also reflected through an assessment of progress equal pay standards. These holistic certifications are a testament to made against targets linked to our focus areas of Planet, People our well-established equal opportunity environment and the (including progress made against our diversity ambitions) and strength of our human resources practices, including performance Partnerships, alongside other key dimensions. Therefore ESG is and reward. In 2021, we continued to monitor pay fairness and taken into consideration when the Compensation Committee addressed any unexplained gaps to ensure that all employees are assesses not only what results were achieved but also how they paid fairly. were achieved. For 2021, we established robust and concrete targets, and made good progress toward achieving them. We continue to increase our focus on this topic. › Refer to “GEB performance assessments“ in the “Compensation for GEB members” section of this report for more information about the GEB performance measurement process › Refer to “Our focus on sustainability and climate,” “Employees” and “Society” in the “How we create value for our stakeholders” section of our Annual Report 2021 for more information › Refer to ubs.com/gri for more information about ESG-related topics Our priorities Our targets Our progress in 2021 Planet, people, partnerships Planet USD 400 billion invested assets in sustainable investments by 2025. Increased invested assets in sustainable investments to USD 251 billion (compared with USD 141 billion in 2020). Set decarbonization targets for 2030 for financing of the fossil fuels, power generation and real estate sectors (from 2020 levels): Estimated baselines and development of net-zero-aligned pathways for the fossil fuel, power generation and real estate (commercial and residential) sectors. – reduce absolute financed emissions associated with UBS loans to fossil fuel companies by 71%; – reduce emissions intensity associated with UBS loans to power generation companies by 49%; – reduce emissions intensity of UBS’s commercial real estate lending portfolio by 44%; and – reduce emissions intensity of UBS’s residential real estate lending portfolio by 42%. Align USD 235 billion of invested assets to net zero by 2030 (Asset Management). Achieve net-zero emissions across discretionary client portfolios by 2050. Achieve net-zero energy emissions resulting from our own operations (scope 1 and 2) by 2025; cut energy consumption by 15% by 2025 (compared with 2020). Established Asset Management baseline covering the weighted average carbon intensity of the respective benchmark for each strategy and fund included in our target. Expanded discretionary offering with climate transition- focused solutions and built more detailed carbon footprint data into our research and reporting toolkits. Reduced net greenhouse gas footprint for scope 1 and 2 emissions by 75% and energy consumption by 5% (compared with 2020); continued implementation of the replacement of fossil fuel heating systems and investing in credible carbon removal projects; maintained 100% renewable electricity coverage. Offset historical emissions back to the year 2000 by sourcing carbon offsets (by end 2021) and by offsetting credit delivery and full retirement in registry (by end 2025). Completed the sourcing process for a portfolio of transparent carbon offsets from the voluntary carbon market across a range of project types and geographies. Engage with key vendors on targeting net zero by 2035. Commenced working on understanding and quantifying the scope 3 emissions in our supply chain. People 30% global female representation at Director level and above by 2025. Increased to 26.7% (2020: 26.0%) female representation at Director level and above. 26% US ethnic minority representation at Director level and above by 2025. Increased to 20.1% (2020: 19.5%) ethnic minority representation at Director level and above in the US. 26% UK ethnic minority representation at Director level and above by 2025. Increased to 21.3% (2020: 20.7%) ethnic minority representation at Director level and above in the UK. Raise USD 1 billion in donations to our client philanthropy foundations and funds and reach 25 million beneficiaries by 2025 (cumulative for years 2021-2025). Achieved UBS Optimus Foundation donations volume of USD 161 million (including UBS matching contributions) and reached 4.6 million beneficiaries. Support one million beneficiaries through our community impact activities by 2025 (cumulative for years 2020- 2024). Reached 1.199 million beneficiaries through strategic community impact activities cumulatively during 2020 and 2021, surpassing our 2025 target in two years. Partnerships Establish UBS as a leading facilitator of discussion, debate and idea generation. Drive standards, research and development, and product development through partnerships across the financial ecosystem. Launched the UBS Sustainability and Impact Institute, with the objective of delivering original, best-in-class sustainability and impact thought leadership. Continued implementation of the Principles for Responsible Banking by expanding the scope of our impact analyses and improving upon our existing methodologies in partnership with the UN Environment Program and peers. › Refer to the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting“ at ubs.com/investors, for more information 232 233 233 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Our commitment to diversity, equity and inclusion Ensuring fair treatment and strengthening our commitment to DE&I are vital to our sustainable business success. We find diverse teams better understand and relate to the needs of our equally diverse clients. Through the diversity of our employees’ backgrounds and experiences, we drive innovation and better decision making. Our aim, therefore, is to shape a diverse and inclusive organization that is innovative, provides outstanding service to our clients and offers equitable opportunities so that every employee can thrive. UBS is a strong supporter of the UN Standards of Conduct for Business anti-discrimination guidelines. Additionally, we are signatories to the UN-backed Women’s Empowerment Principles, the UK’s Women in Finance Charter and Race at Work Charter, and the Corporate Call to Action in the US. Philosophically, we take a broad approach to DE&I, focusing on a range of aspects, including inclusive leadership, age, gender, race and ethnicity, LGBTQ+, disability, and veterans. Building inclusive leadership skills, increasing gender and ethnic diversity, and equitable policies and practices were our leading priorities in 2021. Gender diversity is a key priority for the firm. We are particularly focused on increasing the representation of women at senior management levels. We take a multi-pronged approach in this respect, analyzing and adapting various factors that support the hiring, development and retention of women at all levels. For example, our interviews for open roles are expected to include qualified diverse candidates, and our interview questions seek to gauge inclusive leadership competencies for executive roles. To ensure we are making progress, we hold ourselves and our leaders accountable. For example, in early 2020 we publicly stated our aspiration to have 30% of all Director and above roles held by women by 2025. At the end of 2021, that figure stood at 26.7%, up from 26.0% in 2020. As of 31 December 2021, 25% of GEB members were female and we expect to increase this ratio to 33% in early 2022 after the designated Group Chief Financial Officer joins the firm. In addition, 27% of senior managers who reported directly to the Group Executive Board (the GEB) in 2021 were the determination of the annual performance award pool and are included in the explicit sustainability objectives under “Strategic & Growth” for the GEB, as outlined in the table on the previous page. female. These aspirations are considered in Increasing the ethnic minority diversity of our workforce, and a related commitment to support underrepresented talent and communities, is also a top priority across all business divisions and regions. We focus on four areas: accountability and transparency; investing in our talent; improving our culture; and leveraging our business strengths in underrepresented communities. We take a country-by-country approach, in close collaboration with relevant business and jurisdictional entities. This is because legislation, legal requirements and progress toward racial and ethnic equality vary significantly across the locations in which we do business. In the short term, the largest share of our efforts is focused on Switzerland, the US and the UK. In Switzerland, we began collecting ethnicity data on a voluntary basis in 2021, aimed at understanding the current representation within our local workforce. Our 2025 aspiration is to achieve a 26% representation of ethnic minorities at Director level and above in the UK and the US. As of the end of 2021, our representation was 20.1% in the US and 21.3% in the UK. Our employee networks are strong partners in our ethnic diversity strategy. Throughout 2021, our ethnicity-focused MOSAIC networks globally facilitated numerous events for staff in every region to increase awareness and personal accountability along with specialized educational sessions for network members. In addition, a community of more than 480 Diversity and Inclusion Ambassadors acts as a resource for employee advice and coaching on conversations about various diversity and inclusion-related topics. We are committed to ensuring a workplace where employees are fairly treated, with equitable employment and advancement opportunities for all. We do not tolerate harassment of any kind, including sexual harassment, and we take measures to prevent all forms of harassment, bullying, victimization and retaliation. Our policies, procedures, employee and line manager education, and awareness materials all encourage employees to raise concerns, which they may do openly or anonymously. An internal anti- harassment officer appointed by the Group Head Human Resources provides an independent view of the firm’s various processes and procedures to prevent harassment and sexual misconduct. › Refer to ubs.com/diversity for additional information about our priorities, commitments and progress, and the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for our management practices and detailed employee data, including gender- and region- specific data › Refer to ”Employees” in the ”How we create value for our stakeholders” section of our Annual Report 2021 for more information. 234 234 Advisory vote Corporate governance and compensation | Compensation Performance award pool funding Our compensation philosophy focuses on balancing performance with appropriate risk-taking, retaining talented employees and shareholder returns. Our overall performance award pool funding percentage reduces as financial performance increases. In years of strong excessive compensation and results in an increased proportion of profit before performance awards being available for distribution to shareholders or growing the Group’s capital. In years where performance declines, the performance award pool will generally decrease; however, the funding percentage may increase. financial performance, this prevents Our performance award pool funding framework is based on Group and business division performance, including achievements against defined performance measures. In assessing performance, we also consider industry peers, market competitiveness of our results and pay position, as well as progress against our strategic objectives, including returns, risk-weighted assets and cost efficiency. The Risk and Compliance functions support our holistic reflection and consideration of the financial and non-financial impact (including reputation) of risk matters. We further consider the firm’s risk profile and culture, the extent to which operational risks and audit issues have been identified and resolved, and the success of risk reduction initiatives including significant events. The funding for Group Functions is linked to overall Group performance and reflects headcount, workforce location and demographics. For each functional area quantitative and qualitative assessments evaluate service quality, risk management and financial achievements. Our decisions also balance consideration of financial performance with a range of factors, including DE&I and other ESG metrics, the impact of litigation, regulatory costs, the effect of changes in financial accounting standards, capital returns, and relative total shareholder return. Before making its final proposal to the BoD, the Compensation Committee considers the CEO’s proposals and can apply a positive or negative adjustment to the performance award pool. For example, despite our excellent financial results in 2021, our reputation and financial results were negatively impacted by a loss related to the default of a US-based client of our prime brokerage business. As a consequence, the 2021 Group performance award pool was reduced significantly. Our funding approach for the performance award pool resulted in a direct and substantial reduction, which was supplemented by a significant negative adjustment to the pool. Taking into consideration the above proposals and factors, over the past nine years the Compensation Committee has approved adjustments to the performance award pool, resulting in downward adjustments in all but one year. › Refer to “2021 Group performance outcomes” in the “Group compensation” section of this report › Refer to the “Group performance” section of our Annual Report 2021 for more information about our results Our commitment to diversity, equity and inclusion Increasing the ethnic minority diversity of our workforce, and a related commitment to support underrepresented talent and Ensuring fair treatment and strengthening our commitment to communities, is also a top priority across all business divisions and DE&I are vital to our sustainable business success. We find diverse regions. We focus on four areas: accountability and transparency; teams better understand and relate to the needs of our equally investing in our talent; improving our culture; and leveraging our diverse clients. Through the diversity of our employees’ business strengths in underrepresented communities. backgrounds and experiences, we drive innovation and better We take a country-by-country approach, in close collaboration decision making. Our aim, therefore, is to shape a diverse and with relevant business and jurisdictional entities. This is because inclusive organization that is innovative, provides outstanding legislation, legal requirements and progress toward racial and service to our clients and offers equitable opportunities so that ethnic equality vary significantly across the locations in which we every employee can thrive. do business. In the short term, the largest share of our efforts is UBS is a strong supporter of the UN Standards of Conduct for focused on Switzerland, the US and the UK. In Switzerland, we Business anti-discrimination guidelines. Additionally, we are began collecting ethnicity data on a voluntary basis in 2021, signatories to the UN-backed Women’s Empowerment Principles, aimed at understanding the current representation within our the UK’s Women in Finance Charter and Race at Work Charter, local workforce. Our 2025 aspiration is to achieve a 26% and the Corporate Call to Action in the US. Philosophically, we representation of ethnic minorities at Director level and above in take a broad approach to DE&I, focusing on a range of aspects, the UK and the US. As of the end of 2021, our representation was including inclusive leadership, age, gender, race and ethnicity, 20.1% in the US and 21.3% in the UK. LGBTQ+, disability, and veterans. Building inclusive leadership Our employee networks are strong partners in our ethnic skills, increasing gender and ethnic diversity, and equitable diversity strategy. Throughout 2021, our ethnicity-focused policies and practices were our leading priorities in 2021. MOSAIC networks globally facilitated numerous events for staff Gender diversity is a key priority for the firm. We are particularly in every region to increase awareness and personal accountability focused on increasing the representation of women at senior along with specialized educational sessions for network members. management levels. We take a multi-pronged approach in this In addition, a community of more than 480 Diversity and Inclusion respect, analyzing and adapting various factors that support the Ambassadors acts as a resource for employee advice and coaching hiring, development and retention of women at all levels. For on conversations about various diversity and inclusion-related example, our interviews for open roles are expected to include topics. qualified diverse candidates, and our interview questions seek to We are committed to ensuring a workplace where employees gauge inclusive leadership competencies for executive roles. are fairly treated, with equitable employment and advancement To ensure we are making progress, we hold ourselves and our opportunities for all. We do not tolerate harassment of any kind, leaders accountable. For example, in early 2020 we publicly stated including sexual harassment, and we take measures to prevent all our aspiration to have 30% of all Director and above roles held forms of harassment, bullying, victimization and retaliation. Our by women by 2025. At the end of 2021, that figure stood at policies, procedures, employee and line manager education, and 26.7%, up from 26.0% in 2020. As of 31 December 2021, 25% awareness materials all encourage employees to raise concerns, of GEB members were female and we expect to increase this ratio which they may do openly or anonymously. An internal anti- to 33% in early 2022 after the designated Group Chief Financial harassment officer appointed by the Group Head Human Officer joins the firm. In addition, 27% of senior managers who Resources provides an independent view of the firm’s various reported directly to the Group Executive Board (the GEB) in 2021 processes and procedures to prevent harassment and sexual were female. These aspirations are considered in the misconduct. determination of the annual performance award pool and are included in the explicit sustainability objectives under “Strategic & Growth” for the GEB, as outlined in the table on the previous page. › Refer to ubs.com/diversity for additional information about our priorities, commitments and progress, and the Sustainability Report 2021, available from 11 March 2022 under “Annual reporting” at ubs.com/investors, for our management practices and detailed employee data, including gender- and region- › Refer to ”Employees” in the ”How we create value for our stakeholders” section of our Annual Report 2021 for more specific data information. 234 235 235 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Performance award pool funding process – illustrative overview Financial performance Risk adjustment Quantitative and qualitative adjustments 1 Business division financial performance 2 Risk-adjusted business division performance award pool Business division measures 3 Qualitative, risk, regulatory and sustainability assessment Relative performance versus peers Market position and trends Consultation of Group CEO with GEB members Compensation Committee / BoD governance and decision 4 5 Recommended business division performance award pools Final Group performance award pool 1 2 3 4 5 Business division financial performance The starting point for the funding process is the business division financial performance, which may be adjusted for items that are not reflective of the underlying business division performance. Risk-adjusted business division performance award pool Business division measures Qualitative, risk, regulatory and sustainability assessment Predetermined business division-specific funding rates are applied to risk-adjusted performance, which excludes items that are not reflective of the underlying business performance. Each division is assessed based on specific measures (e.g., net new fee-generating assets, return on attributed equity). Decisions consider the firm’s risk profile and the extent to which operational risks and audit issues have been identified and resolved. They also consider diversity, equity & inclusion and other ESG metrics, the impact of litigation and regulatory costs. The Risk and Compliance functions support our holistic reflection and consideration of the financial and non-financial impact (including reputation) of risk matters. Relative performance versus peers Performance is assessed relative to our peers, including financial performance, returns and relative total shareholder return. Market position and trends Market intelligence, based on external advisors, helps assess the competitiveness of our pay levels and compensation structure. It also provides a prospective view of market trends in terms of absolute compensation levels, compensation framework and industry practice. Recommended business division performance award pools The business division performance award pool determination process, based on quantitative and qualitative assessments, results in a proposal from the Group CEO (after consultation with the GEB) to the Compensation Committee for consideration. Final Group performance award pool The Compensation Committee considers the proposal in the context of the factors outlined above and veriﬁ es it is in line with our strategy and our Total Reward Principles to create sustainable shareholder value and support our growth ambitions. The Committee may alter the proposal of the Group CEO (upward or downward including proposing a zero award) before making its ﬁ nal proposal to the BoD. 236 236 Advisory vote Compensation for GEB members Compensation for GEB members GEB compensation framework In 2021, we made no changes to our GEB compensation GEB compensation framework framework. The chart below illustrates the compensation elements, pay mix and key features for GEB members. Of the In 2021, we made no changes to our GEB compensation annual performance award, 20% is paid in the form of cash and illustrates the compensation framework. The chart below 80% is deferred over a period of five years1, with 50% of the elements, pay mix and key features for GEB members. Of the 2021 compensation framework for GEB members (illustrative example) annual performance award, 20% is paid in the form of cash and 80% is deferred over a period of five years1, with 50% of the GEB¹ 2021 compensation framework for GEB members (illustrative example) Key features annual performance awards granted under the Long-Term Incentive Plan (the LTIP) and 30% under the Deferred Contingent Capital Plan (the DCCP). annual performance awards granted under the Long-Term › Refer to “Our deferred compensation plans” in the “Group Incentive Plan (the LTIP) and 30% under the Deferred Contingent compensation” section of this report for more information Capital Plan (the DCCP). › Refer to “Our deferred compensation plans” in the “Group compensation” section of this report for more information – Notional additional tier 1 (AT1) instruments – Award vests in year 5 after grant year, subject to a write-down if a viability event occurs or Business division Each division is assessed based on specific measures (e.g., net new fee-generating assets, return on attributed DCCP 30% the CET1 capital ratio falls below 10% (i.e., a trigger event) 30% – Award is subject to 20% forfeiture for each financial year that UBS does not achieve a Group profit before tax, adjusted for disclosed items generally not representative of underlying business performance – Award is subject to employment conditions and harmful acts provisions ~17% – Notional shares – Award vests in equal installments in years 3, 4 and 5 after grant year, depending on the achievement of RoCET1 and rTSR measured over a three-year performance period – Award is subject to employment conditions and harmful acts provisions LTIP 50% three-year performance period ~17% ~17% Cash 20% 20% Corporate governance and compensation | Compensation Performance award pool funding process – illustrative overview Financial performance Risk adjustment Quantitative and qualitative adjustments Consultation of Group CEO with GEB members Compensation Committee / BoD governance and decision 2 Risk-adjusted business division performance award pool 3 4 5 Business division measures Qualitative, Relative risk, regulatory performance Market position versus peers and trends and sustainability assessment Recommended business division performance award pools Final Group performance award pool 1 Business division financial performance Business division The starting point for the funding process is the business division financial performance, which may be adjusted 1 financial performance for items that are not reflective of the underlying business division performance. Predetermined business division-specific funding rates are applied to risk-adjusted performance, which excludes items that are not reflective of the underlying business performance. Risk-adjusted business 2 division performance award pool measures equity). Qualitative, risk, regulatory and sustainability 3 assessment Decisions consider the firm’s risk profile and the extent to which operational risks and audit issues have been identified and resolved. They also consider diversity, equity & inclusion and other ESG metrics, the impact of litigation and regulatory costs. The Risk and Compliance functions support our holistic reflection and consideration of the financial and non-financial impact (including reputation) of risk matters. Relative performance Performance is assessed relative to our peers, including financial performance, returns and relative total versus peers shareholder return. Market position Market intelligence, based on external advisors, helps assess the competitiveness of our pay levels and and trends compensation structure. It also provides a prospective view of market trends in terms of absolute compensation levels, compensation framework and industry practice. Recommended business The business division performance award pool determination process, based on quantitative and qualitative 4 division performance assessments, results in a proposal from the Group CEO (after consultation with the GEB) to the Compensation award pools Committee for consideration. Final Group 5 performance award pool The Compensation Committee considers the proposal in the context of the factors outlined above and veriﬁ es it is in line with our strategy and our Total Reward Principles to create sustainable shareholder value and support our growth ambitions. The Committee may alter the proposal of the Group CEO (upward or downward including proposing a zero award) before making its ﬁ nal proposal to the BoD. Base salary 2021 2022 grant year year 1 year 2 year 3 year 4 year 5 › Refer to the “Group Compensation” section of this report for more information › Refer to “Regulated staff” in the “Supplemental information” section of this report for more information 1 Performance awards to GEB members who are SMF / MRT are subject to additional deferral and vesting requirements. Pay-for-performance safeguards for GEB members › Refer to the “Group Compensation” section of this report for more information › Refer to “Regulated staff” in the “Supplemental information” section of this report for more information – Cap on the total GEB performance award pool (2.5% of profit before tax)1 – Caps on individual performance awards (for the Group CEO capped at five times the fixed compensation and at seven times for the other Performance award caps Pay-for-performance safeguards for GEB members GEB members) Performance award caps Delivery and deferral Delivery and deferral Contract terms GEB members) – Cap of 20% of performance award in cash – Cap on the total GEB performance award pool (2.5% of profit before tax)1 – Caps on individual performance awards (for the Group CEO capped at five times the fixed compensation and at seven times for the other – 80% of performance awards are at risk of forfeiture – Long-term deferral over five years (or longer for certain regulated GEB members) – Cap of 20% of performance award in cash – Alignment with shareholders (through the LTIP) and bondholders (through the DCCP) – 80% of performance awards are at risk of forfeiture – Final payout of equity-based LTIP award (50% of performance award) subject to absolute and relative performance conditions (three-year – Long-term deferral over five years (or longer for certain regulated GEB members) – Alignment with shareholders (through the LTIP) and bondholders (through the DCCP) – No severance terms – Final payout of equity-based LTIP award (50% of performance award) subject to absolute and relative performance conditions (three-year – Six-month notice period performance period) performance period) – Share ownership requirements – No severance terms – No hedging allowed – Six-month notice period Other Contract safeguards terms 11 The Compensation Committee may consider adjustments to profit for items that are not reflective of underlying performance. Other safeguards – Share ownership requirements – No hedging allowed 236 11 The Compensation Committee may consider adjustments to profit for items that are not reflective of underlying performance. 237 237 237 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation GEB share ownership requirements To align the interests of GEB members with those of our shareholders and to demonstrate personal commitment to the firm, we require the Group CEO and the other GEB members to hold a substantial number of UBS shares. GEB members must reach their minimum shareholding requirements within five years from their appointment and retain it throughout their tenure. The total number of UBS shares held by a GEB member consists of any vested or unvested shares and any privately held shares. GEB members may not sell any UBS shares before they reach the minimum ownership thresholds mentioned below. At the end of 2021, all GEB members met their share ownership requirements, except for those appointed within the last four years, who still have time to build up and meet the required share ownership. As of 31 December 2021, our GEB members held shares with an aggregate value of approximately USD 191 million, demonstrating their commitment to our strategy and alignment with shareholders. Share ownership requirements Group CEO min. 1,000,000 shares Other GEB members min. 500,000 shares Must be built up within five years from their appointment and retained throughout their tenure. GEB base salary and role-based allowance GEB employment contracts and severance terms GEB members’ employment contracts do not include severance terms or supplementary pension plan contributions and are subject to a notice period of at least six months. A GEB member leaving UBS before the end of a performance year may be considered for a performance award. Such awards are subject to approval by the BoD, and ultimately by the shareholders at the AGM. Benchmarking for GEB members When recommending performance awards for the Group CEO and the other GEB members, the Compensation Committee reviews the respective total compensation for each role against a financial industry peer group. The peer group is selected based on comparability of their size, business mix, geographic presence and the extent to which they compete with us for talent. The Compensation Committee considers our peers’ strategies, practices and pay levels, as well as their regulatory environment; it also periodically reviews other firms’ pay levels or practices, including both financial and non-financial sector peers as applicable. The total compensation for a GEB member’s specific role considers the compensation paid by our peers for a comparable role and performance within the context of our organizational profile. The Compensation Committee periodically reviews and approves the peer group composition. The table below presents the composition of our peer group as approved by the Compensation Committee for the 2021 performance year. Bank of America Goldman Sachs Barclays BlackRock BNP Paribas Citigroup Credit Suisse HSBC JPMorgan Chase Julius Baer Morgan Stanley Standard Chartered Deutsche Bank State Street Each GEB member receives a fixed base salary, which is reviewed annually by the Compensation Committee. The 2021 annual base salary for the Group CEO role was CHF 2.5 million and has remained unchanged since 2011. The other GEB members each received a base salary of CHF 1.5 million (or local currency equivalent), also unchanged since 2011. Over the course of 2021, two GEB members held a UK Senior Management Function (SMF) role for one of our UK entities. In addition to base salary, role-based allowances were part of their fixed compensation. At the AGM, shareholders are asked to approve the maximum aggregate amount of fixed compensation for GEB members for the following financial year. › Refer to the “Supplemental information” section of this report for more information about MRTs and SMFs › Refer to the “Say-on-pay” section of this report for more information about the AGM vote on fixed compensation for the GEB Caps on the GEB performance award pool The size of the GEB performance award pool may not exceed 2.5% of the Group profit before tax. This limits the overall GEB compensation based on the firm’s profitability. For 2021, the Group’s profit before tax was USD 9.5 billion and the total GEB performance award pool was CHF 79.8 million. The GEB performance award pool as a percentage of Group profit before tax was 0.9%, well below the 2.5% cap. In line with the individual compensation caps on the proportion of fixed pay to variable pay for all GEB members (introduced in 2013), the Group CEO’s granted performance award is capped at five times his fixed compensation. Granted performance awards of other GEB members are capped at seven times their fixed compensation (or two times for GEB members who are also Material Risk Takers (MRTs)). For 2021, performance awards granted to GEB members and the Group CEO were, on average, 3.2 (excluding one-time replacement awards, benefits and contributions to retirement plans). fixed compensation times their › Refer to “Performance award pool funding” in the “Compensation philosophy and governance” section of this report for more information 238 238 Advisory vote Corporate governance and compensation | Compensation GEB share ownership requirements members may not sell any UBS shares before they reach the minimum ownership thresholds mentioned below. At the end of GEB performance assessments To align the interests of GEB members with those of our 2021, all GEB members met their share ownership requirements, shareholders and to demonstrate personal commitment to the except for those appointed within the last four years, who still firm, we require the Group CEO and the other GEB members to have time to build up and meet the required share ownership. hold a substantial number of UBS shares. GEB members must As of 31 December 2021, our GEB members held shares with reach their minimum shareholding requirements within five years an aggregate value of approximately USD 191 million, from their appointment and retain it throughout their tenure. The demonstrating their commitment to our strategy and alignment total number of UBS shares held by a GEB member consists of any with shareholders. vested or unvested shares and any privately held shares. GEB Share ownership requirements Group CEO min. 1,000,000 shares Must be built up within five years from their appointment and retained throughout Other GEB members min. 500,000 shares their tenure. GEB base salary and role-based allowance GEB employment contracts and severance terms Each GEB member receives a fixed base salary, which is reviewed GEB members’ employment contracts do not include severance annually by the Compensation Committee. The 2021 annual base terms or supplementary pension plan contributions and are salary for the Group CEO role was CHF 2.5 million and has subject to a notice period of at least six months. A GEB member remained unchanged since 2011. The other GEB members each leaving UBS before the end of a performance year may be received a base salary of CHF 1.5 million (or local currency considered for a performance award. Such awards are subject to equivalent), also unchanged since 2011. approval by the BoD, and ultimately by the shareholders at the Over the course of 2021, two GEB members held a UK Senior AGM. Management Function (SMF) role for one of our UK entities. In addition to base salary, role-based allowances were part of their Benchmarking for GEB members fixed compensation. At the AGM, shareholders are asked to approve the maximum When recommending performance awards for the Group CEO aggregate amount of fixed compensation for GEB members for and the other GEB members, the Compensation Committee the following financial year. › Refer to the “Supplemental information” section of this report for more information about MRTs and SMFs › Refer to the “Say-on-pay” section of this report for more information about the AGM vote on fixed compensation for the GEB Caps on the GEB performance award pool reviews the respective total compensation for each role against a financial industry peer group. The peer group is selected based on comparability of their size, business mix, geographic presence and the extent to which they compete with us for talent. The Compensation Committee considers our peers’ strategies, practices and pay levels, as well as their regulatory environment; it also periodically reviews other firms’ pay levels or practices, including both financial and non-financial sector peers as applicable. The total compensation for a GEB member’s specific The size of the GEB performance award pool may not exceed role considers the compensation paid by our peers for a 2.5% of the Group profit before tax. This limits the overall GEB comparable role and performance within the context of our compensation based on the firm’s profitability. organizational profile. The Compensation Committee periodically For 2021, the Group’s profit before tax was USD 9.5 billion and reviews and approves the peer group composition. the total GEB performance award pool was CHF 79.8 million. The The table below presents the composition of our peer group GEB performance award pool as a percentage of Group profit as approved by the Compensation Committee for the 2021 before tax was 0.9%, well below the 2.5% cap. performance year. Bank of America Goldman Sachs In line with the individual compensation caps on the proportion of fixed pay to variable pay for all GEB members (introduced in 2013), the Group CEO’s granted performance award is capped at five times his fixed compensation. Granted performance awards of other GEB members are capped at seven times their fixed compensation (or two times for GEB members who are also Material Risk Takers (MRTs)). For 2021, performance awards granted to GEB members and the Group CEO were, on average, Barclays BlackRock BNP Paribas Citigroup Credit Suisse 3.2 times their fixed compensation (excluding one-time Deutsche Bank replacement awards, benefits and contributions to retirement › Refer to “Performance award pool funding” in the “Compensation philosophy and governance” section of this report for more information plans). 238 HSBC JPMorgan Chase Julius Baer Morgan Stanley Standard Chartered State Street For 2021, we have further enhanced the performance assessment for GEB members to ensure it is fully aligned with the firm’s new purpose and strategic objectives. We assess GEB members against a set of Group financial targets, non-financial objectives and Behaviors. Under the non-financial objectives we introduced the new categories of Core Job, which covers job-specific, risk and people objectives, as well as Strategic & Growth, which covers strategy, digital and ESG objectives. The restructured approach fosters an even greater focus on GEB priorities and the success of the Group overall among all GEB members, and strengthens the understanding and importance of interdependence within and Overview of the GEB compensation determination process across the GEB. At the same time, it creates stronger individual accountability, and further increases the focus on core activities. The Compensation Committee exercises its judgment with respect to the performance achieved relative to the prior year, the strategic plan and competitors, and considers the Group CEO’s proposals. The Compensation Committee’s proposals are subject to approval by the BoD. The Compensation Committee, and then the full BoD, follows a similar process for the Group CEO, except that the proposal comes from the Chairman of the BoD. The compensation for the Group CEO and the other GEB members is governed by a rigorous process under Compensation Committee and BoD oversight. The chart below shows how compensation for all GEB members is determined. The Compensation Committee is involved at all stages of the performance and total compensation decision-making process for the Group CEO and the other GEB members, for review and approval by the BoD. Objective setting Performance assessment Compensation determination Financial targets are based on Group performance measures. Non-financial objectives are related to core job, strategic and growth. Behaviors objectives are related to the three UBS Behaviors of accountability with integrity, collaboration and innovation. Financial targets weight: 60% Non-financial objectives weight: 30% Behavior objectives weight: 10% Financial results are assessed quantitatively based on full-year financial results versus predetermined targets and plan figures. Non-financial objectives are assessed predominantly based on achievements relative to quantitative key performance indicators. Behaviors objectives are assessed qualitatively. The achievements of non-financial measures and Behaviors are determined in three performance categories, outlined on the next page. The total of all weighted achievement scores cannot exceed 100%. Together with the BoD Chairman, proposes performance targets and objectives for the Group CEO for approval by the BoD. Together with the BoD Chairman, propose the Group CEO's performance assessment for approval by the BoD. Together with the Group CEO, reviews the performance framework for the other GEB members. Together with the Group CEO, propose the performance assessments of the other GEB members for approval by the BoD. s s e c o r p i g n k a m - n o i s i c e D e h t f o l e o R e e t t i m m o C n o i t a s n e p m o C When determining actual pay levels, the Compensation Committee factors in: – financial performance; – performance assessment; – relative performance versus peers; and – compensation market benchmarks and trends. Final compensation decisions for GEB members consider the Group CEO’s proposal (the Group CEO makes no proposal on his own awards). Proposes to the BoD: – together with the BoD Chairman, the total compensation for the Group CEO; and – together with the Group CEO, the individual total compensation for the other GEB members. The final decision on the aggregate amount is subject to shareholder approval. 239 239 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Overview of performance assessment measures We apply a range of quantitative measures to assess GEB member performance against financial and non-financial objectives while Behaviors are assessed qualitatively. The table below provides a summary of the main metrics and measures used for 2021. Financial measures (60%) – Reported Group profit before tax – Reported Group cost / income ratio – Reported Return on CET1 capital Non- financial measures (30%) Core Job Job-specific – Business-specific criteria such as net new investable asset targets and client engagement-level objectives – Operating income growth targets for specific client segments and total cost goals – Post-stress CET1 objectives and Capital ratio guidance – Execution progress on key client and internal initiatives; e.g., cross-divisional collaboration initiatives, efficiency and cost saving initiates Risk – Operating within risk appetite constraints – Progress to deliver on risk reduction initiatives People – Employee listening / sentiment results and feedback – Progress to meet 2025 ambitions for female representation and for ethnic minority representation in the US and UK at Director and above levels (as per ESG disclosure) – People development, mobility, turnover and succession plan metrics Strategic & Growth Strategy – Progress on group-wide transformation initiatives – Delivery on division / function-specific strategic programs and initiatives Digital – Progress on digital transformation initiatives – Delivery of digital offering and user experience for clients ESG – Refer to the ”Our targets and progress” table in the ”Environmental, Social and Governance considerations” section of this report Behaviors Accountability with integrity – Responsible for what they say and do (10%) Collaboration – Takes ownership and makes things happen – Steps up and acts when something is not right – Trusts others and helps them to be successful – Delivers One UBS, together with their colleagues – Fosters a diverse, inclusive and equitable work environment Qualitative assessment against expected Behaviors: Innovation – Challenges perspectives and looks at every opportunity to improve – Actively seeks and provides feedback – Learns from every success and failure Performance assessment categories The table below presents the three performance categories for the assessment of the performance against non-financial objectives related to Core Job, Strategic & Growth and Behaviors. The achievement score represents the maximum percentage, and the Compensation Committee may apply downward adjustments. Needs focus Good contribution Excellent contribution Achievement score: up to 33% Achievement score: up to 66% Achievement score: up to 100% Non-financial measures Needs focus Expected behavior Exemplary behavior Achievement score: up to 33% Achievement score: up to 66% Achievement score: up to 100% Behaviors 240 240 Advisory vote 2021 performance for the Group CEO The performance award for the Group CEO is based on the achievement of financial performance targets and non-financial objectives related to his Core Job, Strategic & Growth initiatives and Behaviors, as described earlier in this section. These objectives were set to reflect the strategic priorities determined by the Chairman and the BoD. › Refer to “GEB compensation framework” in this section of this report for more information Performance assessment for the Group CEO The BoD recognized that Ralph Hamers successfully focused on building on UBS’s strong business momentum, which resulted in very strong financial results for 2021. He led the Group toward stronger client centricity and improved the delivery of the bank’s ecosystem to clients. He also delivered a successful strategic refresh in 2021 and re-positioned the bank’s sustainability efforts. Mr. Hamers successfully led the development of the purpose statement, established the client promise, and strategic imperatives, including development of concrete transformation initiatives to position the firm for future growth. He was the most important ambassador for the firm’s refreshed culture and behavior program. Furthermore, Ralph Hamers continuously displayed high risk awareness and set a strong and consistent tone from the top to promote an effective risk culture. He also demonstrated strong leadership and accountability in dealing with the loss event resulting from the default of a US-based client of our prime brokerage business. Additionally, the BoD recognized that Mr. Hamers personally championed the drive towards becoming more digital across the organization, along with his continuous push for technology as a differentiator for both clients and employees. The BoD acknowledged that Mr. Hamers also championed key changes across the organization to further promote agile ways of working, simplification and empowerment. He continued to increase the Group’s focus on delivering against diversity and ethnicity ambitions. Mr. Hamers demonstrated strong leadership on ESG topics, including establishing a group-wide sustainability and impact organization. He drove the definition of a net-zero framework and focused the organization on delivering against select UN Sustainable Development goals, as well as establishing ambitions and making progress on key focus areas, including Planet, People and Partnerships. The table below illustrates the assessment criteria used to evaluate the achievements of Mr. Hamers in 2021. Corporate governance and compensation | Compensation Overview of performance assessment measures We apply a range of quantitative measures to assess GEB member performance against financial and non-financial objectives while Behaviors are assessed qualitatively. The table below provides a summary of the main metrics and measures used for 2021. Financial measures (60%) Non- financial measures (30%) – Reported Group profit before tax – Reported Group cost / income ratio – Reported Return on CET1 capital Core Job Job-specific – Business-specific criteria such as net new investable asset targets and client engagement-level objectives – Operating income growth targets for specific client segments and total cost goals – Post-stress CET1 objectives and Capital ratio guidance – Execution progress on key client and internal initiatives; e.g., cross-divisional collaboration initiatives, efficiency and cost saving initiates Risk – Operating within risk appetite constraints – Progress to deliver on risk reduction initiatives People – Employee listening / sentiment results and feedback – Progress to meet 2025 ambitions for female representation and for ethnic minority representation in the US and UK at Director and above levels (as per ESG disclosure) – People development, mobility, turnover and succession plan metrics Strategic & Strategy – Progress on group-wide transformation initiatives Growth – Delivery on division / function-specific strategic programs and initiatives Digital – Progress on digital transformation initiatives – Delivery of digital offering and user experience for clients ESG – Refer to the ”Our targets and progress” table in the ”Environmental, Social and Governance considerations” section of this report Behaviors Accountability with integrity – Responsible for what they say and do (10%) Collaboration – Takes ownership and makes things happen – Steps up and acts when something is not right Qualitative assessment – Trusts others and helps them to be successful against expected – Delivers One UBS, together with their colleagues Behaviors: – Fosters a diverse, inclusive and equitable work environment Innovation – Challenges perspectives and looks at every opportunity to improve – Actively seeks and provides feedback – Learns from every success and failure Performance assessment categories 2021 targets 2021 results Achieve- ment2 Weighted assess- ment 2021 commentary USD 6.9bn USD 9.5bn 100%2 20% – Profit before tax increased 16% to USD 9.5 billion, Financial performance Weight Performance measures 20% Reported Group Profit before Tax The table below presents the three performance categories for the assessment of the performance against non-financial objectives related to Core Job, Strategic & Growth and Behaviors. The achievement score represents the maximum percentage, and the Compensation Committee may apply downward adjustments. 20% Reported Cost / Income Ratio 75%1 73.6% 100%2,3 20% Needs focus Good contribution Excellent contribution Achievement score: up to 33% Achievement score: up to 66% Achievement score: up to 100% 20% Reported Return on CET1 Capital 16%1 17.5% 100%2 20% – The return on CET1 capital (RoCET1) was 17.5%, compared with 17.4% in 2020, exceeding the 2021 performance target. Needs focus Expected behavior Exemplary behavior Achievement score: up to 33% Achievement score: up to 66% Achievement score: up to 100% 11 The return on CET1 capital and cost / income ratio performance targets are set based on the previously communicated targets and reflect a stretch-target level relative to the Group return on CET1 capital target range of 12–15% and the cost / income ratio target range of 75–78% in the spirit of setting ambitious goals to reach a 100% performance achievement. 22 Achievement score capped at 100%. 33 For the assessment of the cost / income ratio, each 1% difference between actual and target affects the score by 10%. Non-financial measures Behaviors 240 241 241 reflecting strong business momentum with income up in all regions and good cost control. This result significantly exceeds the 2021 performance target and also represents the highest result since 2006. – The cost / income ratio was 73.6%, better than the 2021 performance target, despite the increase in litigation provisions of USD 740 million taken for the French cross-border matter. Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Performance assessment for the Group CEO (continued) Non-financial performance and Behaviors Weight Performance measures Achieve- ment 2021 commentary Weighted assess- ment 30% Good contribution (66%) 20% – The evaluation of each non-financial objective considers quantitative metrics that are assessed against internal targets / plan: Core Job (Job specific, Risk, People) Strategic & Growth (Strategy, Digital, ESG) Core Job – Progressed on execution of digital transformation initiatives – Delivered improved digital offering and user experience for clients – Operated within risk appetite constraints – Progressed on risk reduction initiatives and strengthened the control framework – Improved employee listening / sentiment results across key categories – Increased the ratio of female leaders, stayed on track to meet the 2025 target – Stayed on track toward the 2025 ambition for ratios of US and UK employees from ethnic minorities – Improved statistics on employee mobility and turnover Strategic & Growth – Developed and launched UBS’s purpose – Delivered the refreshed strategy – Launched new client promise and strategic imperatives – Refreshed the Sustainability strategy – Progressed on the execution of key growth initiatives – Refreshed culture and behavior program – See ESG metrics and progress in separate table in this report 10% Behaviors (Accountability with integrity, Collaboration, Innovation) 7% Expected behavior (66%) The assessment of the Behavior objectives is qualitative and has resulted in the following summary assessment: – Mr. Hamers acted as a role model in accepting ownership and accountability. He further strengthened collaboration across the Group and at the same time pushed individual accountability and empowerment across the organization – He drove innovation in UBS and built the foundation for a successful digitalization through new ways of working. He continuously promoted simplification, more radical challenge and innovative thinking and action Total weighted assessment (maximum 100%) 87% In addition to the overall 2021 performance of the Group and Mr. Hamers’ achievements outlined in the performance evaluation table above, the BoD also considered other factors, such as the impact of the significant risk event related to a loss from a US- based client of our prime brokerage business. The BoD approved the proposal by the Compensation Committee to grant Mr. Hamers a performance award of CHF 8.5 million, resulting in a total compensation for 2021 of CHF 11.0 million (excluding benefits and contributions to his retirement benefit plan). Aligned with the GEB compensation framework, the Group CEO’s performance award will be delivered 20% (CHF 1.7 million) in cash and the remaining 80% (CHF 6.8 million) subject to deferral and forfeiture provisions, as well as meeting performance conditions over the next five years. 242 242 Advisory vote 2021 total compensation for the GEB members The aggregate performance award pool for the GEB for 2021 was CHF 79.8 million (USD 87.1 million); on a per capita basis this reflects a decrease of 1% compared with 2020. This contrasts with the change in the overall performance award pool of the firm, which increased 10% compared with 2020. The GEB performance award pool had a proportionally larger downward adjustment than the Group pool, to reflect the accountability of the GEB for the significant risk event in the first half of 2021. The Group’s profit before tax was USD 9.5 billion, up 16% compared with 2020. At the 2022 AGM, shareholders will vote on the aggregate 2021 total variable compensation for the GEB in Swiss francs. The tables below provide the awarded compensation for the Group CEO and the GEB members in Swiss francs and, for reference, the total amounts in US dollars for comparability with financial performance. The individual variable performance awards for each GEB member will only be confirmed upon shareholder approval at the AGM › Refer to “Provisions of the Articles of Association related to compensation” in the “Supplemental Information” section of The Compensation Committee has that performance conditions for all GEB members’ awards due to vest in March 2022 have been satisfied and the awards will therefore vest in full. confirmed this report for more information Audited | Total compensation for GEB members CHF, except where indicated USD (for reference)1 FFoorr tthhee yyeeaarr Base salary Contribution to retirement benefit plans Benefits2 TToottaall ffiixxeedd ccoommppeennssaa-- ttiioonn Performance award under LTIP4 Cash3 Performance award under DCCP5 TToottaall vvaarriiaabbllee ccoommppeennssaa-- ttiioonn TToottaall ffiixxeedd aanndd vvaarrii-- aabbllee ccoomm-- ppeennssaattiioonn66 Total fixed compensa- tion Total variable compensa- tion Total fixed and vari- able com- pensation6 Highest Paid Executive (for 2021 Ralph A.J.G Hamers and for 2020 Sergio P. Ermotti) 22002211 2,550,000 1,700,000 4,250,000 2,500,000 22,,999988,,227711 251,856 246,415 88,,550000,,000000 1111,,449988,,227711 3,275,763 9,286,681 12,562,444 220022007 2,500,000 244,353 78,891 22,,882233,,224444 2,100,000 5,250,000 3,150,000 1100,,550000,,000000 1133,,332233,,224444 Group CEO Ralph A.J.G. Hamers (reflects compensation since joining UBS per 1 September 2020) 22002200 33,,000000,,000000 11,,220099,,771177 1,500,000 900,000 600,000 314,260 833,333 62,124 44,,220099,,771177 Aggregate of all GEB members8,9,10,11,12 1,179,512 22002211 24,853,521 2,064,009 2288,,009977,,004411 15,950,000 39,875,000 23,925,000 7799,,775500,,000000 110077,,884477,,004411 30,697,441 87,130,916 117,828,357 22002200 27,469,369 2,249,276 1,145,489 3300,,886644,,113355 16,625,062 42,874,938 25,500,000 8855,,000000,,000000 111155,,886644,,113355 11 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551. 22 All benefits are valued at market price. 33 For GEB members who are also MRTs or SMFs, the cash portion includes blocked shares. 44 LTIP awards for performance year 2021 were awarded at a value of 67.7% of maximum which reflects our best estimate of the fair value of the award. The maximum number of shares is determined by dividing the awarded amount by the estimated fair value of the award at grant, divided by CHF 19.194 or USD 20.700, the average closing price of UBS shares over the last ten trading days leading up to and including the grant date. 55 The amounts reflect the amount of the notional additional tier 1 (AT1) capital instrument excluding future notional interest. 66 Excludes the portion related to the legally required employer’s social security contributions for 2021 and 2020, which are estimated at grant at CHF 4,997,243 and CHF 5,497,811, respectively, of which CHF 763,059 and CHF 880,496, respectively, are for the highest-paid GEB member. The legally required employees’ social security contributions are included in the amounts shown in the table above, as appropriate. 77 Reflects compensation for 12 months until the end of his GEB employment on 31 December 2020. 88 As stated in “Group Executive Board” in the “Corporate governance” section of our Annual Report 2021, twelve GEB members were in office on 31 December 2021 and thirteen GEB members on 31 December 2020. 99 Includes compensation paid under employment contracts during notice periods for GEB members who stepped down during the respective years. 1100 Includes compensation for newly appointed GEB members for their time in office as GEB members during the respective years. 1111 For 2021, Barbara Levi received a one-time replacement award of CHF 7,081,474. This replacement award is not included in the above table; including this, the 2021 total aggregate compensation of all GEB members is CHF 114,928,515. For 2020, Ralph A.J.G. Hamers received a one-time replacement award of CHF 163,399. This replacement award is not included in the above table; including this, the 2020 total aggregate compensation of all GEB members is CHF 116,027,534. 1122 Base salary may include role-based allowances in line with market practice in response to regulatory requirements.  243 243 Corporate governance and compensation | Compensation Performance assessment for the Group CEO (continued) Non-financial performance and Behaviors Weight Performance Achieve- Weighted 2021 commentary measures ment assess- ment 30% Good 20% – The evaluation of each non-financial objective considers quantitative metrics that are contribution (66%) assessed against internal targets / plan: Core Job (Job specific, Risk, People) Strategic & Growth (Strategy, Digital, ESG) Expected behavior (66%) (Accountability with integrity, Collaboration, Innovation) Total weighted assessment 87% (maximum 100%) Core Job – Progressed on execution of digital transformation initiatives – Delivered improved digital offering and user experience for clients – Operated within risk appetite constraints – Progressed on risk reduction initiatives and strengthened the control framework – Improved employee listening / sentiment results across key categories – Increased the ratio of female leaders, stayed on track to meet the 2025 target – Stayed on track toward the 2025 ambition for ratios of US and UK employees from ethnic minorities – Improved statistics on employee mobility and turnover Strategic & Growth – Developed and launched UBS’s purpose – Delivered the refreshed strategy – Launched new client promise and strategic imperatives – Refreshed the Sustainability strategy – Progressed on the execution of key growth initiatives – Refreshed culture and behavior program – See ESG metrics and progress in separate table in this report – Mr. Hamers acted as a role model in accepting ownership and accountability. He further strengthened collaboration across the Group and at the same time pushed individual accountability and empowerment across the organization – He drove innovation in UBS and built the foundation for a successful digitalization through new ways of working. He continuously promoted simplification, more radical challenge and innovative thinking and action 10% Behaviors 7% The assessment of the Behavior objectives is qualitative and has resulted in the following summary assessment: In addition to the overall 2021 performance of the Group and Mr. million (excluding benefits and contributions to his retirement Hamers’ achievements outlined in the performance evaluation benefit plan). table above, the BoD also considered other factors, such as the Aligned with the GEB compensation framework, the Group impact of the significant risk event related to a loss from a US- CEO’s performance award will be delivered 20% (CHF 1.7 million) based client of our prime brokerage business. in cash and the remaining 80% (CHF 6.8 million) subject to The BoD approved the proposal by the Compensation deferral and forfeiture provisions, as well as meeting performance Committee to grant Mr. Hamers a performance award of CHF 8.5 conditions over the next five years. million, resulting in a total compensation for 2021 of CHF 11.0 242 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Total realized compensation for the Group CEO The realized compensation reflects the total amount paid out in the year. It includes the base salary, cash performance award payments, and all deferred performance awards vested in the year. As such, realized pay is the natural culmination of awards granted and approved by shareholders in previous years. To illustrate the effect of our long-term deferral approach, which has been in place since 2012, we disclose the annual realized compensation of Mr. Hamers, including a comparison with his total awarded compensation. Total realized compensation vs awarded compensation for Ralph A.J.G Hamers¹ CHF AAwwaarrddeedd Total awarded fixed and variable compensation3,4 FFoorr tthhee yyeeaarr 11,000,000 22002211 2200220011 3,833,333 11 Includes compensation for 4 months as Ralph A.J.G. Hamers joined UBS on 1 September 2020. 22 Excludes dividend / interest payments. 33 Excludes contributions to retirement benefit plans and benefits. Includes social security contributions paid by Ralph A.J.G. Hamers but excludes the portion related to the legally required social security contributions paid by UBS. 44 Excludes the one-time replacement award. RReeaalliizzeedd TToottaall rreeaalliizzeedd ffiixxeedd aanndd vvaarriiaabbllee ccoommppeennssaattiioonn 33,,110000,,000000 833,333 Performance award under equity plans2 0 0 Performance award under DCCP2 0 0 Deferred cash award2 0 0 Cash award2 600,000 0 Base salary 2,500,000 833,333 244 244 The realized compensation reflects the total amount paid out in To illustrate the effect of our long-term deferral approach, the year. It includes the base salary, cash performance award which has been in place since 2012, we disclose the annual payments, and all deferred performance awards vested in the realized compensation of Mr. Hamers, including a comparison year. As such, realized pay is the natural culmination of awards with his total awarded compensation. granted and approved by shareholders in previous years. Total realized compensation vs awarded compensation for Ralph A.J.G Hamers¹ CHF FFoorr tthhee yyeeaarr 22002211 2200220011 Base salary 2,500,000 833,333 Cash award2 600,000 0 Deferred cash award2 Performance award under equity plans2 Performance award under DCCP2 0 0 0 0 0 0 RReeaalliizzeedd AAwwaarrddeedd TToottaall rreeaalliizzeedd Total awarded ffiixxeedd aanndd vvaarriiaabbllee fixed and variable ccoommppeennssaattiioonn 33,,110000,,000000 833,333 compensation3,4 11,000,000 3,833,333 11 Includes compensation for 4 months as Ralph A.J.G. Hamers joined UBS on 1 September 2020. 22 Excludes dividend / interest payments. 33 Excludes contributions to retirement benefit plans and benefits. Includes social security contributions paid by Ralph A.J.G. Hamers but excludes the portion related to the legally required social security contributions paid by UBS. 44 Excludes the one-time replacement award. Advisory vote Corporate governance and compensation | Compensation Total realized compensation for the Group CEO Group compensation Compensation elements for all employees All elements of pay are considered when making our compensation decisions. We regularly review our principles and compensation framework in order to remain competitive and aligned with stakeholders. In 2021, we made no material changes to our overall framework. We will continue to review our approach to salaries and performance awards, considering market developments, our performance and our commitment to deliver sustainable returns to shareholders. Base salary and role-based allowance Employees’ fixed compensation (e.g., base salary) reflects their level of skill, role and experience, as well as local market practice. Base salaries are usually paid monthly or fortnightly, in line with local market practice. We offer competitive base salaries that reflect location, function and role. Salary increases generally consider promotions, skill set, performance and overall responsibility. In addition to base salary, and as part of fixed compensation, some employees may receive a role-based allowance. This allowance is a shift in the compensation mix between fixed and variable compensation, not an increase in total compensation. It reflects the market value of a specific role and is fixed, non- forfeitable compensation. Unlike salary, a role-based allowance is paid only if the employee is in a specific role. Similar to previous years, 2021 role-based allowances consisted of a cash portion and, where applicable, a blocked UBS share award. Pensions and benefits location and are We offer certain benefits for all employees, such as health insurance and retirement benefits. These vary depending on the for employee’s competitiveness. Pension contributions and pension plans also vary in accordance with local requirements and market practice. However, pension plan rules in any one location are generally the same for all employees, including management. reviewed periodically GEB members’ pension contributions and benefits are in line with local practices for other employees. There are no enhanced or supplementary pension contributions for the GEB. Performance award Most of our employees are eligible for an annual performance award. The level of this award, where applicable, generally depends on the firm’s overall performance, the employee’s business division, team and individual performance, and behavior, reflecting their overall contribution to the firm’s results. These awards are in line with applicable local employment conditions and at the discretion of the firm. In addition to the firm’s Pillars and Principles, Behaviors related to accountability with integrity, collaboration and innovation are part of the performance management approach. Therefore, when assessing performance, we consider not only what was achieved but also how it was achieved. 244 245 245 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Our deferred compensation plans To reinforce our emphasis on sustainable performance and risk management, and our focus on achieving growth ambitions, we deliver part of our employees’ annual variable compensation through deferred compensation plans. We believe that our approach, with a single incentive decision and a mandatory deferral, is transparent and well suited to implementing our compensation sustainable performance. This aligns the interests of our employees and shareholders and appropriately links compensation to longer-term sustainable performance. philosophy delivering and Our mandatory deferral approach applies to all employees with regulatory-driven deferral requirements or total compensation greater than USD / CHF 300,000. Certain regulated employees, such as Senior Management Functions (SMFs) and Material Risk Takers (MRTs), are subject to additional requirements (e.g., an additional non-financial conduct-related performance metric under the LTIP, more stringent deferral requirements, additional blocking periods). In addition, SMFs and MRTs receive 50% of their cash portion in the form of immediately vested shares, which are blocked for 12 months after grant. The deferred amount increases at higher marginal rates in line with the value of the performance award. The effective deferral rate therefore depends on the amount of the performance award and the amount of total compensation. We believe our deferral regime has one of the longest vesting periods in the industry. The weighted average deferral period (for non-regulated employees) is 4.4 years for GEB members and ranges from 3.5 to 4 years for employees below GEB level. Additionally, from time to time, we may utilize alternative deferred compensation arrangements to remain competitive in specific business areas. To further promote sustainable performance, all of our deferred compensation plans include employment conditions and malus conditions. These enable the firm to reduce or fully forfeit unvested deferred awards under certain circumstances, pursuant to performance and harmful acts provisions. In addition, forfeiture is triggered in cases where employment has been terminated for cause. Our share delivery obligations related to notional share awards are satisfied by delivering treasury shares, which are purchased in the market, to employees at vesting. › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information › Refer to the “Supplemental information” section of this report for more information about MRTs and SMFs Variable compensation elements by employee category Employee category GEB and selected senior management Asset Management senior management Employees subject to mandatory deferral framework Deferred compensation elements Cash LTIP EOP DCCP 1 1 1 AM employees and selected AM senior staff in investment areas receive AM EOP (notional funds) instead of EOP (notional shares) in order to align their compensation more closely with industry standards. AM employees in non-investment areas receive both EOP and AM EOP in their plan mix. 246 246 Advisory vote Corporate governance and compensation | Compensation Our deferred compensation plans The deferred amount increases at higher marginal rates in line with the value of the performance award. The effective deferral Long-Term Incentive Plan The LTIP is a mandatory deferral plan for senior leaders of the Group (i.e., GEB members and selected senior management). For the 2021 performance year, we granted LTIP awards to 117 employees at a fair value of 67.7% of maximum. The value was calculated by an independent third party using a well-established valuation methodology. The performance metrics of the share-based LTIP awards are average return on CET1 capital (RoCET1) and relative total shareholder return (rTSR) over a three-year performance period starting on 1 January in the year of grant. Performance outcomes and actual payout levels will be disclosed at the end of the performance period. – The three-year average RoCET1 performance metric reflects our strategic return ambitions and considers our revised financial targets, as well as our cost of capital as outlined below: – the required RoCET1 performance for a maximum payout is set at 18%, which represents the upper end of our target range; the required performance threshold for the minimum payout has been raised to 8% from 6% in prior-year awards to reflect our new financial targets communicated in February 2022, increasing the mid-point of the payout thresholds to better reflect our cost of capital; and the linear payout design between threshold and maximum level supports our growth ambitions and our focus on delivering sustainable performance without encouraging excessive risk-taking. – The rTSR performance metric over the three-year period further aligns the interests of employees with those of shareholders: – the metric compares the total shareholder return (the TSR) of UBS with the TSR of an index consisting of listed Global Systemically Important Banks (G-SIBs) as determined by the Financial Stability Board (excluding UBS Group); – the G-SIBs are independently defined and reflect companies with a comparable risk profile and impact on the global economy; To reinforce our emphasis on sustainable performance and risk rate therefore depends on the amount of the performance award management, and our focus on achieving growth ambitions, we and the amount of total compensation. deliver part of our employees’ annual variable compensation We believe our deferral regime has one of the longest vesting through deferred compensation plans. We believe that our periods in the industry. The weighted average deferral period (for approach, with a single incentive decision and a mandatory non-regulated employees) is 4.4 years for GEB members and deferral, is transparent and well suited to implementing our ranges from 3.5 to 4 years for employees below GEB level. compensation philosophy and delivering sustainable Additionally, from time to time, we may utilize alternative performance. This aligns the interests of our employees and deferred compensation arrangements to remain competitive in shareholders and appropriately links compensation to longer-term specific business areas. sustainable performance. To further promote sustainable performance, all of our Our mandatory deferral approach applies to all employees with deferred compensation plans include employment conditions and regulatory-driven deferral requirements or total compensation malus conditions. These enable the firm to reduce or fully forfeit greater than USD / CHF 300,000. Certain regulated employees, unvested deferred awards under certain circumstances, pursuant such as Senior Management Functions (SMFs) and Material Risk to performance and harmful acts provisions. In addition, forfeiture Takers (MRTs), are subject to additional requirements (e.g., an is triggered in cases where employment has been terminated for additional non-financial conduct-related performance metric cause. under the LTIP, more stringent deferral requirements, additional Our share delivery obligations related to notional share awards blocking periods). In addition, SMFs and MRTs receive 50% of are satisfied by delivering treasury shares, which are purchased in their cash portion in the form of immediately vested shares, which the market, to employees at vesting. are blocked for 12 months after grant. › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information › Refer to the “Supplemental information” section of this report for more information about MRTs and SMFs Variable compensation elements by employee category Employee category GEB and selected senior management Asset Management senior management Employees subject to mandatory deferral framework Deferred compensation elements Cash LTIP EOP DCCP 1 1 1 AM employees and selected AM senior staff in investment areas receive AM EOP (notional funds) instead of EOP (notional shares) in order to align their compensation more closely with industry standards. AM employees in non-investment areas receive both EOP and AM EOP in their plan mix. – the index, which includes publicly traded G-SIBs, is equal weighted, calculated in Swiss francs and maintained by an independent index provider, so as to ensure independence of the TSR calculation; and – the payout interval of ±25 percentage points versus the index performance demonstrates our ambition of delivering attractive relative returns to shareholders. The linear payout and the threshold level set below index performance further support sustainability of results and prudent risk-taking. Global Systemically Important Banks (G-SIBs) that are listed companies1 Agricultural Bank of China Goldman Sachs Santander Bank of America Groupe Crédit Agricole Société Générale Bank of China HSBC Standard Chartered Bank of New York Mellon ING Bank State Street Barclays BNP Paribas ICBC Sumitomo Mitsui FG JPMorgan Chase Toronto-Dominion China Construction Bank Mitsubishi UFJ FG UniCredit Citigroup Mizuho FG Wells Fargo Credit Suisse Morgan Stanley Deutsche Bank Royal Bank of Canada 1 As of November 2021. Excludes UBS Group. Dividend equivalents (granted where applicable regulation permits) are subject to the same terms as the underlying LTIP award. LTIP awards reflect the long-term focus of our compensation framework. The final number of shares as determined at the end of the three-year performance period will vest in three equal installments in each of the three years following the performance period for GEB members, and cliff vest in the first year following the performance period for selected senior management (longer deferral periods may apply for regulated employees). LTIP payout illustration – The final number of notional shares vesting will vary based on the achievement versus the performance metrics. – Linear payout between threshold and maximum performance. – Vesting levels are a percentage of the maximum opportunity of the LTIP and cannot exceed 100%. – Full forfeiture for performance below the predefined threshold levels. – SMFs and UK MRTs are subject to an additional non-financial metric based on a conduct assessment with a potential downward adjustment of up to 100% of the entire award. Performance metric: average RoCET1 (50% of award) Below threshold (<8%) Threshold (8%) up to maximum (<18%) Maximum and above (>18%) Full forfeiture (payout 0%) Partial vest (payout between 33% and <100%) Full vest (payout 100%) Performance metric: rTSR vs G-SIBs index (50% of award) Below threshold (<–25 pps) Threshold (–25 pps) up to maximum (+25 pps) Maximum and above (>+25 pps) Full forfeiture (payout 0%) Partial vest (payout between 33% and <100%) Full vest (payout 100%) 246 247 247 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Equity Ownership Plan The EOP is the deferred compensation plan for employees who are subject to deferral requirements but do not receive LTIP awards. For the 2021 performance year, we granted EOP awards to 4,228 employees. Delivering sustainable performance is a key objective for UBS, and we therefore link EOP award vesting with minimum performance thresholds over a multi-year time horizon. Our EOP creates a direct link with shareholder returns as a notional equity award and have no upward leverage. This approach promotes growth and sustainable performance. EOP awards generally vest over three years. For certain employee populations, EOP awards can be adjusted downwards, including to zero, based on the average RoCET1 over the applicable performance period. The Compensation Committee sets the minimum future performance threshold and may adjust the award if the performance metric does not reflect a fair measure of performance. Asset Management employees receive some or all of their EOP in the form of notional funds to align their compensation more closely with industry standards. This plan is generally delivered in cash and vests over five years. › Refer to “Vesting of outstanding awards granted in prior years subject to performance conditions” in the “Supplemental information” section of this report for more information Deferred Contingent Capital Plan The DCCP is a key component of our compensation framework and supports alignment of the interests of our senior employees with those of our stakeholders. All employees subject to deferral requirements receive DCCP awards. For the 2021 performance year, we granted DCCP awards to 4,303 employees. DCCP replicates many of the features of the loss-absorbing bonds that we issue to investors and may be paid at vesting in cash or, at the discretion of the firm, a perpetual, marketable additional tier 1 (AT1) capital instrument. Employees can elect to have their DCCP awards denominated in Swiss francs or US dollars. DCCP awards vest in full after five years (longer deferral periods may apply for regulated employees). DCCP awards bear notional interest paid annually (except as limited by regulation for MRTs), subject to review and confirmation by the Compensation Committee. The notional interest rate for grants in 2022 was 3.7% for awards denominated in Swiss francs and 5.7% for awards denominated in US dollars. These interest rates are based on the current market rates for similar AT1 capital instruments issued by UBS Group. Awards are forfeited if a viability event occurs, i.e., if FINMA notifies the firm that the DCCP awards must be written down to mitigate the risk of an insolvency, bankruptcy or failure of UBS or if the firm receives a commitment of extraordinary support from the public sector that is necessary to prevent such an event. DCCP awards are also written down for GEB members if the Group’s CET1 capital ratio falls below 10% and for all other employees if it falls below 7%. In addition, GEB members forfeit 20% of DCCP awards for each loss-making year during the vesting period. This means 100% of the award is subject to risk of forfeiture. The forfeiture features of DCCP create a strong alignment with our debt holders and support the sustainability of the firm. Over the last five years, USD 1.7 billion of DCCP awards have been issued, contributing to the Group’s total loss-absorbing capacity (TLAC). Therefore, DCCP awards not only support competitive pay but also provide a loss absorption buffer that protects the firm’s capital position. The following table illustrates the contribution of the DCCP to our AT1 capital and the effect on our TLAC ratio. › Refer to the “Supplemental information” section of this report for more information about performance award and personnel- related expenses › Refer to the “Supplemental information” section of this report for more information about longer vesting and clawback periods for MRTs and SMFs Contribution of the Deferred Contingent Capital Plan to our loss-absorbing capacity1 USD million, except where indicated Deferred Contingent Capital Plan (DCCP), eligible as high-trigger loss-absorbing additional tier 1 capital DCCP contribution to the total loss-absorbing capacity ratio (%) 11 Refer to “Bondholder information” at ubs.com/investors for more information about the capital instruments of UBS Group AG and UBS AG both on a consolidated and a standalone basis. 3311..1122..2211 31.12.20 11,,773300 00..66 1,875 0.6 248 248 Advisory vote Corporate governance and compensation | Compensation Replacement awards and forfeitures Other variable compensation components In line with industry practice, our compensation framework and plans include provisions generally requiring reduction / forfeiture of a terminated employee’s unvested or deferred awards. In particular, these provisions apply if the terminated employee joins another financial services organization and / or violates restrictive covenants, such as solicitation of clients or employees. Conversely, to support talent acquisition, and consistent with industry practice, we may offer replacement awards to attract senior candidates by offsetting deferred compensation being forfeited at their previous employer as a result of joining UBS. When making such awards, we aim to match the previous employer’s terms and conditions for the awards to be forfeited upon joining UBS. The total 2021 forfeitures of USD 258 million of previously awarded deferred compensation offset the 2021 total sign-on payments, replacement payments and guarantees of USD 137 million. Barbara Levi succeeded Markus Diethelm as Group General Counsel effective 1 November 2021. Consistent with the terms of the original awards and included in the above figures, she received replacement awards for compensation forfeited at her previous employer as a result of joining UBS. Ms. Levi’s replacement payment had a total value of CHF 7,081,474 and consisted of an EOP share award representing 430,732 UBS shares (denominated in Swiss francs), a deferred cash award as well as replacement of cash items. The deferred portion of the award will vest in various installments between 2022 and 2027. These replacement awards are subject to UBS’s harmful acts provisions. To support hiring and retention, particularly at senior levels, we may offer other compensation components, such as: – retention payments to key employees to induce them to stay, particularly during critical periods for the firm, such as a sale or wind-down of a business; – on a limited basis, guarantees may be required to attract individuals with certain skills and experience – these awards are fixed incentives subject to our standard deferral rules and limited to the first full year of employment; – award grants to employees hired late in the year to replace performance awards that they would have earned at their previous employers, but have foregone by joining UBS – these awards are generally structured with the same level of deferral as for employees at a similar level at UBS; and – in exceptional cases, candidates may be offered a sign-on award to increase the chances of them accepting our offer. These other variable compensation components are subject to a comprehensive governance process, which may involve the Compensation Committee, depending on the amount or type of such payments. Below-GEB level employees who are made redundant may receive severance payments. Our severance terms comply with the applicable local laws (legally obligated severance). In certain locations, we may provide severance packages that are negotiated with our local social partners and may go beyond the applicable minimum legal requirements (standard severance). Such payments are governed by location-specific severance policies. In addition, we may make severance payments that exceed legally obligated or standard severance payments where we believe these are aligned with market practice and appropriate under the circumstances (supplemental severance). GEB members do not receive severance payments. Sign-on payments, replacement payments, guarantees and severance payments Equity Ownership Plan DCCP awards vest in full after five years (longer deferral periods may apply for regulated employees). DCCP awards bear The EOP is the deferred compensation plan for employees who notional interest paid annually (except as limited by regulation for are subject to deferral requirements but do not receive LTIP MRTs), subject to review and confirmation by the Compensation awards. For the 2021 performance year, we granted EOP awards Committee. The notional interest rate for grants in 2022 was to 4,228 employees. 3.7% for awards denominated in Swiss francs and 5.7% for Delivering sustainable performance is a key objective for UBS, awards denominated in US dollars. These interest rates are based and we therefore link EOP award vesting with minimum on the current market rates for similar AT1 capital instruments performance thresholds over a multi-year time horizon. Our EOP issued by UBS Group. creates a direct link with shareholder returns as a notional equity Awards are forfeited if a viability event occurs, i.e., if FINMA award and have no upward leverage. This approach promotes notifies the firm that the DCCP awards must be written down to growth and sustainable performance. mitigate the risk of an insolvency, bankruptcy or failure of UBS or EOP awards generally vest over three years. For certain if the firm receives a commitment of extraordinary support from employee populations, EOP awards can be adjusted downwards, the public sector that is necessary to prevent such an event. DCCP including to zero, based on the average RoCET1 over the awards are also written down for GEB members if the Group’s applicable performance period. The Compensation Committee CET1 capital ratio falls below 10% and for all other employees if sets the minimum future performance threshold and may adjust it falls below 7%. the award if the performance metric does not reflect a fair In addition, GEB members forfeit 20% of DCCP awards for measure of performance. each loss-making year during the vesting period. This means Asset Management employees receive some or all of their EOP 100% of the award is subject to risk of forfeiture. The forfeiture in the form of notional funds to align their compensation more features of DCCP create a strong alignment with our debt holders closely with industry standards. This plan is generally delivered in and support the sustainability of the firm. cash and vests over five years. › Refer to “Vesting of outstanding awards granted in prior years subject to performance conditions” in the “Supplemental information” section of this report for more information Deferred Contingent Capital Plan Over the last five years, USD 1.7 billion of DCCP awards have been issued, contributing to the Group’s total loss-absorbing capacity (TLAC). Therefore, DCCP awards not only support competitive pay but also provide a loss absorption buffer that protects the firm’s capital position. The following table illustrates the contribution of the DCCP to our AT1 capital and the effect on our TLAC ratio. The DCCP is a key component of our compensation framework and supports alignment of the interests of our senior employees › Refer to the “Supplemental information” section of this report for more information about performance award and personnel- with those of our stakeholders. related expenses All employees subject to deferral requirements receive DCCP awards. For the 2021 performance year, we granted DCCP › Refer to the “Supplemental information” section of this report for more information about longer vesting and clawback periods for MRTs and SMFs awards to 4,303 employees. DCCP replicates many of the features of the loss-absorbing bonds that we issue to investors and may be paid at vesting in cash or, at the discretion of the firm, a perpetual, marketable additional tier 1 (AT1) capital instrument. Employees can elect to have their DCCP awards denominated in Swiss francs or US dollars. Contribution of the Deferred Contingent Capital Plan to our loss-absorbing capacity1 USD million, except where indicated Deferred Contingent Capital Plan (DCCP), eligible as high-trigger loss-absorbing additional tier 1 capital DCCP contribution to the total loss-absorbing capacity ratio (%) 3311..1122..2211 31.12.20 11,,773300 00..66 1,875 0.6 11 Refer to “Bondholder information” at ubs.com/investors for more information about the capital instruments of UBS Group AG and UBS AG both on a consolidated and a standalone basis. TToottaall 22002211 ooff wwhhiicchh:: nnoonn--ddeeffeerrrreedd ccaasshh of which: deferred compensation awards TToottaall 22002200 NNuummbbeerr ooff bbeenneeffiicciiaarriieess 2266 99 9944 3344 1177 22 116600 1188 44 1111 55 1111 11 22000055 8 5 83 29 6 1 0 20 2 58 17 16 5 134 22002211 222266 66 331100 1122 4400 11 11,,447777 2020 99 3 200 13 32 2 1,019 USD million, except where indicated TToottaall ssiiggnn--oonn ppaayymmeennttss11 of which: Key Risk Takers2 TToottaall rreeppllaacceemmeenntt ppaayymmeennttss33 of which: Key Risk Takers2 TToottaall gguuaarraanntteeeess33 of which: Key Risk Takers2 TToottaall sseevveerraannccee ppaayymmeennttss11,,44 of which: Key Risk Takers2 1100 0 11 GEB members are not eligible for sign-on or severance payments. 22 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December 2021. Key Risk Takers as defined by UBS, including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees). 33 Includes replacement payments for one GEB member in 2021 and for another GEB member in 2020. No GEB member received a guarantee in 2021 or 2020. 44 Includes legally obligated and standard severance payments as well as payments in lieu of notice. 55 Represents expense recognized in 2021 associated with payments made in 2021 as well as provisions for expected payments in 2022. 33 0 0 00 248 249 249 Forfeitures1 USD million, except where indicated TToottaall ffoorrffeeiittuurreess of which: former GEB members TToottaall 22002211 Total 2020 225588 2233 145 0 of which: Key Risk Takers2 6 11 For notional share awards, forfeitures are calculated as units forfeited during the year, valued at the share price on 31 December 2021 (USD 17.87) for 2021. The 2020 data is valued using the share price on 31 December 2020 (USD 14.13). For LTIP the forfeited units reflect the fair value awarded at grant. For the notional funds awarded to Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2021 and 2020. For the DCCP, the fair value at grant of the forfeited awards during the year is reflected. Numbers presented may differ from the effect on the income statement in accordance with IFRS. 22 Key Risk Takers as defined by UBS, including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees) and excluding former GEB members who forfeited awards in 2021 or 2020. 88 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Benchmarking for employees other than GEB members We generally consider market practice in our pay decisions and framework. Our market review reflects several factors, including the comparability of the business division, location, scope and the diversity of our businesses. For certain businesses or roles, we may consider practices at other major international banks, other large Swiss private banks, private equity firms, hedge funds and non- financial internally benchmark employee compensation for comparable roles within and across business divisions and locations. firms. We also Employee share ownership According to available records on employee shareholdings, including unvested deferred compensation, as of 31 December 2021, employees held at least USD 4.5 billion of UBS shares (of which approximately USD 2.9 billion were unvested), representing approximately 7% of our total shares issued. The Equity Plus Plan is our employee share purchase program. It allows employees at Executive Director level and below to voluntarily invest up to 30% of their base salary and / or regular commission payments to purchase UBS shares. In addition (where offered), eligible employees can invest up to 35% of their performance award under the program. Participation in the program is capped at USD / CHF 20,000 annually. Eligible employees may purchase UBS shares at market price and receive one additional share for every three shares purchased through the program. Additional shares vest after a maximum of three years, provided the employee remains employed by UBS and has retained the purchased shares throughout the holding period. › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information Compensation for US financial advisors in Global Wealth Management In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global Wealth Management predominantly includes production payout and deferred compensation awards. Production payout, paid monthly, is primarily based on compensable revenue. Financial advisors may also qualify for deferred compensation awards, which generally vest over a six-year period. These awards are based on strategic performance measures, including production and length of service with UBS. Production payout rates and deferred compensation awards may be reduced for, among other things, errors, negligence or carelessness, or failure to comply with the firm’s rules, standards, practices and / or policies, and / or applicable laws and regulations. 250 250 Advisory vote Corporate governance and compensation | Compensation 2021 Group performance outcomes Performance awards granted for the 2021 performance year The “Variable compensation” table below shows the amount of variable compensation awarded to employees for the 2021 performance year, together with the number of beneficiaries for each type of award granted. In the case of deferred awards, the final amount paid to an employee depends on performance conditions and consideration of relevant forfeiture provisions. The deferred share award amount is based on the market value of these awards on the date of grant. Variable compensation1 USD million, except where indicated Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP Expenses recognized in the IFRS income statement 22002211 2020 22,,338833 2,167 440055 118833 114400 5544 2299 341 137 112 42 49 Expenses deferred to future periods4 22002211 2020 00 779977 339933 229999 5500 5566 0 756 306 280 50 120 Accounting adjustments4 22002211 2020 00 6655 0 51 4466 55 35 5 00 0 1188 55 16 5 00 0 Total 22002211 2020 Number of beneficiaries 2020 22002211 22,,338833 2,167 5577,,778833 58,843 11,,226677 1,148 662233 443388 112222 8844 478 392 109 169 44,,220022 33,,880077 44,,117700 111177 337744 3,937 3,566 3,910 115 335 Benchmarking for employees other than GEB members employees may purchase UBS shares at market price and receive We generally consider market practice in our pay decisions and program. Additional shares vest after a maximum of three years, framework. Our market review reflects several factors, including provided the employee remains employed by UBS and has the comparability of the business division, location, scope and the retained the purchased shares throughout the holding period. one additional share for every three shares purchased through the diversity of our businesses. For certain businesses or roles, we may consider practices at other major international banks, other large Swiss private banks, private equity firms, hedge funds and non- financial firms. We also internally benchmark employee › Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information compensation for comparable roles within and across business Compensation for US financial advisors in Global Wealth divisions and locations. Management Employee share ownership In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global According to available records on employee shareholdings, Wealth Management predominantly includes production payout including unvested deferred compensation, as of 31 December and deferred compensation awards. Production payout, paid 2021, employees held at least USD 4.5 billion of UBS shares (of monthly, is primarily based on compensable revenue. Financial which approximately USD 2.9 billion were unvested), representing advisors may also qualify for deferred compensation awards, approximately 7% of our total shares issued. which generally vest over a six-year period. These awards are The Equity Plus Plan is our employee share purchase program. based on strategic performance measures, including production It allows employees at Executive Director level and below to and length of service with UBS. Production payout rates and voluntarily invest up to 30% of their base salary and / or regular deferred compensation awards may be reduced for, among other commission payments to purchase UBS shares. In addition (where things, errors, negligence or carelessness, or failure to comply offered), eligible employees can invest up to 35% of their with the firm’s rules, standards, practices and / or policies, and / performance award under the program. Participation in the or applicable laws and regulations. program is capped at USD / CHF 20,000 annually. Eligible 2,508 126 3,315 233 22,,778888 119911 33,,993355 55,,227722 11,,001122 11,,009977 2,634 3,378 22,,997799 44,,117755 3,548 4,200 51 (74)6 ((5566)) 00 (23) 0 779977 221155 756 181 938 822 58,850 5577,,779933 66,,221188 VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrdd ppooooll Variable compensation – other2 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn Financial advisor (FA) variable compensation3 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn 11 Expenses under “Variable compensation – other” and “Financial advisor variable compensation” are not part of UBS’s performance award pool. 22 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Financial advisor compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 44 Estimates as of 31 December 2021 and 2020. Actual amounts to be expensed in future periods may vary, e.g., due to forfeiture of awards. 55 Represents estimated post-vesting transfer restriction and permanent forfeiture discounts. 66 Included in expenses deferred to future periods is an amount of USD 121 million (2020: USD 74 million) in interest expense related to the Deferred Contingent Capital Plan. As the amount recognized as performance award represents the present value of the award at the date it is granted to the employee, this amount is excluded. 6655 ((112211))66 33,,665500 228855 99,,220077 22,,110099 7,749 77,,115555 1,760 6,012 6,305 ((5566)) (23) 2021 performance award pool and expenses The performance award pool, which includes performance-based variable awards for 2021, was USD 3.7 billion, reflecting an increase of 10% compared with 2020. Performance award expenses for 2021 decreased 1% to USD 3.2 billion, reflecting the increased performance award expenses accrued in performance year, offset by lower expenses related to prior performance years, as 2020 included additional expenses that resulted from modifying the terms of certain outstanding deferred compensation awards. The “Performance award pool and expenses” table below compares the performance award pool with performance award expenses. Performance award pool and expenses USD million, except where indicated Performance award pool1 of which: expenses deferred to future periods and accounting adjustments 2,3 Performance award expenses accrued in the performance year 22002211 33,,665500 886622 22,,778888 2020 3,315 807 2,508 % change 10 7 11 Performance award expenses related to prior performance years TToottaall ppeerrffoorrmmaannccee aawwaarrdd eexxppeennsseess rreeccooggnniizzeedd ffoorr tthhee yyeeaarr44 11 Excluding employer-paid taxes and social security. 22 Estimate as of the end of the performance year. Actual amounts expensed in future periods may vary, e.g., due to forfeiture of awards. 33 Accounting adjustments represent estimated post-vesting transfer restriction and permanent forfeiture discounts. 44 Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information 33,,119900 3,209 (43) 440022 701 (1) 250 251 251 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Compensation for the Board of Directors Chairman of the BoD Under the leadership of the Chairman, Axel A. Weber, the BoD determines, among other things, the strategy for the Group, based on recommendations by the Group CEO, exercises ultimate supervision over management and appoints all GEB members. The Chairman leads all general meetings and BoD meetings and works with the committee chairpersons to coordinate their work. Together with the Group CEO, the Chairman is responsible for effective communication with shareholders and stakeholders, including clients, government officials, regulators and public organizations. The Chairman works closely with the Group CEO and other GEB members, providing advice and support when appropriate, and continues to strengthen and promote our culture through the three keys to success: our Pillars, Principles and Behaviors. The Chairman’s total compensation for the period from AGM to AGM is contractually fixed without any variable component. For the current period from the 2021 AGM to the 2022 AGM, his total compensation was CHF 4.9 million, excluding benefits and pension fund contributions. The Chairman’s total compensation for the current period consisted of a cash payment of CHF 3.5 million and a share component of CHF 1.4 million consisting of 72,939 UBS shares at CHF 19.194 per share. The share component aligns the Chairman’s pay with the Group’s long-term performance. Thus, Mr. Weber’s total reward, including benefits and pension fund contributions, for his service as Chairman for the current period, was CHF 5,224,913. The Chairman’s employment agreement does not provide for severance terms or supplementary contributions to pension plans. The benefits for the Chairman are in line with local practices for UBS employees. The Chairperson of the Compensation Committee proposes and the Compensation Committee approves the Chairman’s compensation annually for the upcoming AGM- to-AGM period, taking into consideration fee or compensation levels for comparable roles based on our core financial industry peers and other relevant leading Swiss companies included in the Swiss Market Index. › Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2021 for more information about the responsibilities of the Chairman Audited | Compensation details and additional information for non-independent BoD members CHF, except where indicated Name, function1 Axel A. Weber, Chairman FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 22002200//22002211 Base salary 3,500,000 3,500,000 Annual share award2 1,400,000 Contributions to retirement plans and benefits3 324,913 1,400,000 343,283 USD (for reference) TToottaall44 55,,222244,,991133 55,,224433,,228833 Total4,5 5,708,482 11 Axel A. Weber was the only non-independent member in office on 31 December 2021 and 31 December 2020. 22 These shares are blocked for four years. 33 Includes the estimated portion related to UBS’s contribution to the statutory pension scheme and estimated benefits valued at market price, as applicable. For the period from the 2020 AGM to the 2021 AGM, the actual amount was CHF 336,050. 44 Excludes the portion related to the legally required social security contributions paid by UBS, which for the period from the 2021 AGM to the 2022 AGM is estimated at CHF 336,428 and for the period from the 2020 AGM to the 2021 AGM at CHF 332,243. The legally required social security contributions paid by the non-independent BoD members are included in the amounts shown in this table, as appropriate. 55 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551.  252 252 Advisory vote Corporate governance and compensation | Compensation Compensation for the Board of Directors Chairman of the BoD for the current period consisted of a cash payment of CHF 3.5 million and a share component of CHF 1.4 million consisting of Under the leadership of the Chairman, Axel A. Weber, the BoD 72,939 UBS shares at CHF 19.194 per share. The share determines, among other things, the strategy for the Group, component aligns the Chairman’s pay with the Group’s long-term based on recommendations by the Group CEO, exercises ultimate performance. supervision over management and appoints all GEB members. Thus, Mr. Weber’s total reward, including benefits and pension The Chairman leads all general meetings and BoD meetings fund contributions, for his service as Chairman for the current and works with the committee chairpersons to coordinate their period, was CHF 5,224,913. work. Together with the Group CEO, the Chairman is responsible The Chairman’s employment agreement does not provide for for effective communication with shareholders and stakeholders, severance terms or supplementary contributions to pension plans. including clients, government officials, regulators and public The benefits for the Chairman are in line with local practices for organizations. The Chairman works closely with the Group CEO UBS employees. The Chairperson of the Compensation and other GEB members, providing advice and support when Committee proposes and the Compensation Committee approves appropriate, and continues to strengthen and promote our the Chairman’s compensation annually for the upcoming AGM- culture through the three keys to success: our Pillars, Principles to-AGM period, taking into consideration fee or compensation and Behaviors. levels for comparable roles based on our core financial industry The Chairman’s total compensation for the period from AGM peers and other relevant leading Swiss companies included in the to AGM is contractually fixed without any variable component. Swiss Market Index. For the current period from the 2021 AGM to the 2022 AGM, his total compensation was CHF 4.9 million, excluding benefits and pension fund contributions. The Chairman’s total compensation › Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2021 for more information about the responsibilities of the Chairman Compensation details and additional information for non-independent BoD members FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 22002200//22002211 Base salary 3,500,000 3,500,000 Annual share award2 1,400,000 1,400,000 Contributions to retirement plans and benefits3 324,913 343,283 USD (for reference) TToottaall44 55,,222244,,991133 55,,224433,,228833 Total4,5 5,708,482 11 Axel A. Weber was the only non-independent member in office on 31 December 2021 and 31 December 2020. 22 These shares are blocked for four years. 33 Includes the estimated portion related to UBS’s contribution to the statutory pension scheme and estimated benefits valued at market price, as applicable. For the period from the 2020 AGM to the 2021 AGM, the actual amount was CHF 336,050. 44 Excludes the portion related to the legally required social security contributions paid by UBS, which for the period from the 2021 AGM to the 2022 AGM is estimated at CHF 336,428 and for the period from the 2020 AGM to the 2021 AGM at CHF 332,243. The legally required social security contributions paid by the non-independent BoD members are included in the amounts shown in this table, as appropriate. 55 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551.  Audited | CHF, except where indicated Name, function1 Axel A. Weber, Chairman At each AGM, shareholders are invited to approve the aggregate amount of BoD remuneration, including compensation for the Chairman, which applies until the next AGM. The tables below and on the following page provide details on the fee structure for the independent BoD members. The fee structure for independent BoD members is reviewed annually based on the Chairman’s proposal to the Compensation Committee, which in turn submits a proposal to the BoD for approval. In our regular review of the BoD fee structure, we concluded that our overall approach for independent BoD member compensation remains appropriate and thus unchanged. Independent BoD members As outlined in the table below, all BoD members, except the Chairman, are deemed independent and receive fixed fees for their services on the BoD and its committees. Independent BoD members do not receive performance awards, severance payments, benefits or pension contributions. In the current period, the roles of Senior Independent Director and Vice Chairman are both held by one BoD member, but the additional fee is only paid once. Independent BoD members must use a minimum of 50% of their fees to purchase UBS shares, which are blocked for four years, and they may elect to use up to 100% of their fees to purchase blocked UBS shares. In all cases, the number of shares is calculated based on the average closing price of the 10 trading days leading up to and including the grant date. Remuneration framework for independent BoD members CHF Fixed base fee 2021 AGM to 2022 AGM1 300,000 Pay mix Delivery Additional fees Senior Independent Director / Vice Chairman 150,000 Blocked shares At least 50% Additional committee fees Audit Committee Compensation Committee Governance and Nominating Committee Corporate Culture and Responsibility Committee Risk Committee Chair Member 300,000 200,000 350,000 200,000 100,000 100,000 50,000 200,000 Cash Up to 50% AGM- to-AGM period grant year year 1 year 2 year 3 year 4 1 At least 50% of the total amounts must be used to purchase UBS shares, which are blocked for four years. Independent BoD members can elect to use 100% of their remuneration to purchase blocked UBS shares. 252 253 253 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Audited | Total payments to BoD members CHF, except where indicated Aggregate of all BoD members FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 22002200//22002211 TToottaall11 1122,,112244,,991133 1111,,884433,,228833 USD (for reference) Total1,2 13,247,082 11 Includes social security contributions paid by the BoD members but excludes the portion related to the legally required social security contributions paid by UBS, which for the period from the 2021 AGM to the 2022 AGM is estimated at grant at CHF 739,615 and for the period from the 2020 AGM to the 2021 AGM at CHF 719,763. 22 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551  Audited | Remuneration details and additional information for independent BoD members CHF, except where indicated FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 Base fee 300,000 Committee fee(s) 400,000 Additional payments2 150,000 TToottaall33 885500,,000000 Share percentage4 50 Number of shares5,6 22,142 22002200//22002211 300,000 400,000 150,000 885500,,000000 e e t t i m m o C y t i l i b i s n o p s e R d n a e r u t l u C e t a r o p r o C n o i t a s n e p m o C e e t t i m m o C e e t t i m m o C t i d u A C C Name, function1 Jeremy Anderson, Vice Chairman and Senior Independent Director Claudia Böckstiegel, member William C. Dudley, member Patrick Firmenich, member M Reto Francioni, member Fred Hu, member Mark Hughes, member Nathalie Rachou, member Julie G. Richardson, member Beatrice Weder di Mauro, former member Dieter Wemmer, member Jeanette Wong, member M M C C M M M M M M M M M M M M M M M M M e e t t i m m o C k s i R M M M M M M C C M M M M e e t t i m m o C g n i t a n m o N i d n a e c n a n r e v o G M M M M M M M M M M TToottaall 22002211//22002222 Total 2021/2022 in USD (for reference)7 TToottaall 22002200//22002211 Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 300,000 - 300,000 300,000 300,000 - 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 - 300,000 300,000 300,000 300,000 300,000 0 350,000 350,000 250,000 300,000 300,000 300,000 300,000 400,000 400,000 200,000 200,000 500,000 500,000 250,000 400,000 400,000 350,000 350,000 50 50 - 50 50 100 - 50 50 100 100 50 50 50 50 50 50 - 50 50 50 100 100 30,774 7,814 - 16,932 23,533 27,275 - 15,629 21,723 23,062 32,053 18,234 25,343 13,024 18,102 20,839 28,964 - 19,913 18,234 25,343 24,988 34,730 330000,,000000 -- 665500,,000000 665500,,000000 555500,,000000 -- 660000,,000000 660000,,000000 660000,,000000 660000,,000000 770000,,000000 770000,,000000 550000,,000000 550000,,000000 880000,,000000 880000,,000000 -- 555500,,000000 770000,,000000 770000,,000000 665500,,000000 665500,,000000 66,,990000,,000000 7,538,600 66,,660000,,000000 11 Eleven independent BoD members were in office on 31 December 2021. At the 2021 AGM, Claudia Böckstiegel and Patrick Firmenich were newly elected and Beatrice Weder di Mauro did not stand for re-election. Ten independent BoD members were in office on 31 December 2020. 22 These payments are associated with the Vice Chairman and the Senior Independent Director function. 33 Excludes UBS’s portion related to the legally required social security contributions, which for the period from the 2021 AGM to the 2022 AGM is estimated at grant at CHF 403,187 and which for the period from the 2020 AGM to the 2021 AGM was estimated at grant at CHF 387,520. The legally required social security contributions paid by the independent BoD members are included in the amounts shown in this table, as appropriate. 44 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members may elect to have 100% of their remuneration paid in blocked UBS shares. 55 For 2021, UBS shares were valued at CHF 19.194 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). For 2020, UBS shares, valued at CHF 13.810 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). These shares are blocked for four years. 66 Number of shares is reduced in case of the 100% election to deduct legally required contributions. All remuneration payments are, where applicable, subject to social security contributions and / or withholding tax. 77 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551.  254 254 Advisory vote Corporate governance and compensation | Compensation Supplemental information Fixed and variable compensation for GEB members Fixed and variable compensation for GEB members1,2,3 CHF million, except where indicated AAmmoouunntt %% AAmmoouunntt TToottaall ffoorr 22002211 NNoott ddeeffeerrrreedd TToottaall ccoommppeennssaattiioonn Amount5 Number of beneficiaries FFiixxeedd ccoommppeennssaattiioonn55,,66 Cash-based Equity-based VVaarriiaabbllee ccoommppeennssaattiioonn Cash7 110055 110000 1155 2255 2222 33 8800 1166 2244 2211 33 7766 1155 4411 2255 2222 33 1166 1166 %% 3399 110000 2200 DDeeffeerrrreedd44 AAmmoouunntt 6644 00 00 00 6644 00 %% 6611 00 8800 Total for 2020 Amount 112 16 27 24 4 85 17 4400 2244 Long-Term Incentive Plan (LTIP)8 Deferred Contingent Capital Plan (DCCP)8 11 The figures include all GEB members in office during the respective years. 22 Includes compensation paid under the employment contract during the notice period for GEB members who stepped down during the respective years. 33 Includes compensation for newly appointed GEB members for their time in office as a GEB member during the respective years. 44 Based on the specific plan vesting and reflecting the total award value at grant, which may differ from the expense recognized in the income statement in accordance with IFRS. 55 Excludes benefits and employer’s contributions to retirement benefit plans. Includes social security contributions paid by GEB members but excludes the portion related to the legally required social security contributions paid by UBS. For 2021, Barbara Levi received a one-time replacement award of CHF 7 million. This replacement award is not included in the above table; including this, the 2021 total aggregate compensation of all GEB members is CHF 112 million. For 2020, Ralph A.J.G. Hamers received a one-time replacement award of CHF 0.2 million. This replacement award is not included in the above table; including this, the 2020 total aggregate compensation of all GEB members is CHF 113 million. 66 Includes base salary and role-based allowances, rounded to the nearest million. 77 Includes allocation of vested but blocked shares, in line with the remuneration section of the UK Prudential Regulation Authority Rulebook. 88 For the GEB members who are also MRTs (or SMFs), the awards do not include dividend and interest payments. Accordingly, the amounts reflect for the LTIP the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards. 4400 2244 3388 2233 43 26 00 00 Audited | Total payments to BoD members CHF, except where indicated Aggregate of all BoD members 11 Includes social security contributions paid by the BoD members but excludes the portion related to the legally required social security contributions paid by UBS, which for the period from the 2021 AGM to the 2022 AGM is estimated at grant at CHF 739,615 and for the period from the 2020 AGM to the 2021 AGM at CHF 719,763. 22 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551 Remuneration details and additional information for independent BoD members Audited | CHF, except where indicated FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 22002200//22002211 TToottaall11 1122,,112244,,991133 1111,,884433,,228833 USD (for reference) Total1,2 13,247,082  FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM 22002211//22002222 Base fee 300,000 Committee fee(s) 400,000 Additional payments2 150,000 Share Number of TToottaall33 percentage4 22002200//22002211 300,000 400,000 150,000 885500,,000000 300,000 0 e e t t i m m o C y t i l i b i s n o p s e R d n a e r u t l u C e t a r o p r o C e e t t i m m o C g n i t a n i m o N d n a e c n a n r e v o G n o i t a s n e p m o C e e t t i m m o C e e t t i m m o C t i d u A C C Patrick Firmenich, member M Name, function1 Jeremy Anderson, Vice Chairman and Senior Independent Director Claudia Böckstiegel, member William C. Dudley, member Reto Francioni, member Fred Hu, member Mark Hughes, member Nathalie Rachou, member Julie G. Richardson, member Beatrice Weder di Mauro, former member Dieter Wemmer, member Jeanette Wong, member TToottaall 22002211//22002222 Total 2021/2022 in USD (for reference)7 TToottaall 22002200//22002211 M M M M M M M M M M C C M M M M M M M M M e e t t i m m o C k s i R M M M M M M C C M M M M M M M M M M M M M M 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 22002211//22002222 22002200//22002211 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 - - - 300,000 300,000 300,000 300,000 300,000 350,000 350,000 250,000 300,000 300,000 300,000 300,000 400,000 400,000 200,000 200,000 500,000 500,000 250,000 400,000 400,000 350,000 350,000 885500,,000000 330000,,000000 665500,,000000 665500,,000000 555500,,000000 660000,,000000 660000,,000000 660000,,000000 660000,,000000 770000,,000000 770000,,000000 550000,,000000 550000,,000000 880000,,000000 880000,,000000 -- -- -- 555500,,000000 770000,,000000 770000,,000000 665500,,000000 665500,,000000 66,,990000,,000000 7,538,600 66,,660000,,000000 100 100 100 50 50 50 - 50 50 - 50 50 50 50 50 50 50 50 - 50 50 50 100 100 shares5,6 22,142 30,774 7,814 - - 16,932 23,533 27,275 15,629 21,723 23,062 32,053 18,234 25,343 13,024 18,102 20,839 28,964 - 19,913 18,234 25,343 24,988 34,730  Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee 11 Eleven independent BoD members were in office on 31 December 2021. At the 2021 AGM, Claudia Böckstiegel and Patrick Firmenich were newly elected and Beatrice Weder di Mauro did not stand for re-election. Ten independent BoD members were in office on 31 December 2020. 22 These payments are associated with the Vice Chairman and the Senior Independent Director function. 33 Excludes UBS’s portion related to the legally required social security contributions, which for the period from the 2021 AGM to the 2022 AGM is estimated at grant at CHF 403,187 and which for the period from the 2020 AGM to the 2021 AGM was estimated at grant at CHF 387,520. The legally required social security contributions paid by the independent BoD members are included in the amounts shown in this table, as appropriate. 44 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members may elect to have 100% of their remuneration paid in blocked UBS shares. 55 For 2021, UBS shares were valued at CHF 19.194 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). For 2020, UBS shares, valued at CHF 13.810 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). These shares are blocked for four years. 66 Number of shares is reduced in case of the 100% election to deduct legally required contributions. All remuneration payments are, where applicable, subject to social security contributions and / or withholding tax. 77 Swiss franc amounts have been translated into US dollars for reference at the 2021 performance award currency exchange rate of CHF / USD 1.092551. 254 255 255 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Regulated staff Key Risk Takers KRTs are defined as those employees who, by the nature of their roles, have been determined to materially set, commit or control significant amounts of the firm’s resources and / or exert significant influence over its risk profile. This includes employees that work in front-office roles, logistics and control functions. Identifying KRTs globally is part of our risk control framework and an important element in ensuring we incentivize only appropriate risk-taking. For 2021, in addition to GEB members, 699 employees were classified as KRTs throughout UBS Group globally, including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees), who may not have been identified as KRTs during the performance year. functions. the control In line with regulatory requirements, the performance of employees identified as KRTs during the performance year is evaluated by In addition, KRTs’ performance awards are subject to a mandatory deferral rate of at least 50%, regardless of whether the deferral threshold has been met (excluding KRTs with de minimis performance awards below a pre-determined threshold where standard deferral rates apply). A KRT’s deferred compensation award will only vest if the Group performance conditions are met. Consistent with all other employees, the deferred portion of a KRT’s compensation is also subject to forfeiture or reduction if the KRT commits harmful acts. Fixed and variable compensation for Key Risk Takers1 USD million, except where indicated TToottaall ffoorr 22002211 AAmmoouunntt NNoott ddeeffeerrrreedd %% AAmmoouunntt TToottaall ccoommppeennssaattiioonn Amount Number of beneficiaries FFiixxeedd ccoommppeennssaattiioonn33,,44 Cash-based Equity-based VVaarriiaabbllee ccoommppeennssaattiioonn 11,,556611 110000 669999 447777 447744 33 11,,008844 3311 3300 00 6699 889955 447777 447744 33 441188 %% 5577 110000 DDeeffeerrrreedd22 AAmmoouunntt 666666 00 3399 666666 Total for 2020 Amount 1,400 647 417 417 1 983 %% 4433 00 6611 441188 Cash5 Long-Term Incentive Plan (LTIP) / Equity Ownership Plan (EOP)6 Deferred Contingent Capital Plan (DCCP)6 11 Includes employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees), excluding GEB members who were in office during the performance year, except the new GEB member appointed during 2021, who is included for compensation received in their role as a KRT prior to being appointed to the GEB. 22 Based on the specific plan vesting and reflecting the total value at grant, which may differ from the expense recognized in the income statement in accordance with IFRS. 33 Excludes benefits and employer's contributions to retirement benefits plan. Includes social security contributions paid by KRTs but excludes the legally required social security contributions paid by UBS. 44 Includes base salary and role-based allowances. 55 Includes allocation of vested but blocked shares, in line with regulatory requirements where applicable. 66 KRTs who are also MRTs do not receive dividend and interest payments. Accordingly, the amounts for the EOP / LTIP reflect the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards. 404 213 442233 224433 442233 224433 2277 1166 365 441188 2277 256 256 Advisory vote Corporate governance and compensation | Compensation GEB and KRTs deferred compensation The table below shows the current economic value of unvested outstanding deferred variable compensation awards subject to ex-post adjustments. For share-based plans, the economic value is determined based on the closing share price on 31 December 2021. For notional funds, it is determined using the latest available market price for the underlying funds at year-end 2021, and for deferred cash plans, it is determined based on the outstanding amount of cash owed to award recipients. GEB and KRTs deferred compensation1,2,3 employees were classified as KRTs throughout UBS Group subject to forfeiture or reduction if the KRT commits harmful acts. KKRRTTss Deferred Contingent Capital Plan Equity Ownership Plan (including notional funds) Long-Term Incentive Plan USD million, except where indicated GGEEBB Deferred Contingent Capital Plan Equity Ownership Plan (including notional funds) Long-Term Incentive Plan RReellaattiinngg ttoo aawwaarrddss ffoorr 2200221144 Relating to awards for prior years5 2266 4444 224444 335577 6677 72 78 76 940 1,057 169 Total 98 78 119 1,183 1,414 235 of which: exposed to ex-post explicit and / or implicit adjustments Total deferred compensation year-end 2020 Total amount of deferred compensation paid out in 20216 100% 100% 100% 100% 100% 100% 126 102 85 1,000 1,059 109 8 19 172 344 TToottaall GGEEBB aanndd KKRRTTss 11 Based on the specific plan vesting and reflecting the economic value of the outstanding awards, which may differ from the expense recognized in the income statement in accordance with IFRS. Year-to-year reconciliations would also need to consider the impacts of additional items including off-cycle awards, FX movements, population changes, and dividend equivalent reinvestments. 22 Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of the Annual Report 2021 for more information. 33 GEB members and KRTs who are also MRTs do not receive dividend and interest payments. Accordingly, the amounts for the EOP / LTIP reflect the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards. 44 Where applicable, amounts are translated into US dollars at the performance award currency exchange rate. LTIP values reflect the fair value awarded at grant. 55 Takes into account the ex-post implicit adjustments, given the share price movements since grant. Where applicable, amounts are translated from award currency into US dollars using FX rates as of 31 December 2021. LTIP values reflect the fair value awarded at grant. 66 Valued at distribution price and FX rate for all awards distributed in 2021. 2,391 3,127 2,480 544 773366 The table below shows the value of actual ex-post explicit and implicit adjustments to outstanding deferred compensation in the 2021 financial year for GEB members and KRTs. Ex-post adjustments occur after an award has been granted. Explicit adjustments occur when we adjust compensation by forfeiting deferred awards. Implicit adjustments are unrelated to any action taken by the firm and occur as a result of price movements that affect the value of an award. The total value of ex-post explicit adjustments made to UBS share awards in 2021, based on the approximately 8.1 million shares forfeited during 2021, is a reduction of USD 142 million. GEB and KRTs ex-post explicit and implicit adjustments to deferred compensation USD million GGEEBB Deferred Contingent Capital Plan Equity Ownership Plan (including notional funds, if applicable) Long-Term Incentive Plan KKRRTTss Deferred Contingent Capital Plan Equity Ownership Plan (including notional funds) Long-Term Incentive Plan EExx--ppoosstt eexxpplliicciitt aaddjjuussttmmeennttss ttoo uunnvveesstteedd aawwaarrddss11 3311..1122..2211 31.12.20 EExx--ppoosstt iimmpplliicciitt aaddjjuussttmmeennttss ttoo uunnvveesstteedd aawwaarrddss22 3311..1122..2211 31.12.20 00 00 00 ((1144)) ((1166)) ((11)) 0 0 0 (3) (3) 0 00 1177 2211 00 225500 4477 0 13 5 0 98 6 Regulated staff Key Risk Takers In line with regulatory requirements, the performance of employees identified as KRTs during the performance year is KRTs are defined as those employees who, by the nature of their evaluated by the control functions. In addition, KRTs’ roles, have been determined to materially set, commit or control performance awards are subject to a mandatory deferral rate of significant amounts of the firm’s resources and / or exert at least 50%, regardless of whether the deferral threshold has significant influence over its risk profile. This includes employees been met (excluding KRTs with de minimis performance awards that work in front-office roles, logistics and control functions. below a pre-determined threshold where standard deferral rates Identifying KRTs globally is part of our risk control framework and apply). A KRT’s deferred compensation award will only vest if the an important element in ensuring we incentivize only appropriate Group performance conditions are met. Consistent with all other risk-taking. For 2021, in addition to GEB members, 699 employees, the deferred portion of a KRT’s compensation is also globally, including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees), who may not have been identified as KRTs during the performance year. Fixed and variable compensation for Key Risk Takers1 USD million, except where indicated TToottaall ffoorr 22002211 AAmmoouunntt NNoott ddeeffeerrrreedd %% AAmmoouunntt DDeeffeerrrreedd22 AAmmoouunntt Total for 2020 Amount TToottaall ccoommppeennssaattiioonn Amount Number of beneficiaries FFiixxeedd ccoommppeennssaattiioonn33,,44 VVaarriiaabbllee ccoommppeennssaattiioonn Cash-based Equity-based Cash5 Plan (EOP)6 Long-Term Incentive Plan (LTIP) / Equity Ownership Deferred Contingent Capital Plan (DCCP)6 11,,556611 110000 669999 447777 447744 33 11,,008844 441188 442233 224433 3311 3300 00 6699 2277 2277 1166 %% 5577 110000 3399 889955 447777 447744 33 441188 441188 %% 4433 00 6611 1,400 647 417 417 1 983 365 404 213 666666 00 666666 442233 224433 11 Includes employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees), excluding GEB members who were in office during the performance year, except the new GEB member appointed during 2021, who is included for compensation received in their role as a KRT prior to being appointed to the GEB. 22 Based on the specific plan vesting and reflecting the total value at grant, which may differ from the expense recognized in the income statement in accordance with IFRS. 33 Excludes benefits and employer's contributions to retirement benefits plan. Includes social security contributions paid by KRTs but excludes the legally required social security contributions paid by UBS. 44 Includes base salary and role-based allowances. 55 Includes allocation of vested but blocked shares, in line with regulatory requirements where applicable. 66 KRTs who are also MRTs do not receive dividend and interest payments. Accordingly, the amounts for the EOP / LTIP reflect the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards. TToottaall GGEEBB aanndd KKRRTTss 11 For notional share awards, ex-post explicit adjustments are calculated as units forfeited during the year, valued at the share price on 31 December 2021 (USD 17.87) for 2021 (which may differ from the expense recognized in the income statement in accordance with IFRS). The 2020 data is valued using the share price on 31 December 2020 (USD 14.13). For LTIP the forfeited units reflect the fair value awarded at grant. For the notional funds awarded to Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2021 and 2020. For the DCCP, the fair value at grant of the forfeited awards during the year is reflected. 22 Ex-post implicit adjustments for UBS shares are calculated based on the difference between the weighted average grant date fair value and the share price at year-end. The amount for notional funds is calculated using the mark-to-market change during 2021 and 2020. For the GEB member who was appointed to the GEB during 2021, awards have been fully reflected in the GEB entries. ((3311)) 333355 122 (6) 256 257 257 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Material Risk Takers UK Senior Managers and Certification Regime For relevant EU- or UK-regulated entities, we identify individuals who are deemed to be Material Risks Takers (MRTs) based on local regulatory requirements, including the respective EU Commission Delegated Regulation, the fifth iteration of the EU Capital Requirements Directive (CRD V) and equivalent UK requirements, as applicable. This group consists of senior management, risk takers, selected staff in control or support functions and certain highly-compensated employees. For 2021, UBS identified 683 MRTs in relation to its relevant EU or UK entities. Variable compensation awarded to MRTs is subject to additional deferral and other requirements. These include a maximum variable to fixed compensation ratio of 200% based on approval through relevant shareholder votes, a minimum deferral rate of 40% or 60% (depending on role / variable compensation level) on performance awards and delivery of at least 50% of any upfront performance award in UBS shares that are vested but blocked for 12 months after grant. Deferred awards granted to MRTs under UBS’s deferred compensation plans for their performance in 2021 are subject to 6- or 12-month blocking periods post vesting and do not pay out dividends or interest during the deferral period. For up to seven years after grant, performance awards granted to MRTs are subject to clawback provisions, which allow the firm to claim repayment of both the upfront and the vested deferred element of any performance award if an individual is found to have contributed substantially to significant financial losses for the Group or corporate structure in scope, a material downward restatement of disclosed results, or engaged in misconduct and / or failed to take expected actions that contributed to significant reputational harm. LTIP awards granted to UK MRTs and SMFs are subject to an additional non-financial conduct-related metric as required by UK regulation. The Senior Managers and Certification Regime (the SMCR) of the UK Prudential Regulation Authority and Financial Conduct Authority requires that individuals with specified responsibilities, performing certain significant functions and / or those in certain other identified categories be designated as SMFs. Subject to de minimis and other compensation-related considerations, variable compensation awards made to SMFs must comply with specific requirements, including longer deferral, blocking and clawback periods. The deferral period for SMFs is seven years, with the deferred performance awards vesting no faster than pro rata from years 3 to 7, except those who have total compensation below GBP 500,000 and variable incentive accounting for less than 33% of total compensation, for whom a five-year deferral period (instead of a seven-year period) applies. Such awards are also subject to a 12-month blocking period post vesting. The clawback policy for SMFs permits clawback for up to 10 years from the date of performance award grants (applicable if an individual is subject to an investigation at the end of the initial seven-year clawback period). All SMFs are also MRTs and, as such, subject to the same prohibitions on dividend and interest payments. Control functions and Group Internal Audit Our control functions must be independent in order to monitor risk effectively. Therefore, their compensation is determined separately from the revenue areas that they oversee, supervise or monitor. Their performance award pool is based not on the performance of these businesses, but on the performance of the Group as a whole. We also consider other factors, such as how effectively the function has performed and our market position. Decisions on individual compensation for the senior managers of the control functions are made by the function heads and individual approved by compensation for the members of Group Internal Audit (GIA) are made by the Head GIA and approved by the Chairman. Following a proposal by the Chairman, total compensation for the Head GIA is approved by the Compensation Committee. the Group CEO. Decisions on 258 258 Advisory vote Corporate governance and compensation | Compensation Material Risk Takers UK Senior Managers and Certification Regime 2021 Group personnel expenses For relevant EU- or UK-regulated entities, we identify individuals The Senior Managers and Certification Regime (the SMCR) of the who are deemed to be Material Risks Takers (MRTs) based on local UK Prudential Regulation Authority and Financial Conduct regulatory requirements, including the respective EU Commission Authority requires that individuals with specified responsibilities, Delegated Regulation, the fifth iteration of the EU Capital performing certain significant functions and / or those in certain Requirements Directive (CRD V) and equivalent UK requirements, other identified categories be designated as SMFs. as applicable. This group consists of senior management, risk Subject to de minimis and other compensation-related takers, selected staff in control or support functions and certain considerations, variable compensation awards made to SMFs highly-compensated employees. For 2021, UBS identified 683 must comply with specific requirements, including longer deferral, MRTs in relation to its relevant EU or UK entities. blocking and clawback periods. The deferral period for SMFs is Variable compensation awarded to MRTs is subject to seven years, with the deferred performance awards vesting no additional deferral and other requirements. These include a faster than pro rata from years 3 to 7, except those who have maximum variable to fixed compensation ratio of 200% based on total compensation below GBP 500,000 and variable incentive approval through relevant shareholder votes, a minimum deferral accounting for less than 33% of total compensation, for whom a rate of 40% or 60% (depending on role / variable compensation five-year deferral period (instead of a seven-year period) applies. level) on performance awards and delivery of at least 50% of any Such awards are also subject to a 12-month blocking period post upfront performance award in UBS shares that are vested but vesting. The clawback policy for SMFs permits clawback for up to blocked for 12 months after grant. 10 years from the date of performance award grants (applicable Deferred awards granted to MRTs under UBS’s deferred if an individual is subject to an investigation at the end of the compensation plans for their performance in 2021 are subject to initial seven-year clawback period). All SMFs are also MRTs and, 6- or 12-month blocking periods post vesting and do not pay out as such, subject to the same prohibitions on dividend and interest dividends or interest during the deferral period. payments. For up to seven years after grant, performance awards granted to MRTs are subject to clawback provisions, which allow the firm Control functions and Group Internal Audit to claim repayment of both the upfront and the vested deferred element of any performance award if an individual is found to Our control functions must be independent in order to monitor have contributed substantially to significant financial losses for the risk effectively. Therefore, their compensation is determined Group or corporate structure in scope, a material downward separately from the revenue areas that they oversee, supervise or restatement of disclosed results, or engaged in misconduct and / monitor. Their performance award pool is based not on the or failed to take expected actions that contributed to significant performance of these businesses, but on the performance of the reputational harm. Group as a whole. We also consider other factors, such as how LTIP awards granted to UK MRTs and SMFs are subject to an effectively the function has performed and our market position. additional non-financial conduct-related metric as required by UK Decisions on individual compensation for the senior managers of regulation. the control functions are made by the function heads and approved by the Group CEO. Decisions on individual compensation for the members of Group Internal Audit (GIA) are made by the Head GIA and approved by the Chairman. Following a proposal by the Chairman, total compensation for the Head GIA is approved by the Compensation Committee. The number of personnel employed as of 31 December 2021 was broadly stable, at 71,385 (full-time equivalents), a net decrease of 166 compared with 31 December 2020. The table below shows our total personnel expenses for 2021, including salaries, pension expenses, social security contributions, variable compensation and other personnel costs. Variable compensation includes cash performance awards paid in 2022 for the 2021 performance year, amortization of unvested deferred awards granted in previous years and the cost of deferred awards granted to employees that are eligible for retirement in the context of the compensation framework at the date of grant. The performance award pool reflects the value of performance awards granted relating to the 2021 performance year, including awards that are paid out immediately and those that are deferred. To determine our variable compensation expenses, the following adjustments are required in order to reconcile the performance award pool to the expenses recognized in the Group’s financial statements prepared in accordance with IFRS: – reduction future periods (amortization of unvested awards granted in 2022 for the 2021 performance year) and accounting adjustments; and – addition for 2021 amortization of unvested deferred awards for expenses deferred to granted in prior years. As a large part of compensation consists of deferred awards, the amortization of unvested deferred awards granted in prior years forms a significant part of the IFRS expenses in both 2021 and 2022. › Refer to “Note 6 Personnel expenses” and “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information Personnel expenses USD million SSaallaarriieess11 Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrddss22 VVaarriiaabbllee ccoommppeennssaattiioonn –– ootthheerr22,,33 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn CCoonnttrraaccttoorrss SSoocciiaall sseeccuurriittyy PPeennssiioonn aanndd ootthheerr ppoosstt--eemmppllooyymmeenntt bbeenneeffiitt ppllaannss44 FFiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn22,,55 OOtthheerr ppeerrssoonnnneell eexxppeennsseess TToottaall ppeerrssoonnnneell eexxppeennsseess Expenses recognized in the IFRS income statement RReellaatteedd ttoo tthhee ppeerrffoorrmmaannccee yyeeaarr 22002211 77,,333399 RReellaatteedd ttoo pprriioorr ppeerrffoorrmmaannccee yyeeaarrss 00 TToottaall eexxppeennsseess rreeccooggnniizzeedd iinn 22002211 77,,333399 Total expenses recognized in 2020 7,023 Total expenses recognized in 2019 6,518 22,,338833 440055 118833 114400 5544 2299 22,,778888 119911 22,,997799 338811 992266 883333 44,,117755 556600 1177,,119933 ((1100)) 441122 118800 115588 1199 5566 440022 3388 444400 00 5533 00 668855 1166 11,,119944 22,,337733 881177 336633 229977 7733 8844 33,,119900 222299 33,,441199 338811 997788 883333 44,,886600 557766 1188,,338877 2,141 1,068 463 463 54 88 3,209 220 3,429 375 899 845 4,091 561 17,224 1,868 887 422 375 39 51 2,755 246 3,001 381 799 787 4,043 555 16,084 11 Includes role-based allowances. 22 Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information. 33 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 44 Refer to “Note 27 Pension and other post- employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2021 for more information. 55 Consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 258 259 259 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Deferred compensation Vesting of outstanding awards granted in prior years subject to performance conditions The tables below show the extent to which the performance conditions for awards granted in prior years have been met and the percentage of the installment that will vest in 2022. Equity Ownership Plan (EOP) 2016 / 2017, EOP 2017 / 2018, EOP 2018 / 2019 and EOP 2019 / 2020 Performance conditions Performance achieved1 Return on common equity tier 1 capital (RoCET1) and divisional return on attributed equity The Group and divisional performance conditions have been satisfied. For EOP 2016 / 2017, the third and final installment for the Group Executive Board (the GEB) members vests in full. For EOP 2017 / 2018, the second installment for the GEB members vests in full. For EOP 2018 / 2019, the first installment for the GEB members and the second installment for all other employees covered under the plan vest in full. For EOP 2019 / 2020, the first installment for all other employees covered under the plan vests in full. % of installment vesting 100% Deferred Contingent Capital Plan (DCCP) 2016 / 2017 Performance conditions Performance achieved1 % of installment vesting Common equity tier 1 (CET1) capital ratio, viability event and, additionally for GEB, Group profit before tax The performance conditions have been satisfied. DCCP 2016 / 2017 vests in full. 100% 11 Performance may be adjusted for disclosed items generally not representative of underlying business performance. . 260 260 Advisory vote Corporate governance and compensation | Compensation Deferred compensation Vesting of outstanding awards granted in prior years subject to performance conditions The tables below show the extent to which the performance conditions for awards granted in prior years have been met and the percentage of the installment that will vest in 2022. Equity Ownership Plan (EOP) 2016 / 2017, EOP 2017 / 2018, EOP 2018 / 2019 and EOP 2019 / 2020 Performance conditions Performance achieved1 % of installment vesting Return on common equity tier 1 capital The Group and divisional performance conditions have been satisfied. For EOP 100% (RoCET1) and divisional return on 2016 / 2017, the third and final installment for the Group Executive Board (the attributed equity GEB) members vests in full. For EOP 2017 / 2018, the second installment for the GEB members vests in full. For EOP 2018 / 2019, the first installment for the GEB members and the second installment for all other employees covered under the plan vest in full. For EOP 2019 / 2020, the first installment for all other employees covered under the plan vests in full. Deferred Contingent Capital Plan (DCCP) 2016 / 2017 Performance conditions Performance achieved1 % of installment vesting Common equity tier 1 (CET1) capital The performance conditions have been satisfied. DCCP 2016 / 2017 vests in full. 100% ratio, viability event and, additionally for GEB, Group profit before tax 11 Performance may be adjusted for disclosed items generally not representative of underlying business performance. . List of tables Share ownership / entitlements of GEB members Total of all vested and unvested shares of GEB members Number of shares of BoD members Total of all blocked and unblocked shares of BoD members Loans granted to GEB members Loans granted to BoD members Compensation paid to former BoD and GEB members Page 262 262 263 263 264 264 264 260 261 261 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Audited | Share ownership / entitlements of GEB members1 Name, function Ralph A.J.G. Hamers, Group Chief Executive Officer Christian Bluhm, Group Chief Risk Officer Mike Dargan, Group Chief Digital and Information Officer Markus U. Diethelm, former Group General Counsel Kirt Gardner, Group Chief Financial Officer Suni Harford, President Asset Management Robert Karofsky, President Investment Bank Sabine Keller-Busse, President Personal & Corporate Banking and President UBS Switzerland Iqbal Khan, Co-President Global Wealth Management and President EMEA Edmund Koh, President Asia Pacific Axel P. Lehmann, former President Personal & Corporate Banking and President UBS Switzerland Barbara Levi, Group General Counsel Tom Naratil, Co-President Global Wealth Management and President UBS Americas Piero Novelli, former Co-President Investment Bank Markus Ronner, Group Chief Compliance and Governance Officer TToottaall oonn 3311 DDeecceemmbbeerr 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 Number of unvested shares / at risk2 122,453 14,841 654,579 582,787 240,343 - - 706,845 780,640 696,500 636,122 352,329 851,520 627,748 798,457 639,087 898,111 742,546 501,322 421,930 - 690,537 430,732 - 1,374,044 1,383,854 - 660,240 418,452 302,584 Number of vested shares 2,673 TToottaall nnuummbbeerr ooff sshhaarreess 112255,,112266 Potentially conferred voting rights in % 0.008 0 226 218 82,743 - - 617,858 236,421 165,223 22,199 0 357,064 357,621 421,491 349,834 113,715 68,253 493,977 337,062 - 331,677 0 - 950,682 770,780 - 408,897 57,856 130,097 1144,,884411 665544,,880055 558833,,000055 332233,,008866 -- -- 11,,332244,,770033 11,,001177,,006611 886611,,772233 665588,,332211 335522,,332299 11,,220088,,558844 998855,,336699 11,,221199,,994488 998888,,992211 11,,001111,,882266 881100,,779999 999955,,229999 775588,,999922 -- 11,,002222,,221144 443300,,773322 -- 22,,332244,,772266 22,,115544,,663344 -- 11,,006699,,113377 447766,,330088 443322,,668811 0.001 0.041 0.035 0.020 - - 0.079 0.063 0.051 0.041 0.021 0.075 0.059 0.076 0.059 0.063 0.048 0.062 0.045 - 0.061 0.027 - 0.145 0.128 - 0.064 0.030 0.026 0.650 7,706,776 2,739,047 1100,,444455,,882233 0.675 11 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2021 and 2020 by any GEB member or any of its related parties. Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information. 22 Includes shares granted under variable compensation plans with forfeiture provisions. LTIP values reflect the fair value awarded at grant. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the “Group compensation” section of this report for more information about the plans. 1111,,335599,,334488 7,821,828 3,537,520 22002200 Audited | Total of all vested and unvested shares of GEB members1,2 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002211 1100,,444455,,882233 2,739,047 1,463,440 1,688,568 2,112,516 1,488,544 877,856 TToottaall of which: vested of which: vesting 2022 2023 2024 2025 2026 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002200 1111,,335599,,334488 3,537,520 1,424,063 1,854,660 2,070,158 1,656,600 774,416 2021 2022 2023 2024 2025  2027 75,852 2026 41,931 11 Includes shares held by related parties. 22 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the “Group compensation” section of this report for more information.  262 262 Advisory vote Corporate governance and compensation | Compensation Audited | Share ownership / entitlements of GEB members1 Name, function Ralph A.J.G. Hamers, Group Chief Executive Officer Christian Bluhm, Group Chief Risk Officer Mike Dargan, Group Chief Digital and Information Officer Markus U. Diethelm, former Group General Counsel Kirt Gardner, Group Chief Financial Officer Suni Harford, President Asset Management Robert Karofsky, President Investment Bank Sabine Keller-Busse, President Personal & Corporate Banking and President UBS Switzerland Iqbal Khan, Co-President Global Wealth Management and President EMEA Edmund Koh, President Asia Pacific Barbara Levi, Group General Counsel Axel P. Lehmann, former President Personal & Corporate Banking and President UBS Switzerland Tom Naratil, Co-President Global Wealth Management and President UBS Americas Piero Novelli, former Co-President Investment Bank Markus Ronner, Group Chief Compliance and Governance Officer Number of unvested shares / at 122,453 14,841 654,579 582,787 240,343 706,845 780,640 696,500 636,122 352,329 851,520 627,748 798,457 639,087 898,111 742,546 501,322 421,930 690,537 430,732 - - - - - 2,673 0 226 218 82,743 - - 617,858 236,421 165,223 22,199 0 357,064 357,621 421,491 349,834 113,715 68,253 493,977 337,062 - 0 - - ooff sshhaarreess 112255,,112266 1144,,884411 665544,,880055 558833,,000055 332233,,008866 11,,332244,,770033 11,,001177,,006611 886611,,772233 665588,,332211 335522,,332299 11,,220088,,558844 998855,,336699 11,,221199,,994488 998888,,992211 11,,001111,,882266 881100,,779999 999955,,229999 775588,,999922 -- -- -- -- -- 331,677 11,,002222,,221144 443300,,773322 1,374,044 1,383,854 950,682 770,780 22,,332244,,772266 22,,115544,,663344 660,240 418,452 302,584 408,897 57,856 130,097 11,,006699,,113377 447766,,330088 443322,,668811 7,706,776 2,739,047 1100,,444455,,882233 7,821,828 3,537,520 1111,,335599,,334488 oonn 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 0.008 0.001 0.041 0.035 0.020 - - 0.079 0.063 0.051 0.041 0.021 0.075 0.059 0.076 0.059 0.063 0.048 0.062 0.045 0.061 0.027 0.145 0.128 0.064 0.030 0.026 0.650 0.675 - - -  2027 75,852 2026 41,931  11 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2021 and 2020 by any GEB member or any of its related parties. Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information. 22 Includes shares granted under variable compensation plans with forfeiture provisions. LTIP values reflect the fair value awarded at grant. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the “Group compensation” section of this report for more information about the plans. Total of all vested and unvested shares of GEB members1,2 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002211 1100,,444455,,882233 2,739,047 1,463,440 1,688,568 2,112,516 1,488,544 877,856 TToottaall of which: vested of which: vesting 2022 2023 2024 2025 2026 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002200 1111,,335599,,334488 3,537,520 1,424,063 1,854,660 2,070,158 1,656,600 774,416 11 Includes shares held by related parties. 22 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the “Group compensation” section of this report for more information. 2021 2022 2023 2024 2025 TToottaall Audited | 262 3311 DDeecceemmbbeerr risk2 vested shares Number of TToottaall nnuummbbeerr Potentially conferred voting rights in % Audited | Number of shares of BoD members1 Name, function Axel A. Weber, Chairman Jeremy Anderson, Vice Chairman and Senior Independent Director Claudia Böckstiegel, member2 William C. Dudley, member Patrick Firmenich, member2 Reto Francioni, member Fred Hu, member Mark Hughes, member Nathalie Rachou, member Julie G. Richardson, member Beatrice Weder di Mauro, former member2 Dieter Wemmer, member Jeanette Wong, member oonn 3311 DDeecceemmbbeerr 22002211 NNuummbbeerr ooff sshhaarreess hheelldd 11,,114488,,336699 Voting rights in % 0.071 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 11,,004466,,999944 9977,,551188 6666,,774444 00 -- 4499,,771144 2266,,118811 00 -- 113399,,660099 115544,,008866 7744,,448811 4422,,442288 3300,,226633 44,,992200 1188,,110022 00 111177,,336655 8888,,440011 -- 119988,,557788 111144,,008866 8888,,774433 6688,,445522 3333,,772222 11,,885577,,995599 0.062 0.006 0.004 0.000 - 0.003 0.002 0.000 - 0.009 0.009 0.005 0.003 0.002 0.000 0.001 0.000 0.007 0.005 - 0.012 0.007 0.005 0.004 0.002 0.116 Total 0.104 11 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2021 and 2020. 22 At the 2021 AGM, Claudia Böckstiegel and Patrick Firmenich were newly elected and Beatrice Weder di Mauro did not stand for re-election. 11,,775500,,779977 22002200 Audited | Total of all blocked and unblocked shares of BoD members1 TToottaall of which: unblocked of which: blocked until 2022 2023 2024 2025 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002211 11,,885577,,995599 701,594 178,603 305,947 329,875 341,940 SShhaarreess oonn 3311 DDeecceemmbbeerr 22002200 11 Includes shares held by related parties. 11,,775500,,779977 658,642 205,961 197,395 332,743 356,056 2021 2022 2023 2024   263 263 Corporate governance and compensationAdvisory vote Corporate governance and compensation | Compensation Audited | Loans granted to GEB members1 In line with article 38 of the Articles of Association of UBS Group AG, GEB members may be granted loans. Such loans are made in the ordinary course of business on substantially the same terms as those granted to other employees, including interest rates and collateral, and neither involve more than the normal risk of collectability nor contain any other unfavorable features for the firm. The total amount of such loans must not exceed CHF 20 million per GEB member. CHF, except where indicated2 Name, function Christian Bluhm, Group Chief Risk Officer (highest loan in 2021) Markus U. Diethelm, Group General Counsel (highest loan in 2020) Aggregate of all GEB members4 oonn 3311 DDeecceemmbbeerr 22002211 22002200 22002211 22002200 USD (for reference) Loans3 7,742,947 LLooaannss33 77,,005599,,000000 66,,113311,,550000 2299,,663355,,559900 32,506,982 3311,,883300,,339944 11 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 No unused uncommitted credit facilities in 2021 and 2020.  Audited | Loans granted to BoD members1 In line with article 33 of the Articles of Association of UBS Group AG, loans to independent BoD members are made in the ordinary course of business at general market conditions. The Chairman, as a non-independent member, may be granted loans in the ordinary course of business on substantially the same terms as those granted to employees, including interest rates and collateral, and neither involve more than the normal risk of collectability nor contain any other unfavorable features for the firm. The total amount of such loans must not exceed CHF 20 million per BoD member. CHF, except where indicated2 Aggregate of all BoD members oonn 3311 DDeecceemmbbeerr 22002211 22002200 LLooaannss33,,44 11,,550000,,000000 22,,110000,,000000 USD (for reference) Loans3,4 1,645,335 11 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 CHF 1,500,00 for Reto Francioni in 2021 and CHF 600,000 for Reto Francioni and CHF 1,500,000 for Beatrice Weder di Mauro in 2020. Audited | Compensation paid to former BoD and GEB members1 CHF, except where indicated2 Former BoD members Aggregate of all former GEB members3 Aggregate of all former BoD and GEB members FFoorr tthhee yyeeaarr Compensation Benefits 22002211 22002200 22002211 22002200 22002211 22002200 0 0 0 0 187,876 206,048 187,876 206,048  USD (for reference) Total 205,264 205,264 TToottaall 00 00 118877,,887766 220066,,004488 118877,,887766 220066,,004488 11 Compensation or remuneration that is related to the former members’ activity on the BoD or GEB or that is not at market conditions. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 Includes benefit payments in 2021 and 2020 to two former GEB members. 264 264 Advisory vote Corporate governance and compensation | Compensation Audited | Loans granted to GEB members1 Provisions of the Articles of Association related to compensation In line with article 38 of the Articles of Association of UBS Group and collateral, and neither involve more than the normal risk of AG, GEB members may be granted loans. Such loans are made in collectability nor contain any other unfavorable features for the the ordinary course of business on substantially the same terms as firm. The total amount of such loans must not exceed CHF 20 those granted to other employees, including interest rates million per GEB member. 11 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 No unused uncommitted credit facilities in 2021 and 2020. USD (for reference) Loans3 7,742,947 oonn 3311 DDeecceemmbbeerr LLooaannss33 77,,005599,,000000 66,,113311,,550000 3311,,883300,,339944 22002211 22002200 22002211 22002200 2299,,663355,,559900 32,506,982 CHF, except where indicated2 Name, function Christian Bluhm, Group Chief Risk Officer (highest loan in 2021) Markus U. Diethelm, Group General Counsel (highest loan in 2020) Aggregate of all GEB members4 Audited | Loans granted to BoD members1 In line with article 33 of the Articles of Association of UBS Group those granted to employees, including interest rates and AG, loans to independent BoD members are made in the ordinary collateral, and neither involve more than the normal risk of course of business at general market conditions. The Chairman, collectability nor contain any other unfavorable features for the as a non-independent member, may be granted loans in the firm. The total amount of such loans must not exceed CHF 20 ordinary course of business on substantially the same terms as million per BoD member. 11 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 CHF 1,500,00 for Reto Francioni in 2021 and CHF 600,000 for Reto Francioni and CHF 1,500,000 for Beatrice Weder di Mauro in oonn 3311 DDeecceemmbbeerr LLooaannss33,,44 11,,550000,,000000 22,,110000,,000000 22002211 22002200 USD (for reference) Loans3,4 1,645,335 CHF, except where indicated2 Aggregate of all BoD members 2020. Audited | CHF, except where indicated2 Former BoD members Aggregate of all former GEB members3 Aggregate of all former BoD and GEB members Compensation paid to former BoD and GEB members1 FFoorr tthhee yyeeaarr Compensation Benefits 22002211 22002200 22002211 22002200 22002211 22002200 0 0 0 0 187,876 206,048 187,876 206,048 (for reference) USD Total 205,264 205,264 TToottaall 00 00 118877,,887766 220066,,004488 118877,,887766 220066,,004488 11 Compensation or remuneration that is related to the former members’ activity on the BoD or GEB or that is not at market conditions. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the relevant year-end closing exchange rate. 33 Includes benefit payments in 2021 and 2020 to two former GEB members.   Swiss say-on-pay provisions give shareholders of companies listed in Switzerland significant influence over board and management compensation. At UBS, this is achieved by means of an annual binding say-on-pay vote in accordance with the following provisions of the Articles of Association (the AoA). Say on pay In line with article 43 of the AoA of UBS Group AG, the General Meeting approves proposals from the BoD in relation to: a) the maximum aggregate amount of compensation of the BoD for the period until the next AGM; b) the maximum aggregate amount of fixed compensation of the GEB for the following financial year; and c) the aggregate amount of variable compensation of the GEB for the preceding financial year. The BoD may submit for approval by the General Meeting deviating or additional proposals relating to the same or different periods. If the General Meeting does not approve a proposal from the BoD, the BoD will determine, taking into account all relevant factors, the respective (maximum) aggregate amount or (maximum) partial amounts and submit the amount(s) so determined for approval by the General Meeting. UBS Group AG or companies controlled by it may pay or grant compensation prior to approval by the General Meeting, subject to subsequent approval. Principles of compensation In line with articles 45 and 46 of the AoA of UBS Group AG, compensation of the members of the BoD includes base remuneration and may include other compensation elements and benefits. Compensation of the members of the BoD is intended to recognize the responsibility and governance nature of their role, to attract and retain qualified individuals, and to ensure alignment with shareholders’ interests. Compensation of the members of the GEB includes fixed and variable compensation elements. Fixed compensation includes the base salary and may include other compensation elements and benefits. Variable compensation elements are governed by financial and non-financial performance measures that take into account the performance of UBS Group AG and / or parts thereof, targets in relation to the market, other companies or comparable benchmarks, short- and long-term strategic objectives, and / or individual targets. The BoD or, where delegated to it, the Compensation Committee determines the respective performance measures, the overall and individual performance targets, and their achievement. The BoD or, where delegated to it, the Compensation Committee aims to ensure alignment with sustainable performance and appropriate risk-taking through adequate deferrals, forfeiture conditions, caps on compensation, harmful acts provisions and similar means with regard to parts of or all of the compensation. Parts of variable compensation are subject to a multi-year vesting period. Additional amount for GEB members appointed after the vote on the aggregate amount of compensation by the AGM In line with article 46 of the AoA of UBS Group AG, if the maximum aggregate amount of compensation already approved by the General Meeting is not sufficient to also cover the compensation of a person who becomes a member of or is being promoted within the GEB after the General Meeting has approved the compensation, UBS Group AG, or companies controlled by it, is authorized to pay or grant each such GEB member a supplementary amount during the compensation period(s) already approved. The aggregate pool for such supplementary amounts per compensation period cannot exceed 40% of the average of total annual compensation paid or granted to the GEB during the previous three years. › Refer to ubs.com/governance for more information 264 265 265 Corporate governance and compensation Advisory vote Corporate governance and compensation | Compensation Ernst & Young Ltd Aeschengraben 27 P.O. Box CH-4002 Basel Phone Fax www.ey.com/ch +41 58 286 86 86 +41 58 286 86 00 To the General Meeting of UBS Group AG, Zurich Basel, 4 March 2022 Report of the statutory auditor on the compensation report We have audited the compensation report dated 4 March 2022 of UBS Group AG for the year ended 31 December 2021. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained in the following tables labeled “audited” of the compensation report: Approved fixed compensation, Total compensation for GEB members, Compensation details and additional information for non-independent BoD members, Total payments to BoD members, Remuneration details and additional information for independent BoD members, Loans granted to GEB members, Loans granted to BoD members and Compensation paid to former BoD and GEB members. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the compensation system and defining individual compensation packages. Auditor’s responsibility Our responsibility is to express an opinion on the compensation report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14 – 16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the compensation report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the compensation report for the year ended 31 December 2021 of UBS Group AG complies with Swiss law and articles 14 – 16 of the Ordinance. Ernst & Young Ltd Maurice McCormick Licensed audit expert (Auditor in charge) Jan Marxfeld Licensed audit expert 266 266 Financial statements 5 Consolidated financial statements Table of contents 269 Management’s report on internal control over financial 270 271 276 reporting Report of the independent registered public accounting firm on internal control over financial reporting Report of the independent registered public accounting firm on the consolidated financial statements Statutory auditor’s report on the audit of the consolidated financial statements 283 UBS Group AG consolidated financial statements 283 283 284 285 286 288 289 Primary financial statements and share information Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Share information and earnings per share Statement of cash flows 291 Notes to the UBS Group AG consolidated financial statements 1 Summary of material accounting policies Segment reporting Income statement notes 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss Net fee and commission income Other income Personnel expenses General and administrative expenses Income taxes 2 4 5 6 7 8 291 308 311 311 312 312 313 313 314 268 Balance sheet notes 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement Derivative instruments Financial assets measured at fair value through other comprehensive income Property, equipment and software Goodwill and intangible assets Other assets Amounts due to banks and customer deposits Debt issued designated at fair value Debt issued measured at amortized cost Provisions and contingent liabilities Other liabilities 10 11 12 13 14 15 16 17 18 19 337 Additional information 337 20 26 27 21 22 Expected credit loss measurement Fair value measurement Offsetting financial assets and financial liabilities Restricted and transferred financial assets 23 24 Maturity analysis of financial liabilities Interest rate benchmark reform 25 Hedge accounting Post-employment benefit plans Employee benefits: variable compensation Interests in subsidiaries and other entities Changes in organization and acquisitions and disposals of subsidiaries and businesses Related parties Invested assets and net new money Currency translation rates Events after the reporting period 34 35 Main differences between IFRS and Swiss GAAP 33 29 32 31 28 30 317 317 322 324 324 325 327 327 328 329 330 336 348 364 366 369 370 373 377 387 391 396 397 399 400 400 401 Consolidated financial statements 283 UBS Group AG consolidated financial statements Other assets 269 Management’s report on internal control over financial Balance sheet notes Table of contents reporting 270 Report of the independent registered public accounting firm on internal control over financial reporting 271 Report of the independent registered public accounting firm on the consolidated financial statements 276 Statutory auditor’s report on the audit of the consolidated financial statements Primary financial statements and share information Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Share information and earnings per share Statement of cash flows 291 Notes to the UBS Group AG consolidated financial statements Segment reporting Income statement notes Net interest income and other net income from financial instruments measured at fair value through profit or loss Net fee and commission income Other income Personnel expenses General and administrative expenses Income taxes 283 283 284 285 286 288 289 291 308 311 311 312 312 313 313 314 268 1 2 3 4 5 6 7 8 337 Additional information 317 317 322 324 324 325 327 327 328 329 330 336 337 348 364 366 369 370 373 377 387 391 396 397 399 400 400 401 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 34 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement Derivative instruments Financial assets measured at fair value through other comprehensive income Property, equipment and software Goodwill and intangible assets Amounts due to banks and customer deposits Debt issued designated at fair value Debt issued measured at amortized cost Provisions and contingent liabilities Other liabilities Expected credit loss measurement Fair value measurement Offsetting financial assets and financial liabilities Restricted and transferred financial assets Interest rate benchmark reform Hedge accounting Post-employment benefit plans Employee benefits: variable compensation Interests in subsidiaries and other entities Changes in organization and acquisitions and disposals of subsidiaries and businesses Related parties Invested assets and net new money Currency translation rates Events after the reporting period 35 Main differences between IFRS and Swiss GAAP Summary of material accounting policies 24 Maturity analysis of financial liabilities Management’s report on internal control over financial reporting Management’s responsibility for internal control over financial reporting The Board of Directors and management of UBS Group AG (UBS) are responsible for establishing and maintaining adequate internal control over financial reporting. UBS’s internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). UBS’s internal control over financial reporting includes those policies and procedures that: – pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; – provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and – provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management’s assessment of internal control over financial reporting as of 31 December 2021 UBS management has assessed the effectiveness of UBS’s internal control over financial reporting as of 31 December 2021 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment, management believes that, as of 31 December 2021, UBS’s internal control over financial reporting was effective. The effectiveness of UBS’s internal control over financial reporting as of 31 December 2021 has been audited by Ernst & Young Ltd, UBS’s independent registered public accounting firm, as stated in their report appearing on page 270, which expresses an unqualified opinion on the effectiveness of UBS’s internal control over financial reporting as of 31 December 2021. Reports of the statutory auditor / independent registered public accounting firm The accompanying reports of the independent registered public accounting firm on the consolidated financial statements (refer to pages 271 to 275) and internal control over financial reporting (refer to page 270) of UBS Group AG are included in our filing on 7 March 2022 with the Securities and Exchange Commission on Form 20-F pursuant to US reporting obligations. The accompanying statutory auditor’s report on the audit of the consolidated financial statements (refer to pages 276 to 282) of UBS Group AG, in addition to the aforementioned reports, is included in our Annual Report 2021 available on our website and filed on 7 March 2022 with all other relevant non-US exchanges. 269 269 Financial statementsErnst & Young Ltd Aeschengraben 27 P.O. Box 4002 Basel Phone: +41 58 286 86 86 Fax: +41 58 286 86 00 www.ey.com/ch Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of UBS Group AG Opinion on Internal Control over Financial Reporting We have audited UBS Group AG and subsidiaries’ internal control over financial reporting as of 31 December 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, UBS Group AG and subsidiaries (“the Group”) maintained, in all material respects, effective internal control over financial reporting as of 31 December 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Group as of 31 December 2021 and 2020, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended 31 December 2021, and the related notes and our report dated 4 March 2022 expressed an unqualified opinion thereon. Basis for Opinion The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Ernst & Young Ltd Basel, 4 March 2022 270 Ernst & Young Ltd Aeschengraben 27 P.O. Box 4002 Basel Phone: +41 58 286 86 86 Fax: +41 58 286 86 00 www.ey.com/ch Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of UBS Group AG Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of UBS Group AG and subsidiaries (“the Group”) as of 31 December 2021 and 2020, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended 31 December 2021, and the related notes to the consolidated financial statements, including the information identified as “audited” as described in Note 1 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group at 31 December 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2021, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of 31 December 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated 4 March 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Group’s Board of Directors. Our responsibility is to express an opinion on the Group’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 271 Financial statements2 Valuation of complex or illiquid instruments at fair value Description of the Matter At 31 December 2021, as explained in Notes 1 and 21 to the consolidated financial statements, the Group held financial assets and liabilities measured at fair value of USD 345,010 million and USD 300,916 million, including financial instruments that did not trade in active markets. These instruments are reported within the following accounts: financial assets and liabilities at fair value held for trading, derivative financial instruments, financial assets at fair value not held for trading, debt issued designated at fair value, and other financial liabilities designated at fair value. In determining the fair value of these financial instruments, the Group used valuation techniques, modelling assumptions, and estimates of unobservable market inputs which required significant management judgment. Auditing management’s judgments and assumptions used in the estimation of the fair value of these instruments was complex due to the highly judgmental nature of valuation techniques, key modelling assumptions and significant unobservable inputs. Auditing the valuation of complex or illiquid instruments at fair value included consideration of any incremental risks arising from the impact of the current economic environment on valuation techniques and inputs. The valuation techniques that required especially complex judgement were comprised of discounted cash flow and earnings-based valuation techniques. Highly judgmental modelling assumptions result from a range of different models or model calibrations used by market participants. Valuation inputs which were particularly complex and subjective included those with a limited degree of observability and the extrapolation, interpolation or calibration of curves using limited and proxy data points. Examples of such inputs included unobservable credit spreads and bond prices, volatility, and correlation. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over management’s financial instruments valuation processes, including controls over market data inputs, model and methodology governance, and valuation adjustments. We tested the valuation techniques, models and methodologies, and the inputs used in those models, as outlined above, by performing an independent revaluation of certain complex or illiquid financial assets and liabilities with the support of specialists, using independent models and inputs, and comparing inputs to available market data among other procedures. We also independently challenged key judgments in relation to a sample of fair value adjustments. We also assessed management’s disclosures regarding fair value measurement (within Notes 1 and 21 to the consolidated financial statements). Recognition of deferred tax assets Description of the Matter At 31 December 2021, the Group’s deferred tax assets (“DTA”) were USD 8,876 million (see Note 8 to the consolidated financial statements). DTAs are recognized to the extent it is probable that taxable profits will be available, against which, the deductible temporary differences or the carryforward of unused tax losses within the loss carryforward period can be utilized. There is significant judgment exercised when estimating future taxable income that is not based on the reversal of taxable temporary differences. Management’s estimate of 272 3 future taxable profits is based on its strategic plan that is sensitive to the assumptions made in estimating future taxable income. Auditing management’s assessment of the realizability of the Group’s DTAs was complex due to the highly judgmental nature of estimating future taxable profits over the life of the underlying tax loss carryforwards. Estimating future profitability is inherently subjective as it is sensitive to future economic, market and other conditions, which are difficult to predict. Specifically, some of the more subjective key macro-economic assumptions used included gross domestic product growth rates, equity market performance, and interest rate expectations. We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over DTA valuation, which included the assumptions used in developing the strategic plans and estimating future taxable income. We assessed the completeness and accuracy of the data used for the estimations of future taxable income. This included recalculating the outputs of models applied to the recognition process for DTAs. We involved specialists to assist in assessing the key economic assumptions embedded in the strategic plans. We compared key assumptions used to forecast future taxable income to externally available historical and prospective data and assumptions, and assessed the sensitivity of the outcomes using reasonably possible changes in assumptions. We also assessed management’s disclosure regarding recognized and unrecognized deferred tax assets (within Note 8 to the consolidated financial statements). How We Addressed the Matter in Our Audit Legal provisions & contingent liabilities Description of the Matter At 31 December 2021, the Group’s provisions for litigation, regulatory and similar matters (legal provisions) were USD 2,798 million. As explained in Note 18 to the consolidated financial statements, the Group operates in a legal and regulatory environment that is exposed to significant litigation and similar risks arising from disputes and regulatory proceedings. Such matters are subject to many uncertainties and the outcomes may be difficult to predict. These uncertainties inherently affect the amount and timing of potential outflows with respect to the legal provisions which have been established and contingent liabilities. Auditing management’s assessment of legal provisions and contingent liabilities was complex and judgmental due to the significant subjectivity involved in management’s estimate of the amount and probability that an outflow of resources will be required for existing legal matters, including a material matter related to the cross-border wealth management business (Note 18b.1). In particular, these legal provisions are based on management’s estimation of the amount and likelihood of the occurrence of certain scenarios. 273 Financial statements4 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operational effectiveness of management’s controls over the legal provision and contingencies process. Our procedures included testing management’s review of the accuracy of the inputs to the estimation of the amount and likelihood of the occurrence of certain scenarios. Where appropriate, we assessed the methodologies on which the provision amounts were based with the involvement of specialists, recalculated the provisions and tested the underlying information. We inspected internal and external legal analyses of the matters supporting the judgmental aspects impacted by legal interpretations. We obtained correspondence directly from external legal counsel to assess the information provided by management and performed inquiries with external counsel as necessary. We also assessed management’s disclosure regarding legal provisions and contingent liabilities (within Note 18 to the consolidated financial statements). Expected credit losses Description of the Matter At 31 December 2021, the Group’s allowances and provisions for expected credit losses (“ECL”) were USD 1,165 million. As explained in Notes 1, 9 and 20 to the consolidated financial statements, ECL is recognized for financial assets measured at amortized cost, financial assets measured at fair value through other comprehensive income, fee and lease receivables, financial guarantees and irrevocable loan commitments. ECL is also recognized on the undrawn portion of revolving revocable credit lines, which include the Group’s credit card limits and master credit facilities. The allowances and provisions for ECL consists of exposures that are in default which are individually evaluated for impairment (stage 3), as well as losses inherent in the loan portfolio that are not specifically identified (stage 1 and stage 2). Management’s ECL estimates represent the difference between contractual cash flows and those the Group expects to receive, discounted at the effective interest rate. The method used to calculate ECL is based on a combination of the following principal factors: probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”). Auditing management’s estimate of the allowances and provisions for ECL was complex due to the highly judgmental nature of forward-looking economic scenarios that form the basis of the ECL calculation, their probability weightings, and the credit risk models used to estimate stage 1 and stage 2 ECL. The COVID-19 pandemic also contributed to the complexity with its continuing impact on the economic environment in 2021. As a result, ECL estimation requires higher management judgement, specifically within the following two areas: (i) scenario selection, including assumptions about the scenario severity, the form and shape of the recovery pattern, and the number of scenarios necessary to sufficiently cover the bandwidth of potential outcomes, as well as related scenario weights and post-model adjustments; and, (ii) credit risk models, since the output from historic data based models may not be indicative of current or future conditions. Additionally, auditing the measurement of individual ECL for stage 3 was complex due to the high degree of judgment involved in management’s process for estimating ECL based on assumptions. These assumptions take into account expected future cash flows from collateral and other credit enhancements or expected payouts from bankruptcy proceedings for 274 How We Addressed the Matter in Our Audit 5 unsecured claims and, where applicable, time to realization of collateral and the seniority of claims. We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the ECL estimate, including management’s choice of forward- looking economic scenarios used to measure ECL and the probability weighting assigned to such scenarios. We evaluated management’s methodologies and governance controls for developing and monitoring the economic scenarios used and the probability weightings assigned to them, and related post-model adjustment. Supported by specialists, we assessed the key macroeconomic variables used in the forward-looking scenarios, such as real gross domestic product growth, unemployment rate, interest rates and house price indices, and evaluated the modelled correlation and translation of those macroeconomic factors to the ECL estimate. We further assessed the appropriateness of the post-model adjustments by considering management’s governance process, assumptions used and sensitivity analysis. We also obtained an understanding, evaluated the design and tested the operating effectiveness of controls over credit risk models used in the ECL estimate, including controls over the completeness and accuracy of model input data, calculation logic, and output data used in the overall ECL calculation. With the support of specialists, on a sample basis, we performed an evaluation of management’s models and tested the model outcomes by inspecting model documentation, reperforming model calculations, and comparing data used as inputs to management’s forecast to external sources, among other procedures. For the measurement of stage 3, we obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s process, including an evaluation of the assumptions used by management regarding the future cash flows from debtors’ continuing operations and/or the liquidation of collateral. Supported by specialists in certain areas, we additionally tested collateral valuation, cash flow assumptions and exit strategies by performing inquiries of management, inspecting underlying documents, such as loan contracts, financial statements, covenants, budgets and business plans, and by re- performing discounted cash flow calculations among other procedures, on a sample basis. We also assessed management’s disclosures regarding financial assets at amortized cost and other positions in scope of expected credit loss measurement (within Notes 1, 9 and 20 to the consolidated financial statements). Ernst & Young Ltd We have served as the Group’s auditor since 1998. Basel, Switzerland 4 March 2022 275 Financial statementsErnst & Young Ltd Aeschengraben 27 P.O. Box CH-4002 Basel Phone: Fax: www.ey.com/ch +41 58 286 86 86 +41 58 286 86 00 To the General Meeting of UBS Group AG, Zurich Basel, 4 March 2022 Statutory auditor’s report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of UBS Group AG and its subsidiaries (“the Group”), which comprise the consolidated balance sheets as of 31 December 2021 and 31 December 2020, and the consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended 31 December 2021, and the related notes to the consolidated financial statements, including the information identified as “audited” as described in Note 1 (collectively referred to as the “consolidated financial statements”). In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021 and 31 December 2020, and the consolidated financial performance and its consolidated cash flows for each of the three years in the period ended 31 December 2021 in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the International Code of Ethics for Professional Accountants (including International Independence Standards) of the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. 276 2 Valuation of complex or illiquid instruments at fair value Area of focus At 31 December 2021, as explained in Notes 1 and 21 to the consolidated financial statements, the Group held financial assets and liabilities measured at fair value of USD 345,010 million and USD 300,916 million, including financial instruments that did not trade in active markets. These instruments are reported within the following accounts: financial assets and liabilities at fair value held for trading, derivative financial instruments, financial assets at fair value not held for trading, debt issued designated at fair value, and other financial liabilities designated at fair value. In determining the fair value of these financial instruments, the Group used valuation techniques, modelling assumptions, and estimates of unobservable market inputs which required significant management judgment. Auditing management’s judgments and assumptions used in the estimation of the fair value of these instruments was complex due to the highly judgmental nature of valuation techniques, key modelling assumptions and significant unobservable inputs. Auditing the valuation of complex or illiquid instruments at fair value included consideration of any incremental risks arising from the impact of the current economic environment on valuation techniques and inputs. The valuation techniques that required especially complex judgement were comprised of discounted cash flow and earnings-based valuation techniques. Highly judgmental modelling assumptions result from a range of different models or model calibrations used by market participants. Valuation inputs which were particularly complex and subjective included those with a limited degree of observability and the extrapolation, interpolation or calibration of curves using limited and proxy data points. Examples of such inputs included unobservable credit spreads and bond prices, volatility, and correlation. Our audit response We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over management’s financial instruments valuation processes, including controls over market data inputs, model and methodology governance, and valuation adjustments. We tested the valuation techniques, models and methodologies, and the inputs used in those models, as outlined above, by performing an independent revaluation of certain complex or illiquid financial assets and liabilities with the support of specialists, using independent models and inputs, and comparing inputs to available market data among other procedures. We also independently challenged key judgments in relation to a sample of fair value adjustments. We also assessed management’s disclosures regarding fair value measurement (within Notes 1 and 21 to the consolidated financial statements). Recognition of deferred tax assets Area of focus At 31 December 2021, the Group’s deferred tax assets (“DTA”) were USD 8,876 million (see Note 8 to the consolidated financial statements). DTAs are recognized to the extent it is probable that taxable profits will be available, against which, the deductible temporary differences or the carryforward of unused tax losses within the loss carryforward period can be utilized. There is significant judgment exercised when estimating future taxable income that is not based on the reversal of taxable temporary differences. Management’s 277 Financial statements3 estimate of future taxable profits is based on its strategic plan that is sensitive to the assumptions made in estimating future taxable income. Auditing management’s assessment of the realizability of the Group’s DTAs was complex due to the highly judgmental nature of estimating future taxable profits over the life of the underlying tax loss carryforwards. Estimating future profitability is inherently subjective as it is sensitive to future economic, market and other conditions, which are difficult to predict. Specifically, some of the more subjective key macro-economic assumptions used included gross domestic product growth rates, equity market performance, and interest rate expectations. Our audit response We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over DTA valuation, which included the assumptions used in developing the strategic plans and estimating future taxable income. We assessed the completeness and accuracy of the data used for the estimations of future taxable income. This included recalculating the outputs of models applied to the recognition process for DTAs. We involved specialists to assist in assessing the key economic assumptions embedded in the strategic plans. We compared key assumptions used to forecast future taxable income to externally available historical and prospective data and assumptions, and assessed the sensitivity of the outcomes using reasonably possible changes in assumptions. We also assessed management’s disclosure regarding recognized and unrecognized deferred tax assets (within Note 8 to the consolidated financial statements). Legal provisions & contingent liabilities Area of focus At 31 December 2021, the Group’s provisions for litigation, regulatory and similar matters (legal provisions) were USD 2,798 million. As explained in Note 18 to the consolidated financial statements, the Group operates in a legal and regulatory environment that is exposed to significant litigation and similar risks arising from disputes and regulatory proceedings. Such matters are subject to many uncertainties and the outcomes may be difficult to predict. These uncertainties inherently affect the amount and timing of potential outflows with respect to the legal provisions which have been established and contingent liabilities. Auditing management’s assessment of legal provisions and contingent liabilities was complex and judgmental due to the significant subjectivity involved in management’s estimate of the amount and probability that an outflow of resources will be required for existing legal matters, including a material matter related to the cross-border wealth management business (Note 18b.1). In particular, these legal provisions are based on management’s estimation of the amount and likelihood of the occurrence of certain scenarios. 278 4 Our audit response We obtained an understanding, evaluated the design and tested the operational effectiveness of management’s controls over the legal provision and contingencies process. Our procedures included testing management’s review of the accuracy of the inputs to the estimation of the amount and likelihood of the occurrence of certain scenarios. Where appropriate, we assessed the methodologies on which the provision amounts were based with the involvement of specialists, recalculated the provisions and tested the underlying information. We inspected internal and external legal analyses of the matters supporting the judgmental aspects impacted by legal interpretations. We obtained correspondence directly from external legal counsel to assess the information provided by management and performed inquiries with external counsel as necessary. We also assessed management’s disclosure regarding legal provisions and contingent liabilities (within Note 18 to the consolidated financial statements). Expected credit losses Area of focus At 31 December 2021, the Group’s allowances and provisions for expected credit losses (“ECL”) were USD 1,165 million. As explained in Notes 1, 9 and 20 to the consolidated financial statements, ECL is recognized for financial assets measured at amortized cost, financial assets measured at fair value through other comprehensive income, fee and lease receivables, financial guarantees and irrevocable loan commitments. ECL is also recognized on the undrawn portion of revolving revocable credit lines, which include the Group’s credit card limits and master credit facilities. The allowances and provisions for ECL consists of exposures that are in default which are individually evaluated for impairment (stage 3), as well as losses inherent in the loan portfolio that are not specifically identified (stage 1 and stage 2). Management’s ECL estimates represent the difference between contractual cash flows and those the Group expects to receive, discounted at the effective interest rate. The method used to calculate ECL is based on a combination of the following principal factors: probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”). Auditing management’s estimate of the allowances and provisions for ECL was complex due to the highly judgmental nature of forward-looking economic scenarios that form the basis of the ECL calculation, their probability weightings, and the credit risk models used to estimate stage 1 and stage 2 ECL. The COVID-19 pandemic also contributed to the complexity with its continuing impact on the economic environment in 2021. As a result, ECL estimation requires higher management judgement, specifically within the following two areas: (i) scenario selection, including assumptions about the scenario severity, the form and shape of the recovery pattern, and the number of scenarios necessary to sufficiently cover the bandwidth of potential outcomes, as well as related scenario weights and post-model adjustments; and, (ii) credit risk models, since the output from historic data based models may not be indicative of current or future conditions. Additionally, auditing the measurement of individual ECL for stage 3 was complex due to the high degree of judgment involved in management’s process for estimating ECL based on assumptions. These assumptions take into account expected future cash flows from collateral and other credit enhancements or expected payouts from bankruptcy 279 Financial statementsOur audit response 5 proceedings for unsecured claims and, where applicable, time to realization of collateral and the seniority of claims. We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the ECL estimate, including management’s choice of forward-looking economic scenarios used to measure ECL and the probability weighting assigned to such scenarios. We evaluated management’s methodologies and governance controls for developing and monitoring the economic scenarios used and the probability weightings assigned to them, and related post-model adjustment. Supported by specialists, we assessed the key macroeconomic variables used in the forward-looking scenarios, such as real gross domestic product growth, unemployment rate, interest rates and house price indices, and evaluated the modelled correlation and translation of those macroeconomic factors to the ECL estimate. We further assessed the appropriateness of the post-model adjustments by considering management’s governance process, assumptions used and sensitivity analysis. We also obtained an understanding, evaluated the design and tested the operating effectiveness of controls over credit risk models used in the ECL estimate, including controls over the completeness and accuracy of model input data, calculation logic, and output data used in the overall ECL calculation. With the support of specialists, on a sample basis, we performed an evaluation of management’s models and tested the model outcomes by inspecting model documentation, reperforming model calculations, and comparing data used as inputs to management’s forecast to external sources, among other procedures. For the measurement of stage 3, we obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s process, including an evaluation of the assumptions used by management regarding the future cash flows from debtors’ continuing operations and/or the liquidation of collateral. Supported by specialists in certain areas, we additionally tested collateral valuation, cash flow assumptions and exit strategies by performing inquiries of management, inspecting underlying documents, such as loan contracts, financial statements, covenants, budgets and business plans, and by re- performing discounted cash flow calculations among other procedures, on a sample basis. We also assessed management’s disclosures regarding financial assets at amortized cost and other positions in scope of expected credit loss measurement (within Notes 1, 9 and 20 to the consolidated financial statements). IT logical access and change management controls relevant to financial reporting Area of focus The Group’s business and financial accounting and reporting processes are highly dependent on its information technology (“IT”) systems. The Group continues to invest in its IT systems and is dependent on such technologies to meet client needs and business requirements, including the effectiveness of its IT general controls (“ITGCs”) relevant to IT logical access and change management. Auditing management’s ITGCs relevant to IT logical access and change management was complex as the Group is a multi-location organization with a significant number of IT infrastructure and applications relevant to financial reporting. 280 6 Our audit response In assessing the effectiveness of management’s ITGCs related to IT logical access and change management, we utilized IT auditors as part of our audit team. Our audit procedures focused on the IT infrastructure and applications relevant to financial reporting. We obtained an understanding and evaluated the design, and tested the operating effectiveness of key IT logical access and change management controls. Our audit procedures related to IT logical access included tests of user access manage- ment, privileged user access, periodic access right recertifications, and user authentication controls. Our audit procedures related to IT change management included tests of management’s program change test approach, approval of change requests, as well as segregation of duties. Other information in the annual report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements of UBS Group AG, the compensation report (pages 262- 263), and our auditor’s reports thereon. Our opinions on the consolidated financial statements, the standalone financial statements of UBS Group AG and the compensation report do not cover the other information in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibility of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered 281 Financial statements7 material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://www.expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report. Report on other legal and regulatory requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Ernst & Young Ltd Maurice McCormick Licensed audit expert (Auditor in charge) Robert E. Jacob, Jr. Certified Public Accountant (U.S.) 282 UBS Group AG consolidated financial statements Primary financial statements and share information Audited | Income statement USD million Interest income from financial instruments measured at amortized cost and fair value through other comprehensive income Interest expense from financial instruments measured at amortized cost Net interest income from financial instruments measured at fair value through profit or loss Net interest income Other net income from financial instruments measured at fair value through profit or loss Credit loss (expense) / release Fee and commission income Fee and commission expense Net fee and commission income Other income Total operating income Personnel expenses General and administrative expenses Depreciation, amortization and impairment of non-financial assets Total operating expenses Operating profit / (loss) before tax Tax expense / (benefit) Net profit / (loss) Net profit / (loss) attributable to non-controlling interests NNeett pprrooffiitt // ((lloossss)) aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss Earnings per share (USD) Basic Diluted Note 3311..1122..2211 31.12.20 31.12.19 For the year ended 3 3 3 3 3 20 4 4 4 5 6 7 12, 13 8 88,,553333 ((33,,225599)) 11,,443311 66,,770055 55,,885500 114488 2244,,337722 ((11,,998855)) 2222,,338877 445522 3355,,554422 1188,,338877 55,,555533 22,,111188 2266,,005588 99,,448844 11,,999988 77,,448866 2299 77,,445577 8,810 (4,247) 1,299 5,862 6,960 (694) 20,961 (1,775) 19,186 1,076 32,390 17,224 4,885 2,126 24,235 8,155 1,583 6,572 15 6,557 10,684 (7,194) 1,011 4,501 6,842 (78) 19,110 (1,696) 17,413 212 28,889 16,084 5,288 1,940 23,312 5,577 1,267 4,310 6 4,304 22..1144 22..0066 1.83 1.77 1.17 1.14 283 283 Financial statementsConsolidated financial statements Statement of comprehensive income USD million Comprehensive income attributable to shareholders NNeett pprrooffiitt // ((lloossss)) OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn Foreign currency translation movements related to net assets of foreign operations, before tax Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax Foreign currency translation differences on foreign operations reclassified to the income statement Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to the income statement Income tax relating to foreign currency translations, including the effect of net investment hedges Subtotal foreign currency translation, net of tax FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee Net unrealized gains / (losses), before tax Net realized gains / (losses) reclassified to the income statement from equity Income tax relating to net unrealized gains / (losses) Subtotal financial assets measured at fair value through other comprehensive income, net of tax CCaasshh ffllooww hheeddggeess ooff iinntteerreesstt rraattee rriisskk Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax Net (gains) / losses reclassified to the income statement from equity Income tax relating to cash flow hedges Subtotal cash flow hedges, net of tax CCoosstt ooff hheeddggiinngg Cost of hedging, before tax Income tax relating to cost of hedging Subtotal cost of hedging, net of tax TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt DDeeffiinneedd bbeenneeffiitt ppllaannss Gains / (losses) on defined benefit plans, before tax Income tax relating to defined benefit plans Subtotal defined benefit plans, net of tax OOwwnn ccrreeddiitt oonn ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee Gains / (losses) from own credit on financial liabilities designated at fair value, before tax Income tax relating to own credit on financial liabilities designated at fair value Subtotal own credit on financial liabilities designated at fair value, net of tax TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss Comprehensive income attributable to non-controlling interests NNeett pprrooffiitt // ((lloossss)) TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo nnoonn--ccoonnttrroolllliinngg iinntteerreessttss Total comprehensive income NNeett pprrooffiitt // ((lloossss)) OOtthheerr ccoommpprreehheennssiivvee iinnccoommee of which: other comprehensive income that may be reclassified to the income statement of which: other comprehensive income that will not be reclassified to the income statement Note 3311..1122..2211 31.12.20 31.12.19 For the year ended 77,,445577 6,557 4,304 11 26 26 27 21 ((11,,007766)) 449988 ((22)) 1100 3355 ((553355)) ((220033)) ((99)) 5555 ((115577)) ((999922)) ((11,,007733)) 339900 ((11,,667755))11 ((3322)) 66 ((2266)) ((22,,339933)) 22 ((77)) ((55)) 4466 00 4466 4422 2,103 (936) (7) 2 (67) 1,095 223 (40) (48) 136 2,012 (770) (231) 1,011 (13) 0 (13) 2,230 (327) 109 (218) (293) 0 (293) (511) 200 (134) 52 (14) 0 104 189 (31) (41) 117 1,571 (175) (253) 1,143 1,363 (146) (41) (186) (400) 8 (392) (578) ((22,,335511)) 55,,110066 1,719 8,276 785 5,089 2299 ((1166)) 1133 15 21 36 6 (4) 2 77,,448866 ((22,,336677)) ((22,,339933)) 2266 55,,111199 6,572 1,740 2,230 (490) 8,312 4,310 781 1,363 (582) 5,091 TToottaall ccoommpprreehheennssiivvee iinnccoommee 11 Mainly reflects the reclassification of net gains on hedging instruments from OCI to the income statement as the hedged forecast cash flows affected profit or loss and a decrease in net unrealized gains on US dollar hedging derivatives resulting from increases in the relevant long-term US dollar interest rates. 284 284 Foreign currency translation movements related to net assets of foreign operations, before tax ((11,,007766)) 2,103 Consolidated financial statements Statement of comprehensive income USD million NNeett pprrooffiitt // ((lloossss)) Comprehensive income attributable to shareholders OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax Foreign currency translation differences on foreign operations reclassified to the income statement Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to the income statement Income tax relating to foreign currency translations, including the effect of net investment hedges Subtotal foreign currency translation, net of tax FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee Net unrealized gains / (losses), before tax Net realized gains / (losses) reclassified to the income statement from equity Income tax relating to net unrealized gains / (losses) Subtotal financial assets measured at fair value through other comprehensive income, net of tax CCaasshh ffllooww hheeddggeess ooff iinntteerreesstt rraattee rriisskk Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax Net (gains) / losses reclassified to the income statement from equity Income tax relating to cash flow hedges Subtotal cash flow hedges, net of tax CCoosstt ooff hheeddggiinngg Cost of hedging, before tax Income tax relating to cost of hedging Subtotal cost of hedging, net of tax OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt DDeeffiinneedd bbeenneeffiitt ppllaannss Gains / (losses) on defined benefit plans, before tax Income tax relating to defined benefit plans Subtotal defined benefit plans, net of tax OOwwnn ccrreeddiitt oonn ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee Gains / (losses) from own credit on financial liabilities designated at fair value, before tax Income tax relating to own credit on financial liabilities designated at fair value Subtotal own credit on financial liabilities designated at fair value, net of tax TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss Comprehensive income attributable to non-controlling interests NNeett pprrooffiitt // ((lloossss)) TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo nnoonn--ccoonnttrroolllliinngg iinntteerreessttss Total comprehensive income NNeett pprrooffiitt // ((lloossss)) OOtthheerr ccoommpprreehheennssiivvee iinnccoommee of which: other comprehensive income that may be reclassified to the income statement of which: other comprehensive income that will not be reclassified to the income statement TToottaall ccoommpprreehheennssiivvee iinnccoommee Note 3311..1122..2211 31.12.20 31.12.19 For the year ended 77,,445577 6,557 4,304 11 26 26 27 21 ((553355)) 1,095 ((999922)) ((11,,007733)) 339900 2,012 (770) (231) ((11,,667755))11 1,011 (936) (7) 2 (67) 223 (40) (48) 136 (13) 0 (13) (327) 109 (218) (293) 0 (293) (511) 200 (134) 52 (14) 0 104 189 (31) (41) 117 1,571 (175) (253) 1,143 (146) (41) (186) (400) 8 (392) (578) 449988 ((22)) 1100 3355 ((220033)) ((99)) 5555 ((115577)) ((3322)) 66 ((2266)) 22 ((77)) ((55)) 4466 00 4466 4422 2299 ((1166)) 1133 ((22,,335511)) 55,,110066 1,719 8,276 785 5,089 15 21 36 6 (4) 2 77,,448866 ((22,,336677)) ((22,,339933)) 2266 55,,111199 6,572 1,740 2,230 (490) 8,312 4,310 781 1,363 (582) 5,091 TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx ((22,,339933)) 2,230 1,363 11 Mainly reflects the reclassification of net gains on hedging instruments from OCI to the income statement as the hedged forecast cash flows affected profit or loss and a decrease in net unrealized gains on US dollar hedging derivatives resulting from increases in the relevant long-term US dollar interest rates. Balance sheet USD million Assets Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers Other financial assets measured at amortized cost TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Financial assets at fair value held for trading of which: assets pledged as collateral that may be sold or repledged by counterparties Derivative financial instruments Brokerage receivables Financial assets at fair value not held for trading TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee Investments in associates Property, equipment and software Goodwill and intangible assets Deferred tax assets Other non-financial assets TToottaall aasssseettss Liabilities Amounts due to banks Payables from securities financing transactions Cash collateral payables on derivative instruments Customer deposits Debt issued measured at amortized cost Other financial liabilities measured at amortized cost TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Financial liabilities at fair value held for trading Derivative financial instruments Brokerage payables designated at fair value Debt issued designated at fair value Other financial liabilities designated at fair value TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss Provisions Other non-financial liabilities TToottaall lliiaabbiilliittiieess Equity Share capital Share premium Treasury shares Retained earnings Other comprehensive income recognized directly in equity, net of tax EEqquuiittyy aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss Equity attributable to non-controlling interests TToottaall eeqquuiittyy TToottaall lliiaabbiilliittiieess aanndd eeqquuiittyy Note 3311..1122..2211 31.12.20 9 9, 22 9, 22 9 9, 14a 21 10, 21, 22 21 21 11, 21 29b 12 13 8 14b 15 22 22 15 17 19a 21 10, 21, 22 21 16, 21 19b, 21 18a 19c 119922,,881177 1155,,448800 7755,,001122 3300,,551144 339977,,776611 2266,,220099 773377,,779944 113300,,882211 4433,,339977 111188,,114422 2211,,883399 6600,,008800 333300,,888822 88,,884444 11,,224433 1122,,888888 66,,337788 88,,887766 1100,,227777 11,,111177,,118822 1133,,110011 55,,553333 3311,,779988 554422,,000077 113399,,115555 99,,000011 774400,,559955 3311,,668888 112211,,330099 4444,,004455 7733,,779999 3300,,007744 330000,,991166 33,,551188 1111,,115511 11,,005566,,118800 332222 1155,,992288 ((44,,667755)) 4433,,885511 55,,223366 6600,,666622 334400 6611,,000022 11,,111177,,118822 158,231 15,444 74,210 32,737 379,528 27,194 687,345 125,397 47,098 159,617 24,659 80,364 390,037 8,258 1,557 13,109 6,480 9,212 9,768 1,125,765 11,050 6,321 37,312 524,605 139,232 9,729 728,250 33,595 161,102 38,742 61,243 30,387 325,069 2,828 9,854 1,066,000 338 16,753 (4,068) 38,776 7,647 59,445 319 59,765 1,125,765 284 285 285 Financial statementsConsolidated financial statements Statement of changes in equity USD million BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001188 Effect of adoption of IFRIC 23 Share capital 333388 Share premium Treasury shares ((22,,663311)) 2200,,884433 BBaallaannccee aass ooff 11 JJaannuuaarryy 22001199 aafftteerr tthhee aaddooppttiioonn ooff IIFFRRIICC 2233 333388 2200,,884433 (886) (2) 29 619 11 (2,544)3 (6) 333388 1188,,006644 (628) (11) 691 18 (1,304)3 (76) 333388 1166,,775533 Retained earnings 3300,,441166 (11) 3300,,440055 (9) 3,726 4,304 (578) 3344,,112222 (1,304)3 (49) (40) 6,046 6,557 (511) 3388,,777766 ((22,,663311)) (1,771)2 983 942 ((33,,332266)) (1,584)2 719 1232 ((44,,006688)) ((33,,552211))22 778899 881122 ((667755)) 77 ((223366)) 664433 ((8888)) ((665511))33 ((77)) 118822 22,,004444 ((11,,779922)) ((665511))33 1188 11 77,,449999 77,,445577 4422 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Premium on shares issued and warrants exercised Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Translation effects recognized directly in retained earnings New consolidations / (deconsolidations) and other increases / (decreases) Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Translation effects recognized directly in retained earnings Share of changes in retained earnings of associates and joint ventures New consolidations / (deconsolidations) and other increases / (decreases)4 Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Equity classified as obligation to purchase own shares Translation effects recognized directly in retained earnings Share of changes in retained earnings of associates and joint ventures New consolidations / (deconsolidations) and other increases / (decreases)6 Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 Cancellation of treasury shares related to the 2018–2021 share repurchase program5 ((1166)) 332222 1155,,992288 ((44,,667755)) 4433,,885511 11 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings. 22 Includes treasury shares acquired and disposed of by the Investment Bank in its capacity as a market-maker with regard to UBS shares and related derivatives, and to hedge certain issued structured debt instruments. These acquisitions and disposals are reported based on the sum of the net monthly movements. 33 Reflects the payment of an ordinary cash dividend of USD 0.37 (2020: USD 0.73, 2019: CHF 0.70) per dividend-bearing share. From 2020 onward, Swiss tax law effective 1 January 2020 requires that Switzerland-domiciled companies with shares listed on a stock exchange pay no more than 50% of dividends from capital contribution reserves, with the remainder required to be paid from retained earnings. 44 Mainly relates to the establishment of a banking partnership with Banco do Brasil. In 2020, UBS issued a 49.99% stake in UBS Brasil Serviços in exchange for exclusive access to Banco do Brasil’s corporate clients. Upon completion of the transaction in 2020, equity attributable to non-controlling interests increased by USD 115 million, with no material effect on equity attributable to shareholders. 55 Reflects the cancellation of 156,632,400 shares purchased under UBS’s 2018–2021 share repurchase program as approved by shareholders at the 2021 Annual General Meeting. For shares repurchased from 2020 onward, Swiss tax law effective 1 January 2020 requires Switzerland-domiciled companies with shares listed on a Swiss stock exchange to reduce capital contribution reserves by at least 50% of the total capital reduction amount exceeding the nominal value upon cancellation of the shares. 66 Includes the effects related to the launch of UBS’s new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. Refer to Note 30 for more information. 286 286 BBaallaannccee aass ooff 11 JJaannuuaarryy 22001199 aafftteerr tthhee aaddooppttiioonn ooff IIFFRRIICC 2233 333388 2200,,884433 33,,993300 33,,992244 ((110033)) 110099 Share capital 333388 Share premium Treasury shares 2200,,884433 ((22,,663311)) Other comprehensive income recognized directly in equity, net of tax1 33,,993300 of which: foreign currency translation 33,,992244 of which: financial assets at fair value through OCI ((110033)) of which: cash flow hedges 110099 of which: cost of hedging 9 1,363 1,363 55,,330033 49 65 2,230 2,230 77,,664477 104 104 44,,002288 65 1,095 1,095 55,,118888 0 117 117 1144 9 1,143 1,143 11,,226600 0 49 136 136 115511 1,011 1,011 22,,332211 (13) (13) ((1133)) ((1188)) 00 ((1188)) 00 ((22,,339933)) ((553355)) ((115577)) ((11,,667755)) ((22,,339933)) 55,,223366 ((553355)) 44,,665533 ((115577)) ((77)) ((11,,667755)) 662288 ((2266)) ((2266)) ((3399)) Consolidated financial statements Statement of changes in equity USD million BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001188 Effect of adoption of IFRIC 23 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Premium on shares issued and warrants exercised Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Translation effects recognized directly in retained earnings New consolidations / (deconsolidations) and other increases / (decreases) Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Translation effects recognized directly in retained earnings Share of changes in retained earnings of associates and joint ventures New consolidations / (deconsolidations) and other increases / (decreases)4 Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 Acquisition of treasury shares Delivery of treasury shares under share-based compensation plans Other disposal of treasury shares Share-based compensation expensed in the income statement Tax (expense) / benefit Dividends Equity classified as obligation to purchase own shares Translation effects recognized directly in retained earnings Share of changes in retained earnings of associates and joint ventures New consolidations / (deconsolidations) and other increases / (decreases)6 Total comprehensive income for the year of which: net profit / (loss) of which: OCI, net of tax BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 ((22,,663311)) (1,771)2 983 942 ((33,,332266)) (1,584)2 719 1232 ((44,,006688)) ((33,,552211))22 778899 881122 333388 1188,,006644 333388 1166,,775533 (886) (2) 29 619 11 (6) (2,544)3 (628) (11) 691 18 (1,304)3 (76) ((667755)) 77 ((223366)) 664433 ((8888)) ((665511))33 ((77)) 118822 Retained earnings 3300,,441166 (11) 3300,,440055 (9) 3,726 4,304 (578) 3344,,112222 (1,304)3 (49) (40) 6,046 6,557 (511) 3388,,777766 ((665511))33 1188 11 77,,449999 77,,445577 4422 Cancellation of treasury shares related to the 2018–2021 share repurchase program5 ((1166)) 22,,004444 ((11,,779922)) 11 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings. 22 Includes treasury shares acquired and disposed of by the Investment Bank in its capacity as a market-maker with regard to UBS shares and related derivatives, and to hedge certain issued structured debt instruments. These acquisitions and disposals are reported based on the sum of the net monthly movements. 33 Reflects the payment of an ordinary cash dividend of USD 0.37 (2020: USD 0.73, 2019: CHF 0.70) per dividend-bearing share. From 2020 onward, Swiss tax law effective 1 January 2020 requires that Switzerland-domiciled companies with shares listed on a stock exchange pay no more than 50% of dividends from capital contribution reserves, with the remainder required to be paid from retained earnings. 44 Mainly relates to the establishment of a banking partnership with Banco do Brasil. In 2020, UBS issued a 49.99% stake in UBS Brasil Serviços in exchange for exclusive access to Banco do Brasil’s corporate clients. Upon completion of the transaction in 2020, equity attributable to non-controlling interests increased by USD 115 million, with no material effect on equity attributable to shareholders. 55 Reflects the cancellation of 156,632,400 shares purchased under UBS’s 2018–2021 share repurchase program as approved by shareholders at the 2021 Annual General Meeting. For shares repurchased from 2020 onward, Swiss tax law effective 1 January 2020 requires Switzerland-domiciled companies with shares listed on a Swiss stock exchange to reduce capital contribution reserves by at least 50% of the total capital reduction amount exceeding the nominal value upon cancellation of the shares. 66 Includes the effects related to the launch of UBS’s new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. Refer to Note 30 for more information. 332222 1155,,992288 ((44,,667755)) 4433,,885511 Total equity attributable to shareholders 5522,,889966 (11) 5522,,888855 (1,771) Non-controlling interests 117766 117766 97 92 29 619 11 (2,544) 0 (6) 5,089 4,304 785 5544,,550011 (1,584) 90 112 691 18 (8) 5 2 6 (4) 117744 Total equity 5533,,007711 (11) 5533,,006600 (1,771) 97 92 29 619 11 (2,552) 0 (1) 5,091 4,310 781 5544,,667755 (1,584) 90 112 691 18 (2,607) (6) (2,613) 0 (40) (12) 8,276 6,557 1,719 5599,,444455 ((33,,552211)) 111144 8888 00 664433 ((8888)) 115 36 15 21 331199 0 (40) 103 8,312 6,572 1,740 5599,,776655 ((33,,552211)) 111144 8888 00 664433 ((8888)) ((11,,330011)) ((44)) ((11,,330055)) ((77)) 00 11 118822 55,,110066 77,,445577 ((22,,335511)) 6600,,666622 ((77)) 00 11 119933 55,,111199 77,,448866 ((22,,336677)) 6611,,000022 1122 1133 2299 ((1166)) 334400 286 287 287 Financial statementsConsolidated financial statements Share information and earnings per share Ordinary share capital As of 31 December 2021, UBS Group AG had 3,702,422,995 issued shares with a nominal value of CHF 0.10 each, leading to a share capital of CHF 370,242,299.50. Shares issued decreased by 157 million and share capital decreased by USD 16 million in 2021, as the 156,632,400 shares acquired under the 2018–2021 share repurchase program were canceled by means of a capital reduction, as approved by shareholders at the 2021 Annual General Meeting. Conditional share capital As of 31 December 2021, the following conditional share capital was available to UBS Group AG’s Board of Directors (BoD): – A maximum of CHF 38,000,000 represented by up to 380,000,000 fully paid registered shares with a nominal value of CHF 0.10 each, to be issued through the voluntary or mandatory exercise of conversion rights and / or warrants granted in connection with the issuance of bonds or similar financial instruments on national or international capital markets. This conditional capital allowance was approved at the Extraordinary General Meeting (the EGM) held on 26 November 2014, having originally been approved at the Annual General Meeting (AGM) of UBS AG on 14 April 2010. The BoD has not made use of such allowance. – A maximum of CHF 12,170,583 represented by 121,705,830 fully paid registered shares with a nominal value of CHF 0.10 each, to be issued upon exercise of employee options and stock appreciation rights issued to employees and members of the management and of the BoD of UBS Group AG and its subsidiaries. This conditional capital allowance was approved by the shareholders at the same EGM in 2014. Authorized share capital UBS Group AG had no authorized capital available to issue on 31 December 2021. Share repurchase programs In March 2018, UBS initiated a share repurchase program of up to CHF 2 billion over a three-year period. Under this program, UBS repurchased 8 million shares for a total acquisition cost of USD 112 million in 2021 (2020: 31 million shares for a total acquisition cost of USD 364 million). The 2018–2021 program was completed on 2 February 2021 and the 156,632,400 shares acquired under the 2018–2021 share repurchase program were canceled by means of a capital reduction, as approved by shareholders at the 2021 Annual General Meeting. In February 2021, UBS commenced a new three-year share repurchase program of up to CHF 4 billion. Under this program, UBS repurchased 153 million shares in 2021 for a total acquisition cost of USD 2,500 million (CHF 2,294 million). Shares outstanding SShhaarreess iissssuueedd Balance at the beginning of the year Shares issued Shares canceled Balance at the end of the year TTrreeaassuurryy sshhaarreess Balance at the beginning of the year Acquisitions Disposals Cancellation of second trading line treasury shares Balance at the end of the year SShhaarreess oouuttssttaannddiinngg Basic and diluted earnings (USD million) Net profit / (loss) attributable to shareholders for basic EPS Less: (profit) / loss on own equity derivative contracts Net profit / (loss) attributable to shareholders for diluted EPS Weighted average shares outstanding Weighted average shares outstanding for basic EPS2 Effect of dilutive potential shares resulting from notional employee shares, in-the-money options and warrants outstanding3 Weighted average shares outstanding for diluted EPS Earnings per share (USD) Basic Diluted As of or for the year ended 3311..1122..2211 31.12.20 31.12.19 33,,885599,,005555,,339955 3,859,055,395 3,855,634,749 3,420,646 ((115566,,663322,,440000))11 33,,770022,,442222,,999955 330077,,447777,,000022 221144,,227700,,117755 ((6622,,229999,,444499)) ((115566,,663322,,440000))11 330022,,881155,,332288 33,,339999,,660077,,666677 3,859,055,395 3,859,055,395 243,021,296 128,372,257 (63,916,551) 166,467,802 146,876,692 (70,323,198) 307,477,002 3,551,578,393 243,021,296 3,616,034,099 77,,445577 00 77,,445577 6,557 (1) 6,556 4,304 0 4,304 33,,448822,,996633,,668822 3,583,176,189 3,663,278,238 114444,,227777,,669933 33,,662277,,224411,,337755 123,852,137 3,707,028,326 103,881,600 3,767,159,838 22..1144 22..0066 1.83 1.77 1.17 1.14 Potentially dilutive instruments4 Employee share-based compensation awards Other equity derivative contracts TToottaall 11 Reflects the cancellation of shares purchased under UBS’s 2018–2021 share repurchase program as approved by shareholders at the 2021 Annual General Meeting. 22 The weighted average shares outstanding for basic EPS are calculated by taking the number of shares at the beginning of the period, adjusted by the number of shares acquired or issued during the period, multiplied by a time-weighted factor for the period outstanding. As a result, balances are affected by the timing of acquisitions and issuances during the period. 33 The weighted average number of shares for notional employee awards with performance conditions reflects all potentially dilutive shares that are expected to vest under the terms of the awards. 44 Reflects potential shares that could dilute basic earnings per share in the future, but were not dilutive for the periods presented. 2,536,789 11,414,728 13,951,517 55,,888866,,994455 66,,555533,,005511 1122,,443399,,999966 21,632,879 21,632,879 288 288 Consolidated financial statements Share information and earnings per share Statement of cash flows Ordinary share capital – A maximum of CHF 12,170,583 represented by 121,705,830 USD million Cash flow from / (used in) operating activities Net profit / (loss) NNoonn--ccaasshh iitteemmss iinncclluuddeedd iinn nneett pprrooffiitt aanndd ootthheerr aaddjjuussttmmeennttss:: Depreciation, amortization and impairment of non-financial assets Credit loss expense / (release) Share of net profits of associates and joint ventures and impairment related to associates Deferred tax expense / (benefit) Net loss / (gain) from investing activities Net loss / (gain) from financing activities Other net adjustments NNeett cchhaannggee iinn ooppeerraattiinngg aasssseettss aanndd lliiaabbiilliittiieess:: Loans and advances to banks and amounts due to banks Securities financing transactions Cash collateral on derivative instruments Loans and advances to customers Customer deposits Financial assets and liabilities at fair value held for trading and derivative financial instruments Brokerage receivables and payables Financial assets at fair value not held for trading and other financial assets and liabilities Provisions and other non-financial assets and liabilities Income taxes paid, net of refunds NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) ooppeerraattiinngg aaccttiivviittiieess Cash flow from / (used in) investing activities Purchase of subsidiaries, associates and intangible assets Disposal of subsidiaries, associates and intangible assets1 Purchase of property, equipment and software Disposal of property, equipment and software Purchase of financial assets measured at fair value through other comprehensive income Disposal and redemption of financial assets measured at fair value through other comprehensive income Net (purchase) / redemption of debt securities measured at amortized cost NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) iinnvveessttiinngg aaccttiivviittiieess Table continues on the next page. As of 31 December 2021, UBS Group AG had 3,702,422,995 issued shares with a nominal value of CHF 0.10 each, leading to a share capital of CHF 370,242,299.50. Shares issued decreased by 157 million and share capital decreased by USD 16 million in 2021, as the 156,632,400 shares acquired under the 2018–2021 share repurchase program were canceled by means of a capital fully paid registered shares with a nominal value of CHF 0.10 each, to be issued upon exercise of employee options and stock appreciation rights issued to employees and members of the management and of the BoD of UBS Group AG and its subsidiaries. This conditional capital allowance was approved by the shareholders at the same EGM in 2014. reduction, as approved by shareholders at the 2021 Annual Authorized share capital General Meeting. Conditional share capital UBS Group AG had no authorized capital available to issue on 31 December 2021. As of 31 December 2021, the following conditional share capital Share repurchase programs was available to UBS Group AG’s Board of Directors (BoD): – A maximum of CHF 38,000,000 represented by up to 380,000,000 fully paid registered shares with a nominal value of CHF 0.10 each, to be issued through the voluntary or mandatory exercise of conversion rights and / or warrants granted in connection with the issuance of bonds or similar financial instruments on national or international capital markets. This conditional capital allowance was approved at the Extraordinary General Meeting (the EGM) held on 26 November 2014, having originally been approved at the Annual General Meeting (AGM) of UBS AG on 14 April 2010. The BoD has not made use of such allowance. In March 2018, UBS initiated a share repurchase program of up to CHF 2 billion over a three-year period. Under this program, UBS repurchased 8 million shares for a total acquisition cost of USD 112 million in 2021 (2020: 31 million shares for a total acquisition cost of USD 364 million). The 2018–2021 program was completed on 2 February 2021 and the 156,632,400 shares acquired under the 2018–2021 share repurchase program were canceled by means of a capital reduction, as approved by shareholders at the 2021 Annual General Meeting. In February 2021, UBS commenced a new three-year share repurchase program of up to CHF 4 billion. Under this program, UBS repurchased 153 million shares in 2021 for a total acquisition cost of USD 2,500 million (CHF 2,294 million). Shares outstanding SShhaarreess iissssuueedd Balance at the beginning of the year Shares issued Shares canceled Balance at the end of the year TTrreeaassuurryy sshhaarreess Balance at the beginning of the year Acquisitions Disposals Cancellation of second trading line treasury shares Balance at the end of the year SShhaarreess oouuttssttaannddiinngg Basic and diluted earnings (USD million) Net profit / (loss) attributable to shareholders for basic EPS Less: (profit) / loss on own equity derivative contracts Net profit / (loss) attributable to shareholders for diluted EPS Weighted average shares outstanding Weighted average shares outstanding for basic EPS2 outstanding3 Weighted average shares outstanding for diluted EPS Earnings per share (USD) Potentially dilutive instruments4 Employee share-based compensation awards Other equity derivative contracts Basic Diluted TToottaall presented. 288 Effect of dilutive potential shares resulting from notional employee shares, in-the-money options and warrants As of or for the year ended 3311..1122..2211 31.12.20 31.12.19 33,,885599,,005555,,339955 3,859,055,395 3,855,634,749 3,420,646 33,,770022,,442222,,999955 3,859,055,395 3,859,055,395 243,021,296 128,372,257 (63,916,551) 166,467,802 146,876,692 (70,323,198) ((115566,,663322,,440000))11 330077,,447777,,000022 221144,,227700,,117755 ((6622,,229999,,444499)) ((115566,,663322,,440000))11 330022,,881155,,332288 33,,339999,,660077,,666677 307,477,002 3,551,578,393 243,021,296 3,616,034,099 77,,445577 00 77,,445577 6,557 (1) 6,556 4,304 0 4,304 33,,448822,,996633,,668822 3,583,176,189 3,663,278,238 114444,,227777,,669933 33,,662277,,224411,,337755 123,852,137 3,707,028,326 103,881,600 3,767,159,838 22..1144 22..0066 1.83 1.77 1.17 1.14 55,,888866,,994455 66,,555533,,005511 1122,,443399,,999966 2,536,789 11,414,728 13,951,517 21,632,879 21,632,879 11 Reflects the cancellation of shares purchased under UBS’s 2018–2021 share repurchase program as approved by shareholders at the 2021 Annual General Meeting. 22 The weighted average shares outstanding for basic EPS are calculated by taking the number of shares at the beginning of the period, adjusted by the number of shares acquired or issued during the period, multiplied by a time-weighted factor for the period outstanding. As a result, balances are affected by the timing of acquisitions and issuances during the period. 33 The weighted average number of shares for notional employee awards with performance conditions reflects all potentially dilutive shares that are expected to vest under the terms of the awards. 44 Reflects potential shares that could dilute basic earnings per share in the future, but were not dilutive for the periods For the year ended 31.12.20 3311..1122..2211 31.12.19 77,,448866 6,572 4,310 22,,111188 2,126 1,940 ((114488)) ((110055)) 443344 ((223300)) 110000 33,,880022 22,,114488 ((22,,331166)) ((33,,331122)) ((2277,,446600)) 2299,,882255 ((1100,,551166)) 88,,111155 1199,,660099 33,,001100 ((11,,113344)) 3311,,442255 ((11)) 559933 ((11,,884411)) 229955 ((55,,880022)) 55,,005522 ((441155)) ((22,,111199)) 694 (84) 352 (698) 3,246 (8,076) 3,586 9,588 (3,487) (33,656) 51,805 11,259 (5,199) 320 (387) (1,002) 36,958 (46) 674 (1,854) 366 (6,290) 4,530 (4,166) (6,785) 78 (45) 477 220 6,493 854 (4,336) 8,678 2,839 (3,128) 23,217 (18,829) (2,347) 33 55 (804) 19,705 (26) 114 (1,584) 11 (3,424) 3,913 (562) (1,558) 289 289 Financial statementsConsolidated financial statements Statement of cash flows (continued) Table continued from previous page. USD million Cash flow from / (used in) financing activities Net short-term debt issued / (repaid) Net movements in treasury shares and own equity derivative activity Distributions paid on UBS shares Issuance of debt designated at fair value and long-term debt measured at amortized cost Repayment of debt designated at fair value and long-term debt measured at amortized cost Net cash flows from other financing activities NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) ffiinnaanncciinngg aaccttiivviittiieess Total cash flow CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Net cash flow from / (used in) operating, investing and financing activities Effects of exchange rate differences on cash and cash equivalents CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr22 of which: cash and balances at central banks 3 of which: loans and advances to banks of which: money market paper 4 Additional information Net cash flow from / (used in) operating activities includes: Interest received in cash For the year ended 31.12.20 3311..1122..2211 31.12.19 ((33,,009933)) ((33,,334411)) ((11,,330011)) 9988,,227722 ((7799,,990099)) ((228822)) 1100,,334455 117733,,553311 3399,,665511 ((55,,330077)) 220077,,887755 119922,,770066 1133,,994422 11,,222277 23,845 (1,387) (2,607) 80,255 (87,098) (575) 12,432 119,873 42,605 11,052 173,531 158,088 14,028 1,415 (17,149) (1,559) (2,544) 65,047 (68,883) (526) (25,614) 126,079 (7,467) 1,261 119,873 106,957 11,386 1,530 1111,,116633 11,915 15,315 Interest paid in cash Dividends on equity investments, investment funds and associates received in cash5 11 Includes cash proceeds from the sale of UBS’s investment in Clearstream Fund Centre AG (previously Fondcenter AG). UBS’s majority stake was sold in 2020 and the remaining minority investment was sold in the second quarter of 2021. Refer to Note 30 for more information. Also includes dividends received from associates. 22 USD 3,408 million, USD 3,828 million and USD 3,192 million of cash and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 December 2021, 31 December 2020 and 31 December 2019, respectively. Refer to Note 23 for more information. 33 Includes only balances with an original maturity of three months or less. 44 Money market paper is included in the balance sheet under Financial assets at fair value held for trading, Financial assets measured at fair value through other comprehensive income, Financial assets at fair value not held for trading and Other financial assets measured at amortized cost. 55 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities. 10,769 6,320 3,145 1,901 44,,770077 22,,553311 Changes in liabilities arising from financing activities USD million BBaallaannccee aass ooff 11 JJaannuuaarryy 22002200 Cash flows Non-cash changes of which: foreign currency translation of which: fair value changes of which: hedge accounting and other effects BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 Cash flows Non-cash changes of which: foreign currency translation of which: fair value changes of which: hedge accounting and other effects Debt issued measured at amortized cost 110,497 22,428 6,308 4,980 of which: short-term 1 21,837 23,845 984 984 of which: long-term 2 88,660 (1,417) 5,324 3,995 Debt issued designated at fair value 66,809 (5,420) (146) 1,764 (1,909) Over-the- counter debt instruments3 2,022 (6) 44 81 (37) 1,328 139,232 5,070 (5,148) (3,175) (1,972) 46,666 (3,093) (475) (475) 1,328 92,566 8,163 (4,673) (2,700) 61,243 10,076 2,480 (1,617) 4,097 2,060 124 (56) (65) 9 (1,972) 9966,,005577 Total 179,327 17,002 6,207 6,824 (1,946) 1,328 202,535 15,270 (2,724) (4,857) 4,106 (1,972) BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 11 Debt with an original contractual maturity of less than one year. 22 Debt with an original maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider any early redemption features. 33 Included in balance sheet line Other financial liabilities designated at fair value. 221155,,008822 113399,,115555 4433,,009988 7733,,779999 22,,112288 290 290 Notes to the UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies The following table provides an overview of information included in this Note. 292 292 292 293 293 293 297 297 297 297 298 301 301 302 a) Material accounting policies Basis of accounting 1) Consolidation 2) Financial instruments a. Recognition b. Classification, measurement and presentation c. Loan commitments and financial guarantees d. e. Derecognition f. g. Allowances and provisions for expected Fair value of financial instruments Interest income and expense credit losses h. Restructured and modified financial assets i. Offsetting j. Hedge accounting 302 303 304 304 305 305 305 306 306 Income taxes 3) Fee and commission income and expenses 4) Share-based and other deferred compensation plans 5) Post-employment benefit plans 6) 7) Property, equipment and software 8) Goodwill 9) Provisions and contingent liabilities 10) Foreign currency translation 11) Equity, treasury shares and contracts on UBS Group AG shares 307 b) Changes in accounting policies, comparability and other adjustments 307 c) International Financial Reporting Standards and Interpretations to be adopted in 2022 and later and other changes Consolidated financial statements Statement of cash flows (continued) Table continued from previous page. USD million Cash flow from / (used in) financing activities Net short-term debt issued / (repaid) Net movements in treasury shares and own equity derivative activity Distributions paid on UBS shares Issuance of debt designated at fair value and long-term debt measured at amortized cost Repayment of debt designated at fair value and long-term debt measured at amortized cost Net cash flows from other financing activities NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) ffiinnaanncciinngg aaccttiivviittiieess Total cash flow CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Net cash flow from / (used in) operating, investing and financing activities Effects of exchange rate differences on cash and cash equivalents CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr22 of which: cash and balances at central banks 3 of which: loans and advances to banks of which: money market paper 4 Additional information Net cash flow from / (used in) operating activities includes: Interest received in cash Interest paid in cash For the year ended 3311..1122..2211 31.12.20 31.12.19 ((33,,009933)) ((33,,334411)) ((11,,330011)) 9988,,227722 ((7799,,990099)) ((228822)) 1100,,334455 117733,,553311 3399,,665511 ((55,,330077)) 220077,,887755 119922,,770066 1133,,994422 11,,222277 23,845 (1,387) (2,607) 80,255 (87,098) (575) 12,432 119,873 42,605 11,052 173,531 158,088 14,028 1,415 (17,149) (1,559) (2,544) 65,047 (68,883) (526) (25,614) 126,079 (7,467) 1,261 119,873 106,957 11,386 1,530 1111,,116633 44,,770077 22,,553311 11,915 6,320 1,901 15,315 10,769 3,145 Dividends on equity investments, investment funds and associates received in cash5 11 Includes cash proceeds from the sale of UBS’s investment in Clearstream Fund Centre AG (previously Fondcenter AG). UBS’s majority stake was sold in 2020 and the remaining minority investment was sold in the second quarter of 2021. Refer to Note 30 for more information. Also includes dividends received from associates. 22 USD 3,408 million, USD 3,828 million and USD 3,192 million of cash and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 December 2021, 31 December 2020 and 31 December 2019, respectively. Refer to Note 23 for more information. 33 Includes only balances with an original maturity of three months or less. 44 Money market paper is included in the balance sheet under Financial assets at fair value held for trading, Financial assets measured at fair value through other comprehensive income, Financial assets at fair value not held for trading and Other financial assets measured at amortized cost. 55 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities. Changes in liabilities arising from financing activities USD million BBaallaannccee aass ooff 11 JJaannuuaarryy 22002200 Cash flows Non-cash changes of which: foreign currency translation of which: fair value changes of which: hedge accounting and other effects BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 Cash flows Non-cash changes of which: foreign currency translation of which: fair value changes of which: hedge accounting and other effects BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 Debt issued measured at amortized cost short-term 1 long-term 2 of which: of which: designated at fair Debt issued Over-the- counter debt instruments3 2,022 110,497 22,428 6,308 4,980 1,328 139,232 5,070 (5,148) (3,175) (1,972) 113399,,115555 21,837 23,845 984 984 46,666 (3,093) (475) (475) 88,660 (1,417) 5,324 3,995 1,328 92,566 8,163 (4,673) (2,700) (1,972) 9966,,005577 value 66,809 (5,420) (146) 1,764 (1,909) 61,243 10,076 2,480 (1,617) 4,097 Total 179,327 17,002 6,207 6,824 (1,946) 1,328 (2,724) (4,857) 4,106 (1,972) (6) 44 81 (37) (56) (65) 9 2,060 124 202,535 15,270 11 Debt with an original contractual maturity of less than one year. 22 Debt with an original maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider any early redemption features. 33 Included in balance sheet line Other financial liabilities designated at fair value. 4433,,009988 7733,,779999 22,,112288 221155,,008822 290 291 291 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements 1) Consolidation The Financial Statements comprise the financial statements of the parent company (UBS Group AG) and its subsidiaries, presented as a single economic entity; intercompany transactions and balances have been eliminated. UBS consolidates all entities that it controls, including structured entities (SEs), which is the case when it has: (i) power over the relevant activities of the entity; (ii) exposure to an entity‘s variable returns; and (iii) the ability to use its power to affect its own returns. Consideration is given to all facts and circumstances to determine whether the Group has power over another entity, i.e., the current ability to direct the relevant activities of an entity when decisions about those activities need to be made. Subsidiaries, including SEs, are consolidated from the date when control is gained and deconsolidated from the date when control ceases. Control, or the lack thereof, is reassessed if facts and circumstances indicate that there is a change to one or more elements required to establish that control is present. Business combinations are accounted for using the acquisition method. The amount of any non-controlling interest is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. › Refer to Note 29 for more information Critical accounting estimates and judgments Each individual entity is assessed for consolidation in line with the aforementioned consolidation principles. The assessment of control can be complex and requires the use of significant judgment, in particular in determining whether UBS has power over the entity. As the nature and extent of UBS’s involvement is unique for each entity, there is no uniform consolidation outcome by entity. Certain entities within a class may be consolidated while others may not. When carrying out the consolidation assessment, judgment is exercised considering all the relevant facts and circumstances, including the nature and activities of the investee, as well as the substance of voting and similar rights. › Refer to Note 29 for more information Note 1 Summary of material accounting policies (continued) a) Material accounting policies This Note describes the material accounting policies applied in the preparation of the consolidated financial statements (the Financial Statements) of UBS Group AG and its subsidiaries (UBS or the Group). On 24 February 2022, the Financial Statements were authorized for issue by the Board of Directors. Basis of accounting The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (the IASB), and are presented in US dollars (USD). Disclosures marked as audited in the “Risk, capital, liquidity and funding, and balance sheet” section of this report form an integral part of the Financial Statements. These disclosures relate to requirements under IFRS 7, Financial Instruments: Disclosures, and IAS 1, Presentation of Financial Statements, and are not repeated in this section. The accounting policies described in this Note have been applied consistently in all years presented unless otherwise stated in Note 1b. Critical accounting estimates and judgments Preparation of these Financial Statements under IFRS requires management to apply judgment and make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities, and may involve significant uncertainty at the time they are made. Such estimates and assumptions are based on the best available information. UBS regularly reassesses such estimates and assumptions, which encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing relevance based on current conditions, updating them as necessary. Changes in those estimates and assumptions may have a significant effect on the Financial Statements. Furthermore, actual results may differ significantly from UBS’s estimates, which could result in significant losses to the Group, beyond what was anticipated or provided for. The following areas contain estimation uncertainty or require critical judgment and have a significant effect on amounts recognized in the Financial Statements: – expected credit loss measurement (refer to item 2g in this Note and to Note 20); fair value measurement (refer to item 2f in this Note and to Note 21); income taxes (refer to item 6 in this Note and to Note 8); – – – provisions and contingent liabilities (refer to item 9 in this Note and to Note 18); – post-employment benefit plans (refer to item 5 in this Note and to Note 27); – goodwill (refer to item 8 in this Note and to Note 13); and – consolidation of structured entities (refer to item 1 in this Note and to Note 29). 300 292 Consolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) a) Material accounting policies 2) Financial instruments This Note describes the material accounting policies applied in the 1) Consolidation preparation of the consolidated financial statements (the Financial Statements) of UBS Group AG and its subsidiaries (UBS or the The Financial Statements comprise the financial statements of the Group). On 24 February 2022, the Financial Statements were parent company (UBS Group AG) and its subsidiaries, presented authorized for issue by the Board of Directors. Basis of accounting as a single economic entity; intercompany transactions and balances have been eliminated. UBS consolidates all entities that it controls, including structured entities (SEs), which is the case when it has: (i) power over the relevant activities of the entity; The Financial Statements have been prepared in accordance with (ii) exposure to an entity‘s variable returns; and (iii) the ability to International Financial Reporting Standards (IFRS), as issued by the use its power to affect its own returns. International Accounting Standards Board (the IASB), and are Consideration is given to all facts and circumstances to presented in US dollars (USD). determine whether the Group has power over another entity, i.e., Disclosures marked as audited in the “Risk, capital, liquidity the current ability to direct the relevant activities of an entity when and funding, and balance sheet” section of this report form an decisions about those activities need to be made. integral part of the Financial Statements. These disclosures relate Subsidiaries, including SEs, are consolidated from the date to requirements under IFRS 7, Financial Instruments: Disclosures, when control is gained and deconsolidated from the date when and IAS 1, Presentation of Financial Statements, and are not control ceases. Control, or the lack thereof, is reassessed if facts repeated in this section. and circumstances indicate that there is a change to one or more The accounting policies described in this Note have been elements required to establish that control is present. applied consistently in all years presented unless otherwise stated Business combinations are accounted for using the acquisition in Note 1b. a. Recognition UBS recognizes financial instruments when it becomes a party to contractual provisions of an instrument. UBS applies settlement date accounting to all standard purchases and sales of non- derivative financial instruments. In transactions where UBS acts as a transferee, to the extent the financial asset transfer does not qualify for derecognition by the transferor, UBS does not recognize the transferred instrument as its asset. UBS also acts in a fiduciary capacity, which results in it holding or placing assets on behalf of individuals, trusts, retirement benefit plans and other institutions. Unless these items meet the definition of an asset and the recognition criteria are satisfied, they are not recognized on UBS’s balance sheet and the related income is excluded from the Financial Statements. Client cash balances associated with derivatives clearing and execution services are not recognized on the balance sheet if, through contractual agreement, regulation or practice, UBS neither obtains benefits from nor controls such cash balances. b. Classification, measurement and presentation Financial assets All financial instruments are on initial recognition measured at fair value and classified as measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value instruments through profit or subsequently measured at amortized cost or FVOCI, the initial fair value is adjusted for directly attributable transaction costs. (FVTPL). For financial loss Where the contractual terms of a debt instrument result in cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding, the debt instrument is classified as measured at amortized cost if it is held within a business model that has an objective of holding financial assets to collect contractual cash flows, or at FVOCI if it is held within a business model with the objective being achieved by both collecting contractual cash flows and selling financial assets. All other financial assets are measured at FVTPL, including those held for trading or those managed on a fair value basis, except for derivatives designated in a hedge relationship, in which case hedge accounting requirements apply (refer to item 2j in this Note for more information). method. The amount of any non-controlling interest is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. › Refer to Note 29 for more information Critical accounting estimates and judgments Each individual entity is assessed for consolidation in line with the aforementioned consolidation principles. The assessment of control can be complex and requires the use of significant judgment, in particular in determining whether UBS has power over the entity. As the nature and extent of UBS’s involvement is unique for each entity, there is no uniform consolidation outcome by entity. Certain entities within a class may be consolidated while others may not. When carrying out the consolidation assessment, judgment is exercised considering all the relevant facts and circumstances, including the nature and activities of the investee, as well as the substance of voting and similar rights. › Refer to Note 29 for more information Critical accounting estimates and judgments Preparation of these Financial Statements under IFRS requires management to apply judgment and make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities, and may involve significant uncertainty at the time they are made. Such estimates and assumptions are based on the best available information. UBS regularly reassesses such estimates and assumptions, which encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing relevance based on current conditions, updating them as necessary. Changes in those estimates and assumptions may have a significant effect on the Financial Statements. Furthermore, actual results may differ significantly from UBS’s estimates, which could result in significant losses to the Group, beyond what was anticipated or provided for. The following areas contain estimation uncertainty or require critical judgment and have a significant effect on amounts recognized in the Financial Statements: expected credit loss measurement (refer to item 2g in this Note and to – – – Note 20); Note 18); 27); Note 29). fair value measurement (refer to item 2f in this Note and to Note 21); income taxes (refer to item 6 in this Note and to Note 8); – provisions and contingent liabilities (refer to item 9 in this Note and to – post-employment benefit plans (refer to item 5 in this Note and to Note – goodwill (refer to item 8 in this Note and to Note 13); and – consolidation of structured entities (refer to item 1 in this Note and to Business model assessment and contractual cash flow characteristics UBS determines the nature of a business model by considering the way financial assets are managed to achieve a particular business objective. In assessing whether contractual cash flows are SPPI, the Group considers whether the contractual terms of the financial asset contain a term that could change the timing or amount of contractual cash flows arising over the life of the instrument. Financial liabilities Financial liabilities measured at amortized cost Debt issued measured at amortized cost includes contingent capital instruments containing contractual provisions under which the principal amounts would be written down or converted into equity upon either a specified common equity tier 1 (CET1) ratio breach or a determination by the Swiss Financial Market Supervisory Authority (FINMA) that a viability event has occurred. Such contractual provisions are not derivatives, as the underlying is deemed to be a non-financial variable specific to a party to the contract. If a debt were to be written down or converted into equity in a future period, it would be partially or fully derecognized, with the difference between its carrying amount and the fair value of any equity issued recognized in the income statement. A gain or loss is recognized in Other income when debt issued is subsequently repurchased for market-making or other activities. A subsequent sale of own bonds in the market is treated as a reissuance of debt. Financial liabilities measured at fair value through profit or loss UBS designates certain issued debt instruments as financial liabilities at fair value through profit or loss, on the basis that such financial instruments include embedded derivatives and / or are managed on a fair value basis (refer to the table below for more information), in which case bifurcation of the embedded derivative component is not required. Financial instruments including embedded derivatives arise predominantly from the issuance of certain structured debt instruments. Measurement and presentation After initial recognition, UBS classifies, measures and presents its financial assets and liabilities in accordance with IFRS 9, as described in the table on the following pages. 300 301 293 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Classification, measurement and presentation of financial assets Financial assets classification Significant items included Measurement and presentation Measured at amortized cost This classification includes: – cash and balances at central banks; – loans and advances to banks; – receivables from securities financing transactions; – cash collateral receivables on derivative instruments; – residential and commercial mortgages; – corporate loans; – secured loans, including Lombard loans, and unsecured loans; – loans to financial advisors; and – debt securities held as high-quality liquid assets (HQLA). Measured at FVOCI Debt instruments measured at FVOCI This classification primarily includes debt securities and certain asset-backed securities held as HQLA. Measured at amortized cost using the effective interest method less allowances for expected credit losses (ECL) (refer to items 2d and 2g in this Note for more information). The following items are recognized in the income statement: – interest income, which is accounted for in accordance with item 2d in this Note; – ECL and reversals; and – foreign exchange (FX) translation gains and losses. When a financial asset at amortized cost is derecognized, the gain or loss is recognized in the income statement. For amounts arising from settlement of certain derivatives, refer to the next page. Measured at fair value, with unrealized gains and losses reported in Other comprehensive income, net of applicable income taxes, until such investments are derecognized. Upon derecognition, any accumulated balances in Other comprehensive income are reclassified to the income statement and reported within Other income. The following items, which are determined on the same basis as for financial assets measured at amortized cost, are recognized in the income statement: – interest income, which is accounted for in accordance with item 2d in this Note; – ECL and reversals; and – FX translation gains and losses. 302 294 Consolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) Classification, measurement and presentation of financial assets Classification, measurement and presentation of financial assets Financial assets classification Significant items included Measurement and presentation Financial assets classification Significant items included Measurement and presentation This classification includes: – cash and balances at central banks; – loans and advances to banks; – receivables from securities financing transactions; – cash collateral receivables on derivative instruments; – residential and commercial mortgages; – corporate loans; – secured loans, including Lombard loans, and unsecured loans; – loans to financial advisors; and – debt securities held as high-quality liquid assets (HQLA). The following items are recognized in the income statement: – interest income, which is accounted for in accordance with item 2d in this Note; – ECL and reversals; and – foreign exchange (FX) translation gains and losses. When a financial asset at amortized cost is derecognized, the gain or loss is recognized in the income statement. For amounts arising from settlement of certain derivatives, refer to the next page. income taxes, until such investments are derecognized. Upon derecognition, any accumulated balances in Other comprehensive income are reclassified to the income statement and reported within Other income. The following items, which are determined on the same basis as for financial assets measured at amortized cost, are recognized in the income statement: – interest income, which is accounted for in accordance with item 2d in this Note; – ECL and reversals; and – FX translation gains and losses. Measured at FVOCI Debt instruments This classification primarily includes debt securities and Measured at fair value, with unrealized gains and losses measured at certain asset-backed securities held as HQLA. reported in Other comprehensive income, net of applicable FVOCI Measured at amortized cost Measured at amortized cost using the effective interest method less allowances for expected credit losses (ECL) (refer to items 2d and 2g in this Note for more information). Measured at FVTPL Held for trading Financial assets held for trading include: – all derivatives with a positive replacement value, except those that are designated and effective hedging instruments; and – other financial assets acquired principally for the purpose of selling or repurchasing in the near term, or that are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Included in this category are debt instruments (including those in the form of securities, money market paper, and traded corporate and bank loans) and equity instruments. Mandatorily measured at FVTPL – Other This classification includes financial assets mandatorily measured at FVTPL that are not held for trading, as follows: – certain structured loans, certain commercial loans, and receivables from securities financing transactions are managed on a fair value basis; – loans managed on a fair value basis, including those hedged with credit derivatives; – certain debt securities held as HQLA and managed on a fair value basis; – certain investment fund holdings and assets held to hedge delivery obligations related to cash-settled employee compensation plans; – brokerage receivables, for which contractual cash flows do not meet the SPPI criterion because the aggregate balance is accounted for as a single unit of account, with interest being calculated on the individual components; – auction rate securities, for which contractual cash flows do not meet the SPPI criterion because interest may be reset at rates that contain leverage; – equity instruments; and – assets held under unit-linked investment contracts. Measured at fair value, with changes recognized in the income statement. Derivative assets (including derivatives that are designated and effective hedging instruments) are generally presented as Derivative financial instruments, except those exchange-traded (ETD) and over-the-counter (OTC)- cleared derivatives that are legally settled on a daily basis or in substance net settled on a daily basis, which are presented within Cash collateral receivables on derivative instruments. Changes in fair value, initial transaction costs, dividends and gains and losses arising on disposal or redemption are recognized in Other net income from financial instruments measured at fair value through profit or loss, except interest income on instruments other than derivatives (refer to item 2d in this Note), interest on derivatives designated as hedging instruments in hedges of interest rate risk and forward points on certain short- and long-duration FX contracts acting as economic hedges, which are reported in Net interest income. Changes in the fair value of derivatives that are designated and effective hedging instruments are presented either in the income statement or Other comprehensive income, depending on the type of hedge relationship (refer to item 2j in this Note for more information). 302 303 295 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Classification, measurement and presentation of financial liabilities Financial liabilities classification Significant items included Measurement and presentation Measured at amortized cost This classification includes: – demand and time deposits; – retail savings / deposits; – payables from securities financing transactions; – non-structured fixed-rate bonds; – subordinated debt; – certificates of deposit and covered bonds; and – cash collateral payables on derivative instruments. Measured at fair value through profit or loss Held for trading Financial liabilities held for trading include: – all derivatives with a negative replacement value (including certain loan commitments), except those that are designated and effective hedging instruments; and – obligations to deliver financial instruments, such as debt and equity instruments, that UBS has sold to third parties but does not own (short positions). Designated at FVTPL UBS designates at FVTPL the following financial liabilities: – issued hybrid debt instruments that primarily include equity-linked, credit-linked and rates-linked bonds or notes; – issued debt instruments managed on a fair value basis; – certain payables from securities financing transactions; – amounts due under unit-linked investment contracts the cash flows of which are linked to financial assets measured at FVTPL and eliminate an accounting mismatch; and – brokerage payables, which arise in conjunction with brokerage receivables and are measured at FVTPL to achieve measurement consistency. Measured at amortized cost using the effective interest method. When a financial liability at amortized cost is derecognized, the gain or loss is recognized in the income statement. Measurement and presentation of financial liabilities classified at FVTPL follow the same principles as for financial assets classified at FVTPL, except that the amount of change in the fair value of a financial liability designated at FVTPL that is attributable to changes in UBS’s own credit risk is presented in Other comprehensive income directly within Retained earnings and is never reclassified to the income statement. Derivative liabilities (including derivatives that are designated and effective hedging instruments) are generally presented as Derivative financial instruments, except those exchange-traded and OTC-cleared derivatives that are legally settled on a daily basis or in substance net settled on a daily basis, which are presented within Cash collateral payables on derivative instruments. 304 296 Consolidated financial statements | UBS Group AG consolidated financial statements Classification, measurement and presentation of financial liabilities Financial liabilities classification Significant items included Measurement and presentation Measured at amortized cost This classification includes: Measured at amortized cost using the effective interest – demand and time deposits; – retail savings / deposits; – payables from securities financing transactions; – non-structured fixed-rate bonds; – subordinated debt; – certificates of deposit and covered bonds; and – cash collateral payables on derivative instruments. method. statement. When a financial liability at amortized cost is derecognized, the gain or loss is recognized in the income Measured at Held for trading Financial liabilities held for trading include: fair value through profit or loss – all derivatives with a negative replacement value (including certain loan commitments), except those that are designated and effective hedging instruments; and – obligations to deliver financial instruments, such as debt and equity instruments, that UBS has sold to third parties but does not own (short positions). Designated at UBS designates at FVTPL the following financial FVTPL liabilities: – issued hybrid debt instruments that primarily include equity-linked, credit-linked and rates-linked bonds or – issued debt instruments managed on a fair value notes; basis; – certain payables from securities financing transactions; – amounts due under unit-linked investment contracts the cash flows of which are linked to financial assets measured at FVTPL and eliminate an accounting mismatch; and – brokerage payables, which arise in conjunction with brokerage receivables and are measured at FVTPL to achieve measurement consistency. Measurement and presentation of financial liabilities classified at FVTPL follow the same principles as for financial assets classified at FVTPL, except that the amount of change in the fair value of a financial liability designated at FVTPL that is attributable to changes in UBS’s own credit risk is presented in Other comprehensive income directly within Retained earnings and is never reclassified to the income statement. Derivative liabilities (including derivatives that are designated and effective hedging instruments) are generally presented as Derivative financial instruments, except those exchange-traded and OTC-cleared derivatives that are legally settled on a daily basis or in substance net settled on a daily basis, which are presented within Cash collateral payables on derivative instruments. Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) c. Loan commitments and financial guarantees Loan commitments are arrangements to provide credit under defined terms and conditions. Irrevocable loan commitments are classified as: (i) derivative loan commitments measured at fair value through profit or loss; (ii) loan commitments designated at fair value through profit or loss; or (iii) loan commitments not measured at fair value. Financial guarantee contracts are contracts that require UBS to make specified payments to reimburse the holder for an incurred loss because a specified debtor fails to make payments when due in accordance with the terms of a specified debt instrument. d. Interest income and expense Interest income and expense are recognized in the income statement based on the effective interest method. When calculating the effective interest rate (the EIR) for financial instruments (other than credit-impaired financial instruments), UBS estimates future cash flows considering all contractual terms of the instrument, but not expected credit losses, with the EIR applied to the gross carrying amount of the financial asset or the amortized cost of a financial liability. However, when a financial asset becomes credit-impaired after initial recognition, interest income is determined by applying the EIR to the amortized cost of the instrument, which represents the gross carrying amount adjusted for any credit loss allowance. Upfront fees, including fees on loan commitments not measured at fair value where a loan is expected to be issued, and direct costs are included within the initial measurement of a financial instrument measured at amortized cost or FVOCI and recognized over the expected life of the instrument as part of its EIR. Fees related to loan commitments where no loan is expected to be issued, as well as loan syndication fees where UBS does not retain a portion of the syndicated loan or where UBS does retain a portion of the syndicated loan at the same effective yield for comparable risk as other participants, are included in Net fee and commission income and either recognized over the life of the commitment or when syndication occurs. › Refer to item 3 in this Note for more information Interest income on financial assets, excluding derivatives, is included in interest income when positive and in interest expense when negative. Similarly, interest expense on financial liabilities, excluding derivatives, is included in interest expense, except when interest rates are negative, in which case it is included in interest income. › Refer to item 2b in this Note and Note 3 for more information e. Derecognition Financial assets UBS derecognizes a transferred financial asset, or a portion of a financial asset, if the purchaser has received substantially all the risks and rewards of the asset or a significant part of the risks and rewards combined with a practical ability to sell or pledge the asset. Where financial assets have been pledged as collateral or in similar arrangements, they are considered to have been transferred if the counterparty has received the contractual rights to the cash flows of the pledged assets, as may be evidenced by, for example, the counterparty’s right to sell or repledge the assets. In transfers where control over the financial asset is retained, UBS continues to recognize the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset following the transfer. Certain OTC derivative contracts and most exchange-traded futures and option contracts cleared through central clearing counterparties and exchanges are considered to be settled on a daily basis, as the payment or receipt of variation margin on a daily basis represents legal or economic settlement, which results in derecognition of the associated derivatives. › Refer to Note 22 and Note 23 for more information Financial liabilities UBS derecognizes a financial liability when it is extinguished, i.e., when the obligation specified in the contract is discharged, canceled or expires. When an existing financial liability is exchanged for a new one from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, the original liability is derecognized and a new liability recognized with any difference in the respective carrying amounts recognized in the income statement. f. Fair value of financial instruments UBS accounts for a significant portion of its assets and liabilities at fair value. Fair value is the price on the measurement date that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or in the most advantageous market in the absence of a principal market. › Refer to Note 21 for more information 304 305 297 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements All or part of a financial asset is written off if it is deemed uncollectible or forgiven. Write-offs reduce the principal amount of a claim and are charged against related allowances for credit losses. Recoveries, in part or in full, of amounts previously written off are generally credited to Credit loss (expense) / release. ECL are recognized in the income statement in Credit loss (expense) / release. A corresponding ECL allowance is reported as a decrease in the carrying amount of financial assets measured at amortized cost on the balance sheet. For financial assets that are measured at FVOCI, the carrying amount is not reduced, but an accumulated amount is recognized in Other comprehensive income. For off-balance sheet financial instruments and other credit lines, provisions for ECL are presented in Provisions. Default and credit impairment UBS applies a single definition of default for credit risk management purposes, regulatory reporting and ECL, with a counterparty classified as defaulted based on quantitative and qualitative criteria. › Refer to “Credit policies for distressed assets” in the “Risk management and control” section of this report for more information Measurement of expected credit losses IFRS 9 ECL reflect an unbiased, probability-weighted estimate based on loss expectations resulting from default events. The method used to calculate ECL applies the following principal factors: probability of default (PD), loss given default (LGD) and exposure at default (EAD). Parameters are generally determined on an individual financial asset level. Based on the materiality of the portfolio, for credit card exposures and personal account overdrafts in Switzerland, a portfolio approach is applied that derives an average PD and LGD for the entire portfolio. PDs and LGDs used in the ECL calculation are point-in-time (PIT)-based for key portfolios and consider both current conditions and expected cyclical changes. For material portfolios, PDs and LGDs are determined for different scenarios, whereas EAD projections are treated as scenario independent. For the purpose of determining the ECL-relevant parameters, UBS leverages its Pillar 1 internal ratings-based (IRB) models that are also used in determining expected loss (EL) and risk-weighted assets under the Basel III framework and Pillar 2 stress loss models. Adjustments have been made to these models and IFRS 9-related models have been developed that consider the complexity, structure and risk profile of relevant portfolios and take account of the fact that PDs and LGDs used in the ECL calculation are PIT-based, as opposed to the corresponding Basel III through-the-cycle (TTC) parameters. All models that are relevant for measuring expected credit losses are subject to UBS’s model validation and oversight processes. Note 1 Summary of material accounting policies (continued) Critical accounting estimates and judgments The use of valuation techniques, modeling assumptions and estimates of unobservable market inputs in the fair valuation of financial instruments requires significant judgment and could affect the amount of gain or loss recorded for a particular position. Valuation techniques that rely more heavily on unobservable inputs and sophisticated models inherently require a higher level of judgment and may require adjustment to reflect factors that market participants would consider in estimating fair value, such as close-out costs, which are presented in Note 21d. UBS‘s governance framework over fair value measurement is described in Note 21b, and UBS provides a sensitivity analysis of the estimated effects arising from changing significant unobservable inputs in Level 3 financial instruments to reasonably possible alternative assumptions in Note 21g. › Refer to Note 21 for more information g. Allowances and provisions for expected credit losses ECL are recognized for financial assets measured at amortized cost, financial assets measured at FVOCI, fee and lease receivables, financial guarantees, and loan commitments not measured at fair value. ECL are also recognized on the undrawn portion of committed unconditionally revocable credit lines, which include UBS’s credit card limits and master credit facilities, as UBS is exposed to credit risk because the borrower has the ability to draw down funds before UBS can take credit risk mitigation actions. Recognition of expected credit losses ECL are recognized on the following basis: – Stage 1 instruments: Maximum 12-month ECL are recognized from initial recognition, reflecting the portion of lifetime cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default occurring. – Stage 2 instruments: Lifetime ECL are recognized if a significant increase in credit risk (an SICR) is observed subsequent to the instrument’s initial recognition, reflecting lifetime cash shortfalls that would result from all possible default events over the expected life of a financial instrument, weighted by the risk of a default occurring. When an SICR is no longer observed, the instrument will move back to stage 1. – Stage 3 instruments: Lifetime ECL are always recognized for credit-impaired financial instruments, as determined by the occurrence of one or more loss events, by estimating expected cash flows based on a chosen recovery strategy. Credit- impaired exposures may include positions for which no allowance has been recognized, for example because they are expected to be fully recoverable through collateral held. – Changes in lifetime ECL since initial recognition are also recognized for assets that are purchased or originated credit- impaired (POCI). POCI financial instruments include those that are purchased at a deep discount or newly originated with a defaulted counterparty; they remain a separate category until derecognition. 306 298 Consolidated financial statements | UBS Group AG consolidated financial statements Critical accounting estimates and judgments The use of valuation techniques, modeling assumptions and estimates of unobservable market inputs in the fair valuation of financial instruments requires significant judgment and could affect the amount of gain or loss recorded for a particular position. Valuation techniques that rely more heavily on unobservable inputs and sophisticated models inherently require a higher level of judgment and may require adjustment to reflect factors that market participants would consider in estimating fair value, such as close-out costs, which are presented in Note 21d. UBS‘s governance framework over fair value measurement is described in Note 21b, and UBS provides a sensitivity analysis of the estimated effects arising from changing significant unobservable inputs in Level 3 financial instruments to reasonably possible alternative assumptions in Note 21g. › Refer to Note 21 for more information All or part of a financial asset is written off if it is deemed uncollectible or forgiven. Write-offs reduce the principal amount of a claim and are charged against related allowances for credit losses. Recoveries, in part or in full, of amounts previously written off are generally credited to Credit loss (expense) / release. ECL are recognized in the income statement in Credit loss (expense) / release. A corresponding ECL allowance is reported as a decrease in the carrying amount of financial assets measured at amortized cost on the balance sheet. For financial assets that are measured at FVOCI, the carrying amount is not reduced, but an accumulated amount is recognized in Other comprehensive income. For off-balance sheet financial instruments and other credit lines, provisions for ECL are presented in Provisions. Default and credit impairment g. Allowances and provisions for expected credit losses ECL are recognized for financial assets measured at amortized cost, financial assets measured at FVOCI, fee and lease UBS applies a single definition of default for credit risk management purposes, regulatory reporting and ECL, with a counterparty classified as defaulted based on quantitative and receivables, financial guarantees, and loan commitments not qualitative criteria. measured at fair value. ECL are also recognized on the undrawn portion of committed unconditionally revocable credit lines, which include UBS’s credit card limits and master credit facilities, as UBS is exposed to credit risk because the borrower has the › Refer to “Credit policies for distressed assets” in the “Risk management and control” section of this report for more information mitigation actions. Recognition of expected credit losses ECL are recognized on the following basis: IFRS 9 ECL reflect an unbiased, probability-weighted estimate based on loss expectations resulting from default events. The method used to calculate ECL applies the following principal factors: probability of default (PD), loss given default (LGD) and – Stage 1 instruments: Maximum 12-month ECL are recognized exposure at default (EAD). Parameters are generally determined from initial recognition, reflecting the portion of lifetime cash on an individual financial asset level. Based on the materiality of shortfalls that would result if a default occurs in the 12 months the portfolio, for credit card exposures and personal account after the reporting date, weighted by the risk of a default overdrafts in Switzerland, a portfolio approach is applied that occurring. derives an average PD and LGD for the entire portfolio. PDs and – Stage 2 instruments: Lifetime ECL are recognized if a LGDs used in the ECL calculation are point-in-time (PIT)-based for significant increase in credit risk (an SICR) is observed key portfolios and consider both current conditions and expected subsequent to the instrument’s initial recognition, reflecting cyclical changes. For material portfolios, PDs and LGDs are lifetime cash shortfalls that would result from all possible determined for different scenarios, whereas EAD projections are default events over the expected life of a financial instrument, treated as scenario independent. weighted by the risk of a default occurring. When an SICR is For the purpose of determining the ECL-relevant parameters, no longer observed, the instrument will move back to stage 1. UBS leverages its Pillar 1 internal ratings-based (IRB) models that – Stage 3 instruments: Lifetime ECL are always recognized for are also used in determining expected loss (EL) and risk-weighted credit-impaired financial instruments, as determined by the assets under the Basel III framework and Pillar 2 stress loss occurrence of one or more loss events, by estimating expected models. Adjustments have been made to these models and IFRS cash flows based on a chosen recovery strategy. Credit- 9-related models have been developed that consider the impaired exposures may include positions for which no complexity, structure and risk profile of relevant portfolios and allowance has been recognized, for example because they are take account of the fact that PDs and LGDs used in the ECL expected to be fully recoverable through collateral held. calculation are PIT-based, as opposed to the corresponding – Changes in lifetime ECL since initial recognition are also Basel III through-the-cycle (TTC) parameters. All models that are recognized for assets that are purchased or originated credit- relevant for measuring expected credit losses are subject to UBS’s impaired (POCI). POCI financial instruments include those that model validation and oversight processes. are purchased at a deep discount or newly originated with a defaulted counterparty; they remain a separate category until derecognition. Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) Probability of default: PD represents the probability of a default over a specified time period. A 12-month PD represents the probability of default determined for the next 12 months and a lifetime PD represents the probability of default over the remaining lifetime of the instrument. PIT PDs are derived from TTC PDs and scenario forecasts. The modeling is region-, industry- and client segment-specific and considers both macroeconomic scenario dependencies and client-idiosyncratic information. Exposure at default: EAD represents an estimate of the exposure to credit risk at the time of a potential default occurring, interest payments and considering expected accruals, discounted at the EIR. Future drawdowns on facilities are considered through a credit conversion factor (a CCF) that is reflective of historical drawdown and default patterns and the characteristics of the respective portfolios. repayments, Loss given default: LGD represents an estimate of the loss at the time of a potential default occurring, taking into account expected future cash flows from collateral and other credit enhancements, or expected payouts from bankruptcy proceedings for unsecured claims and, where applicable, time to realization of collateral and the seniority of claims. LGD is commonly expressed as a percentage of EAD. Macroeconomic and other factors The range of macroeconomic, market and other factors that is modeled as part of the scenario determination is wide, and historical information is used to support the identification of the key factors. As the forecast horizon increases, the availability of information decreases, requiring an increase in judgment. For cycle-sensitive PD and LGD determination purposes, UBS projects the relevant economic factors for a period of three years before reverting, over a specified period, to cycle-neutral PD and LGD for longer-term projections. Factors relevant for ECL calculation vary by type of exposure. Regional and client-segment characteristics are generally taken into account, with specific focus on Switzerland and the US, considering UBS’s key ECL-relevant portfolios. For UBS, the following forward-looking macroeconomic variables represent the most relevant factors for ECL calculation: – GDP growth rates, given their significant effect on borrowers’ performance; – unemployment rates, given their significant effect on private clients’ ability to meet contractual obligations; – house price indices, given their significant effect on mortgage collateral valuations; – interest rates, given their significant effect on counterparties’ ability to draw down funds before UBS can take credit risk Measurement of expected credit losses Estimation of expected credit losses abilities to service debt; Number of scenarios and estimation of scenario weights Determination of probability-weighted ECL requires evaluating a range of diverse and relevant future economic conditions, especially with a view to modeling the non-linear effect of assumptions about macroeconomic factors on the estimate. To accommodate this requirement, UBS uses different economic scenarios in the ECL calculation. Each scenario is represented by a specific scenario narrative, which is relevant considering the exposure of key portfolios to economic risks, and for which a set of consistent macroeconomic variables is determined. The estimation of the appropriate weights for these scenarios is predominantly judgement-based. The assessment is based on a holistic review of the prevailing economic or political conditions, which may exhibit different levels of uncertainty. It takes into account the impact of changes in the nature and severity of the underlying scenario narratives and the projected economic variables. The determined weights constitute the probabilities that the respective set of macroeconomic conditions will occur and not that related macroeconomic variables will materialize. the chosen particular narratives with the – consumer price indices, given their overall relevance for companies’ performance, private clients’ purchasing power and economic stability; and – equity indices, given that they are an important factor in our corporate rating tools. Scenario generation, review process and governance A team of economists, who are part of Group Risk Control, develop the forward-looking macroeconomic assumptions with involvement from a broad range of experts. The scenarios, their weight and the key macroeconomic and other factors are subject to a critical assessment by the IFRS 9 Scenario Sounding Sessions and ECL Management Forum, which include senior management from Group Risk and Group Finance. Important aspects for the review include whether there may be particular credit risk concerns that may not be capable of being addressed systematically and require post-model adjustments for stage allocation and ECL allowance. The Group Model Governance Committee, as the highest authority under UBS’s model governance framework, ratifies the decisions taken by the ECL Management Forum. › Refer to Note 20 for more information ECL measurement period The period for which lifetime ECL are determined is based on the maximum contractual period that UBS is exposed to credit risk, taking into account contractual extension, termination and prepayment options. For irrevocable loan commitments and financial guarantee contracts, the measurement period represents the maximum contractual period for which UBS has an obligation to extend credit. 306 307 299 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Additionally, some financial instruments include both an on- demand loan and a revocable undrawn commitment, where the contractual cancellation right does not limit UBS’s exposure to credit risk to the contractual notice period, as the client has the ability to draw down funds before UBS can take risk-mitigating actions. In such cases UBS is required to estimate the period over which it is exposed to credit risk. This applies to UBS’s credit card limits, which do not have a defined contractual maturity date, are callable on demand and where the drawn and undrawn components are managed as one exposure. The exposure arising from UBS’s credit card limits is not significant and is managed at a portfolio level, with credit actions triggered when balances are past due. An ECL measurement period of seven years is applied for credit card limits, capped at 12 months for stage 1 balances, as a proxy for the period that UBS is exposed to credit risk. Customary master credit agreements in the Swiss corporate market also include on-demand loans and revocable undrawn commitments. For smaller commercial facilities, a risk-based monitoring (RbM) approach is in place that highlights negative trends as risk events, at an individual facility level, based on a combination of continuously updated risk indicators. The risk events trigger additional credit reviews by a risk officer, enabling informed credit decisions to be taken. Larger corporate facilities are not subject to RbM, but are reviewed at least annually through a formal credit review. UBS has assessed these credit risk management practices and considers both the RbM approach and formal credit reviews as substantive credit reviews resulting in a re-origination of the given facility. Following this, a 12-month measurement period from the reporting date is used for both types of facilities as an appropriate proxy of the period over which UBS is exposed to credit risk, with 12 months also used as a look- back period for assessing SICR, always from the respective reporting date. Significant increase in credit risk Financial instruments subject to ECL are monitored on an ongoing basis. To determine whether the recognition of a maximum 12-month ECL continues to be appropriate, an assessment is made as to whether an SICR has occurred since initial recognition of the financial instrument, applying both quantitative and qualitative factors. Primarily, UBS assesses changes in an instrument’s risk of default on a quantitative basis by comparing the annualized forward-looking and scenario-weighted lifetime PD of an instrument determined at two different dates: – at the reporting date; and – at inception of the instrument. If, based on UBS’s quantitative modeling, an increase exceeds a set threshold, an SICR is deemed to have occurred and the instrument is transferred to stage 2 with lifetime ECL recognized. The threshold applied varies depending on the original credit quality of the borrower, with a higher SICR threshold set for those instruments with a low PD at inception. The SICR assessment based on PD changes is made at an individual financial asset level. A high-level overview of the SICR trigger, which is a multiple of the annualized remaining lifetime PIT PD expressed in rating downgrades, is provided in the “SICR thresholds” table below. The actual SICR thresholds applied are defined on a more granular level by interpolating between the values shown in the table. SICR thresholds Internal rating at origination of the instrument Rating downgrades / SICR trigger 0–3 4–8 9–13 3 2 1 › Refer to the “Risk management and control” section of this report for more details about UBS’s internal grading system Irrespective of the SICR assessment based on default probabilities, credit risk is generally deemed to have significantly increased for an instrument if the contractual payments are more than 30 days past due. For certain less material portfolios, specifically the Swiss credit card portfolio, the 30-day past due criterion is used as the primary indicator of an SICR. Where instruments are transferred to stage 2 due to the 30-day past due criterion, a minimum period of six months is applied before a transfer back to stage 1 can be triggered. For instruments in Personal & Corporate Banking and Global Wealth Management Region Switzerland that are between 90 and 180 days past due but have not been reclassified to stage 3, a one-year period is applied before a transfer back to stage 1 can be triggered. Additionally, based on individual counterparty-specific indicators, external market indicators of credit risk or general economic conditions, counterparties may be moved to a watch list, which is used as a secondary qualitative indicator for an SICR. Exception management is further applied, allowing for individual and collective adjustments on exposures sharing the same credit risk characteristics to take account of specific situations that are not otherwise fully reflected. In general, the overall SICR determination process does not apply to Lombard loans, securities financing transactions and certain other asset-based lending transactions, because of the risk management practices adopted, including daily monitoring processes with strict margining. If margin calls are not satisfied, a position is closed out and classified as a stage 3 position. In exceptional cases, an individual adjustment and a transfer into stage 2 may be made to take account of specific facts. 308 300 Consolidated financial statements | UBS Group AG consolidated financial statements Additionally, some financial instruments include both an on- The threshold applied varies depending on the original credit demand loan and a revocable undrawn commitment, where the quality of the borrower, with a higher SICR threshold set for those contractual cancellation right does not limit UBS’s exposure to instruments with a low PD at inception. The SICR assessment credit risk to the contractual notice period, as the client has the based on PD changes is made at an individual financial asset level. ability to draw down funds before UBS can take risk-mitigating A high-level overview of the SICR trigger, which is a multiple of actions. In such cases UBS is required to estimate the period over the annualized remaining lifetime PIT PD expressed in rating which it is exposed to credit risk. This applies to UBS’s credit card downgrades, is provided in the “SICR thresholds” table below. limits, which do not have a defined contractual maturity date, are The actual SICR thresholds applied are defined on a more granular callable on demand and where the drawn and undrawn level by interpolating between the values shown in the table. components are managed as one exposure. The exposure arising from UBS’s credit card limits is not significant and is managed at SICR thresholds a portfolio level, with credit actions triggered when balances are Internal rating at origination Rating downgrades / past due. An ECL measurement period of seven years is applied of the instrument SICR trigger for credit card limits, capped at 12 months for stage 1 balances, as a proxy for the period that UBS is exposed to credit risk. Customary master credit agreements in the Swiss corporate market also include on-demand loans and revocable undrawn commitments. For smaller commercial facilities, a risk-based monitoring (RbM) approach is in place that highlights negative trends as risk events, at an individual facility level, based on a 0–3 4–8 9–13 3 2 1 › Refer to the “Risk management and control” section of this report for more details about UBS’s internal grading system combination of continuously updated risk indicators. The risk Irrespective of the SICR assessment based on default events trigger additional credit reviews by a risk officer, enabling probabilities, credit risk is generally deemed to have significantly informed credit decisions to be taken. Larger corporate facilities increased for an instrument if the contractual payments are more are not subject to RbM, but are reviewed at least annually through than 30 days past due. For certain less material portfolios, a formal credit review. UBS has assessed these credit risk specifically the Swiss credit card portfolio, the 30-day past due management practices and considers both the RbM approach and criterion is used as the primary indicator of an SICR. Where formal credit reviews as substantive credit reviews resulting in a instruments are transferred to stage 2 due to the 30-day past due re-origination of the given facility. Following this, a 12-month criterion, a minimum period of six months is applied before a measurement period from the reporting date is used for both transfer back to stage 1 can be triggered. For instruments in types of facilities as an appropriate proxy of the period over which Personal & Corporate Banking and Global Wealth Management UBS is exposed to credit risk, with 12 months also used as a look- Region Switzerland that are between 90 and 180 days past due back period for assessing SICR, always from the respective but have not been reclassified to stage 3, a one-year period is reporting date. Significant increase in credit risk applied before a transfer back to stage 1 can be triggered. Additionally, based on individual counterparty-specific indicators, external market indicators of credit risk or general Financial instruments subject to ECL are monitored on an economic conditions, counterparties may be moved to a watch ongoing basis. To determine whether the recognition of a list, which is used as a secondary qualitative indicator for an SICR. maximum 12-month ECL continues to be appropriate, an Exception management is further applied, allowing for individual assessment is made as to whether an SICR has occurred since and collective adjustments on exposures sharing the same credit initial recognition of the financial instrument, applying both risk characteristics to take account of specific situations that are quantitative and qualitative factors. not otherwise fully reflected. Primarily, UBS assesses changes in an instrument’s risk of In general, the overall SICR determination process does not default on a quantitative basis by comparing the annualized apply to Lombard loans, securities financing transactions and forward-looking and scenario-weighted lifetime PD of an certain other asset-based lending transactions, because of the risk instrument determined at two different dates: – at the reporting date; and – at inception of the instrument. management practices adopted, including daily monitoring processes with strict margining. If margin calls are not satisfied, a position is closed out and classified as a stage 3 position. In If, based on UBS’s quantitative modeling, an increase exceeds exceptional cases, an individual adjustment and a transfer into a set threshold, an SICR is deemed to have occurred and the stage 2 may be made to take account of specific facts. instrument is transferred to stage 2 with lifetime ECL recognized. Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) Credit risk officers are responsible for the identification of an SICR, which for accounting purposes is in some respects different from internal credit risk management processes. This difference mainly arises because ECL accounting requirements are instrument-specific, such that a borrower can have multiple exposures allocated to different stages, and maturing loans in stage 2 will migrate to stage 1 upon renewal irrespective of the actual credit risk at that time. Under a risk-based approach, a holistic counterparty credit assessment and the absolute level of risk at any given date will determine what risk-mitigating actions may be warranted. › Refer to the “Risk management and control” section of this report for more information Critical accounting estimates and judgments The calculation of ECL requires management to apply significant judgment and make estimates and assumptions that can result in significant changes to the timing and amount of ECL recognized. Determination of a significant increase in credit risk IFRS 9 does not include a definition of what constitutes an SICR, with UBS’s assessment considering qualitative and quantitative criteria. An IFRS 9 ECL Management Forum has been established to review and challenge the SICR results. Scenarios, scenario weights and macroeconomic variables ECL reflect an unbiased and probability-weighted amount, which UBS determines by evaluating a range of possible outcomes. Management selects forward-looking scenarios that include relevant macroeconomic variables and management’s assumptions around future economic conditions. IFRS 9 Scenario Sounding Sessions, in addition to the IFRS 9 ECL Management Forum, are in place to derive, review and challenge the scenario selection and weights, and to determine whether any additional post-model adjustments are required that may significantly affect ECL. ECL measurement period Lifetime ECL are generally determined based upon the contractual maturity of the transaction, which significantly affects ECL. For credit card limits and Swiss callable master credit facilities, judgment is required, as UBS must determine the period over which it is exposed to credit risk. A seven-year period is applied for credit card limits, capped at 12 months for stage 1 positions, and a 12-month period applied for master credit facilities. Modeling and post-model adjustments A number of complex models have been developed or modified to calculate ECL, with additional post-model adjustments required which may significantly affect ECL. The models are governed by UBS’s model validation controls and approved by the Group Model Governance Committee (the GMGC). The post-model adjustments are approved by the ECL Management Forum and endorsed by the GMGC. A sensitivity analysis covering key macroeconomic variables, scenario weights and SICR trigger points on ECL measurement is provided in Note 20f. › Refer to Note 20 for more information h. Restructured and modified financial assets When payment default is expected, or where default has already occurred, UBS may grant concessions to borrowers in financial difficulties that it would not consider in the normal course of its business, such as preferential interest rates, extension of maturity, modifying the schedule of repayments, debt / equity swap, subordination, etc. When a concession or forbearance measure is granted, each case is considered individually and the exposure is generally classified as being in default. Forbearance classification will remain until the loan is collected or written off, non- preferential conditions superseding preferential conditions are granted or until the counterparty has recovered and the preferential conditions no longer exceed UBS’s risk tolerance. Modifications result in an alteration of future contractual cash flows and can occur within UBS’s normal risk tolerance or as part of a credit restructuring where a counterparty is in financial difficulties. The restructuring or modification of a financial asset could lead to a substantial change in the terms and conditions, resulting in the original financial asset being derecognized and a new financial asset being recognized. Where the modification does not result in a derecognition, any difference between the modified contractual cash flows discounted at the original EIR and the existing gross carrying amount of the given financial asset is recognized in the income statement as a modification gain or loss. i. Offsetting UBS presents financial assets and liabilities on its balance sheet net if (i) it has a legally enforceable right to set off the recognized amounts and (ii) it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Netted positions include, for example, certain derivatives and repurchase and reverse repurchase transactions with various counterparties, exchanges and clearing houses. In assessing whether UBS intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously, emphasis is placed on the effectiveness of operational settlement mechanics in eliminating substantially all credit and liquidity exposure between the counterparties. This condition precludes offsetting on the balance sheet for substantial amounts of UBS’s financial assets and liabilities, even though they may be subject to enforceable netting arrangements. Repurchase arrangements and securities financing transactions are presented net only to the extent that the settlement mechanism eliminates, or results in insignificant, credit and liquidity risk, and processes the receivables and payables in a single settlement process or cycle. › Refer to Note 22 for more information 308 309 301 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Hedges of net investments in foreign operations Gains or losses on the hedging instrument relating to the effective portion of a hedge are recognized directly in Other comprehensive income within Equity, while any gains or losses relating to the ineffective and / or undesignated portion (for example, the interest element of a forward contract) are recognized in the income statement. Upon disposal or partial disposal of the foreign operation, the cumulative value of any such gains or losses recognized in Equity associated with the entity is reclassified to Other income. Interest Rate Benchmark Reform UBS can continue hedge accounting during the period of uncertainty before existing interest rate benchmarks are replaced with alternative risk-free interest rates. During this period, UBS can assume that the current benchmark rates will continue to exist, such that forecast transactions are considered highly probable and hedge relationships remain, with little or no consequential impact on the financial statements. Upon replacement of existing interest rate benchmarks by alternative risk-free interest rates expected in 2021 and beyond, UBS will apply the requirements of Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Interest Rate Benchmark Reform – Phase 2). › Refer to Note 1b for more information 3) Fee and commission income and expenses UBS earns fee income from the diverse range of services it provides to its clients. Fee income can be divided into two broad categories: fees earned from services that are provided over a certain period of time, such as management of clients’ assets, custody services and certain advisory services; and fees earned from point-in-time services, such as underwriting fees, deal- contingent merger and acquisitions fees, and brokerage fees (e.g., securities and derivatives execution and clearing). UBS recognizes fees earned from point-in-time services when it has fully provided the service to the customer. Where the contract requires services to be provided over time, income is recognized on a systematic basis over the life of the agreement. to received is allocated Consideration the separately identifiable performance obligations in a contract. Owing to the nature of UBS’s business, contracts that include multiple performance obligations are typically those that are considered to include a series of similar performance obligations fulfilled over time with the same pattern of transfer to the client, e.g., management of client assets and custodial services. As a consequence, UBS is not required to apply significant judgment in allocating the various performance obligations. the consideration received across Note 1 Summary of material accounting policies (continued) j. Hedge accounting The Group applies hedge accounting requirements of IFRS 9, unless stated otherwise below, where the criteria for documentation and hedge effectiveness are met. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued. Voluntary discontinuation of hedge accounting is permitted under IAS 39 but not under IFRS 9. Fair value hedges of interest rate risk related to debt instruments and loan assets The fair value change of the hedged item attributable to a hedged risk is reflected as an adjustment to the carrying amount of the hedged item, and recognized in the income statement along with the change in the fair value of the hedging instrument. Fair value hedges of portfolio interest rate risk related to loans designated under IAS 39 Prior to discontinuation in December 2021, the fair value change of the hedged item attributable to a hedged risk is reflected within Other financial assets measured at amortized cost or Other financial liabilities measured at amortized cost and recognized in the income statement along with the change in the fair value of the hedging instrument. Fair value hedges of FX risk related to debt instruments The fair value change of the hedged item attributable to the hedged risk is reflected in the measurement of the hedged item and recognized in the income statement along with the change in the fair value of the hedging instrument. The foreign currency basis spread of cross-currency swaps designated as hedging derivatives is excluded from the designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity. These amounts are released to the income statement over the term of the hedged item. Discontinuation of fair value hedges Discontinuations for reasons other than derecognition of the hedged item result in an adjustment to the carrying amount, which is amortized to the income statement over the remaining life of the hedged item using the effective interest method. If the hedged item is derecognized, the unamortized fair value adjustment or deferred cost of hedging amount is recognized immediately in the income statement as part of any derecognition gain or loss. Cash flow hedges of forecast transactions Fair value gains or losses associated with the effective portion of derivatives designated as cash flow hedges for cash flow repricing risk are recognized initially in Other comprehensive income within Equity and reclassified to the income statement in the periods when the hedged forecast cash flows affect profit or loss, including discontinued hedges for which forecast cash flows are expected to occur. If the forecast transactions are no longer expected to occur, the deferred gains or losses are immediately reclassified to the income statement. 310 302 Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) Point-in-time services are generally for a fixed price or dependent on deal size, e.g., a fixed number of basis points of trade size, where the amount of revenue is known when the performance obligation is met. Fixed over-time fees are recognized on a straight-line basis over the performance period. Custodial and asset management fees can be variable through reference to the size of the customer portfolio. However, they are generally billed on a monthly or quarterly basis once the customer’s portfolio size is known or known with near certainty and therefore also recognized ratably over the performance period. UBS does not recognize performance fees related to management of clients’ assets or fees related to contingencies beyond UBS’s control until such uncertainties are resolved. UBS’s fees are generally earned from short-term contracts. As a result, UBS’s contracts do not include a financing component or result in the recognition of significant receivables or prepayment assets. Furthermore, due to the short-term nature of such contracts, UBS has not capitalized any material costs to obtain or fulfill a contract or generated any significant contract assets or liabilities. UBS presents expenses primarily in line with their nature in the income statement, differentiating between expenses that are directly attributable to the satisfaction of specific performance obligations associated with the generation of revenues, which are generally presented within Total operating income as Fee and commission expense, and those that are related to personnel, general and administrative expenses, which are presented within Total operating expenses. For derivatives execution and clearing services (where UBS acts as an agent), UBS only records its specific fees in the income statement, with fees payable to other parties not recognized as an expense but instead directly offset against the associated income collected from the given client. › Refer to Note 4 for more information, including the disaggregation of revenues 4) Share-based and other deferred compensation plans UBS recognizes expenses for deferred compensation awards over the period that the employee is required to provide service to become entitled to the award. Where the service period is shortened, for example in the case of employees affected by restructuring programs or mutually agreed termination provisions, recognition of such expense is accelerated to the termination date. Where no future service is required, such as for employees who are eligible for retirement or who have met certain age and length-of-service criteria, the services are presumed to have been received and compensation expense is recognized over the performance year or, in the case of off-cycle awards, immediately on the grant date. Share-based compensation plans Share-based compensation expense is measured by reference to the fair value of the equity instruments on the date of grant, taking into account the terms and conditions inherent in the award, including, where relevant, dividend rights, transfer restrictions in effect beyond the vesting date, market conditions, and non-vesting conditions. For equity-settled awards, fair value is not remeasured unless the terms of the award are modified such that there is an incremental increase in value. Expenses are recognized, on a per- tranche basis, over the service period based on an estimate of the number of instruments expected to vest and are adjusted to reflect the actual outcomes of service or performance conditions. For equity-settled awards, forfeiture events resulting from a breach of a non-vesting condition (i.e., one that does not relate to a service or performance condition) do not result in any adjustment to the share-based compensation expense. For cash-settled share-based awards, fair value is remeasured at each reporting date, so that the cumulative expense recognized equals the cash distributed. Other deferred compensation plans Compensation expense for other deferred compensation plans is recognized on a per-tranche or straight-line basis, depending on the nature of the plan. The amount recognized is measured based on the present value of the amount expected to be paid under the plan and is remeasured at each reporting date, so that the cumulative expense recognized equals the cash or the fair value of respective financial instruments distributed. › Refer to Note 28 for more information Consolidated financial statements | UBS Group AG consolidated financial statements j. Hedge accounting Hedges of net investments in foreign operations The Group applies hedge accounting requirements of IFRS 9, unless Gains or losses on the hedging instrument relating to the effective stated otherwise below, where the criteria for documentation and portion of a hedge are recognized directly in Other comprehensive hedge effectiveness are met. If a hedge relationship no longer income within Equity, while any gains or losses relating to the meets the criteria for hedge accounting, hedge accounting is ineffective and / or undesignated portion (for example, the interest discontinued. Voluntary discontinuation of hedge accounting is element of a forward contract) are recognized in the income permitted under IAS 39 but not under IFRS 9. statement. Upon disposal or partial disposal of the foreign operation, the cumulative value of any such gains or losses recognized in Equity Fair value hedges of interest rate risk related to debt instruments associated with the entity is reclassified to Other income. and loan assets The fair value change of the hedged item attributable to a hedged Interest Rate Benchmark Reform risk is reflected as an adjustment to the carrying amount of the UBS can continue hedge accounting during the period of hedged item, and recognized in the income statement along with uncertainty before existing interest rate benchmarks are replaced the change in the fair value of the hedging instrument. with alternative risk-free interest rates. During this period, UBS can assume that the current benchmark rates will continue to Fair value hedges of portfolio interest rate risk related to loans exist, such that forecast transactions are considered highly designated under IAS 39 probable and hedge relationships remain, with little or no Prior to discontinuation in December 2021, the fair value change consequential impact on the financial statements. Upon of the hedged item attributable to a hedged risk is reflected within replacement of existing interest rate benchmarks by alternative Other financial assets measured at amortized cost or Other risk-free interest rates expected in 2021 and beyond, UBS will financial liabilities measured at amortized cost and recognized in apply the requirements of Amendments to IFRS 9, IAS 39, IFRS 7, the income statement along with the change in the fair value of IFRS 4 and IFRS 16 (Interest Rate Benchmark Reform – Phase 2). the hedging instrument. › Refer to Note 1b for more information Fair value hedges of FX risk related to debt instruments 3) Fee and commission income and expenses The fair value change of the hedged item attributable to the hedged risk is reflected in the measurement of the hedged item UBS earns fee income from the diverse range of services it and recognized in the income statement along with the change provides to its clients. Fee income can be divided into two broad in the fair value of the hedging instrument. The foreign currency categories: fees earned from services that are provided over a basis spread of cross-currency swaps designated as hedging certain period of time, such as management of clients’ assets, derivatives is excluded from the designation and accounted for as custody services and certain advisory services; and fees earned a cost of hedging with amounts deferred in Other comprehensive from point-in-time services, such as underwriting fees, deal- income within Equity. These amounts are released to the income contingent merger and acquisitions fees, and brokerage fees statement over the term of the hedged item. Discontinuation of fair value hedges (e.g., securities and derivatives execution and clearing). UBS recognizes fees earned from point-in-time services when it has fully provided the service to the customer. Where the contract Discontinuations for reasons other than derecognition of the hedged requires services to be provided over time, income is recognized item result in an adjustment to the carrying amount, which is on a systematic basis over the life of the agreement. amortized to the income statement over the remaining life of the Consideration received is allocated to the separately hedged item using the effective interest method. If the hedged item identifiable performance obligations in a contract. Owing to the is derecognized, the unamortized fair value adjustment or deferred nature of UBS’s business, contracts that include multiple cost of hedging amount is recognized immediately in the income performance obligations are typically those that are considered to statement as part of any derecognition gain or loss. Cash flow hedges of forecast transactions include a series of similar performance obligations fulfilled over time with the same pattern of transfer to the client, e.g., management of client assets and custodial services. As a Fair value gains or losses associated with the effective portion of consequence, UBS is not required to apply significant judgment in derivatives designated as cash flow hedges for cash flow repricing allocating the consideration received across the various risk are recognized initially in Other comprehensive income within performance obligations. Equity and reclassified to the income statement in the periods when the hedged forecast cash flows affect profit or loss, including discontinued hedges for which forecast cash flows are expected to occur. If the forecast transactions are no longer expected to occur, the deferred gains or losses are immediately reclassified to the income statement. 310 311 303 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) 5) Post-employment benefit plans 6) Income taxes UBS is subject to the income tax laws of Switzerland and those of the non-Swiss jurisdictions in which UBS has business operations. The Group’s provision for income taxes is composed of current and deferred taxes. Current income taxes represent taxes to be paid or refunded for the current period or previous periods. Deferred taxes are recognized for temporary differences between the carrying amounts and tax bases of assets and liabilities that will result in taxable or deductible amounts in future periods and are measured using the applicable tax rates and laws that have been enacted or substantively enacted by the end of the reporting period and that will be in effect when such differences are expected to reverse. Deferred tax assets arise from a variety of sources, the most significant being: (i) tax losses that can be carried forward to be used against profits in future years; and (ii) temporary differences that will result in deductions against profits in future years. Deferred tax assets are recognized only to the extent it is probable that sufficient taxable profits will be available against which these differences can be used. When an entity or tax group has a history of recent losses, deferred tax assets are only recognized to the extent there are sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses can be utilized. Deferred tax liabilities are recognized for temporary differences between the carrying amounts of assets and liabilities in the balance sheet that reflect the expectation that certain items will give rise to taxable income in future periods. Deferred and current tax assets and liabilities are offset when: (i) they arise in the same tax reporting group; (ii) they relate to the same tax authority; (iii) the legal right to offset exists; and (iv) they are intended to be settled net or realized simultaneously. Current and deferred taxes are recognized as income tax benefit or expense in the income statement, except for current and deferred taxes recognized in relation to: (i) the acquisition of a subsidiary (for which such amounts would affect the amount of goodwill arising from the acquisition); (ii) gains and losses on the sale of treasury shares (for which the tax effects are recognized directly in Equity); (iii) unrealized gains or losses on financial instruments that are classified at FVOCI; (iv) changes in fair value of derivative instruments designated as cash flow hedges; (v) remeasurements of defined benefit plans; or (vi) certain foreign currency translations of foreign operations. Amounts relating to points in Other comprehensive income within Equity. (vi) above are recognized (iii) through UBS reflects the potential effect of uncertain tax positions for which acceptance by the relevant tax authority is not considered probable by adjusting current or deferred taxes, as applicable, using either the most likely amount or expected value methods, depending on which method is deemed a better predictor of the basis on which, and extent to which, the uncertainty will be resolved. Defined benefit plans Defined benefit plans specify an amount of benefit that an employee will receive, which usually depends on one or more factors, such as age, years of service and compensation. The defined benefit liability recognized in the balance sheet is the present value of the defined benefit obligation, measured using the projected unit credit method, less the fair value of the plan’s assets at the balance sheet date, with changes resulting from remeasurements recorded immediately in Other comprehensive income. If the fair value of the plan’s assets is higher than the present value of the defined benefit obligation, the recognition of the resulting net asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Calculation of the net defined benefit obligation or asset takes into account the specific features of each plan, including risk sharing between employee and employer, and is calculated periodically by independent qualified actuaries. Critical accounting estimates and judgments The net defined benefit liability or asset at the balance sheet date and the related personnel expense depend on the expected future benefits to be provided, determined using a number of economic and demographic assumptions. A range of assumptions could be applied, and different assumptions could significantly alter the defined benefit liability or asset and pension expense recognized. The most significant assumptions include life expectancy, discount rate, expected salary increases, pension increases and interest credits on retirement savings account balances. Sensitivity analysis for reasonable possible movements in each significant assumption for UBS‘s post-employment obligations is provided in Note 27. › Refer to Note 27 for more information Defined contribution plans A defined contribution plan pays fixed contributions into a separate entity from which post-employment and other benefits are paid. UBS has no legal or constructive obligation to pay further amounts if the plan does not hold sufficient assets to pay employees the benefits relating to employee service in the current and prior periods. Compensation expense is recognized when the employees have rendered services in exchange for contributions. This is generally in the year of contribution. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. 312 304 Consolidated financial statements | UBS Group AG consolidated financial statements 5) Post-employment benefit plans 6) Income taxes Defined benefit plans UBS is subject to the income tax laws of Switzerland and those of Defined benefit plans specify an amount of benefit that an the non-Swiss jurisdictions in which UBS has business operations. employee will receive, which usually depends on one or more The Group’s provision for income taxes is composed of current factors, such as age, years of service and compensation. The and deferred taxes. Current income taxes represent taxes to be defined benefit liability recognized in the balance sheet is the paid or refunded for the current period or previous periods. present value of the defined benefit obligation, measured using Deferred taxes are recognized for temporary differences the projected unit credit method, less the fair value of the plan’s between the carrying amounts and tax bases of assets and assets at the balance sheet date, with changes resulting from liabilities that will result in taxable or deductible amounts in future remeasurements recorded immediately in Other comprehensive periods and are measured using the applicable tax rates and laws income. If the fair value of the plan’s assets is higher than the that have been enacted or substantively enacted by the end of the present value of the defined benefit obligation, the recognition of reporting period and that will be in effect when such differences the resulting net asset is limited to the present value of economic are expected to reverse. benefits available in the form of refunds from the plan or Deferred tax assets arise from a variety of sources, the most reductions in future contributions to the plan. Calculation of the significant being: (i) tax losses that can be carried forward to be net defined benefit obligation or asset takes into account the used against profits in future years; and (ii) temporary differences specific features of each plan, including risk sharing between that will result in deductions against profits in future years. employee and employer, and is calculated periodically by Deferred tax assets are recognized only to the extent it is probable independent qualified actuaries. Critical accounting estimates and judgments that sufficient taxable profits will be available against which these differences can be used. When an entity or tax group has a history of recent losses, deferred tax assets are only recognized to the extent there are sufficient taxable temporary differences or there The net defined benefit liability or asset at the balance sheet date and the is convincing other evidence that sufficient taxable profit will be related personnel expense depend on the expected future benefits to be available against which the unused tax losses can be utilized. provided, determined using a number of economic and demographic assumptions. A range of assumptions could be applied, and different assumptions could significantly alter the defined benefit liability or asset and pension expense recognized. The most significant assumptions include life expectancy, discount rate, expected salary increases, pension increases and interest credits on retirement savings account balances. Sensitivity Deferred tax liabilities are recognized for temporary differences between the carrying amounts of assets and liabilities in the balance sheet that reflect the expectation that certain items will give rise to taxable income in future periods. Deferred and current tax assets and liabilities are offset when: analysis for reasonable possible movements in each significant assumption (i) they arise in the same tax reporting group; (ii) they relate to the for UBS‘s post-employment obligations is provided in Note 27. › Refer to Note 27 for more information Defined contribution plans A defined contribution plan pays fixed contributions into a separate entity from which post-employment and other benefits are paid. UBS has no legal or constructive obligation to pay further amounts if the plan does not hold sufficient assets to pay employees the benefits relating to employee service in the current and prior periods. Compensation expense is recognized when the employees have rendered services in exchange for contributions. This is generally in the year of contribution. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. same tax authority; (iii) the legal right to offset exists; and (iv) they are intended to be settled net or realized simultaneously. Current and deferred taxes are recognized as income tax benefit or expense in the income statement, except for current and deferred taxes recognized in relation to: (i) the acquisition of a subsidiary (for which such amounts would affect the amount of goodwill arising from the acquisition); (ii) gains and losses on the sale of treasury shares (for which the tax effects are recognized directly in Equity); (iii) unrealized gains or losses on financial instruments that are classified at FVOCI; (iv) changes in fair value of derivative instruments designated as cash flow hedges; (v) remeasurements of defined benefit plans; or (vi) certain foreign currency translations of foreign operations. Amounts relating to points (iii) through (vi) above are recognized in Other comprehensive income within Equity. UBS reflects the potential effect of uncertain tax positions for which acceptance by the relevant tax authority is not considered probable by adjusting current or deferred taxes, as applicable, using either the most likely amount or expected value methods, depending on which method is deemed a better predictor of the basis on which, and extent to which, the uncertainty will be resolved. Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) Critical accounting estimates and judgments Critical accounting estimates and judgments Tax laws are complex, and judgment and interpretations about the application of such laws are required when accounting for income taxes. UBS considers the performance of its businesses and the accuracy of historical forecasts and other factors when evaluating the recoverability of its deferred tax assets, including the remaining tax loss carry-forward period, and its assessment of expected future taxable profits in the forecast period used for recognizing deferred tax assets. Estimating future profitability and business plan forecasts is inherently subjective and is particularly sensitive to future economic, market and other conditions. Forecasts are reviewed annually, but adjustments may be made at other times, if required. If recent losses have been incurred, convincing evidence is required to prove there is sufficient future profitability given the value of UBS’s deferred tax assets may be affected, with effects primarily recognized through the income statement. UBS‘s methodology for goodwill impairment testing is based on a model that is most sensitive to the following key assumptions: (i) forecasts of earnings available to shareholders in years one to three; (ii) changes in the discount rates; and (iii) changes in the long-term growth rate. Earnings available to shareholders are estimated on the basis of forecast results, which are part of the business plan approved by the Board of Directors. The discount rates and growth rates are determined using external information, and also considering inputs from both internal and external analysts and the view of management. The key assumptions used to determine the recoverable amounts of each cash-generating unit are tested for sensitivity by applying reasonably possible changes to those assumptions. › Refer to Notes 2 and 13 for more information tax positions and In addition, judgment is required to assess the expected value of including the uncertain interpretation of tax laws, the resolution of any income tax-related appeals and litigation. › Refer to Note 8 for more information related probabilities, 7) Property, equipment and software Property, equipment and software is measured at cost less accumulated depreciation and impairment losses. Software development costs are capitalized only when the costs can be measured reliably and it is probable that future economic benefits will arise. Depreciation of property, equipment and software begins when they are available for use and is calculated on a straight line basis over an asset’s estimated useful life. Property, equipment and software are generally tested for impairment at the appropriate cash-generating unit level, alongside goodwill and intangible assets as described in item 8 in this Note. An impairment charge is recognized for such assets if the recoverable amount is below its carrying amount. The recoverable amounts of such assets, other than property that has a market price, are generally determined using a replacement cost approach that reflects the amount that would be currently required by a market participant to replace the service capacity of the asset. If such assets are no longer used, they are tested individually for impairment. › Refer to Note 12 for more information 8) Goodwill Goodwill represents the excess of the consideration over the fair value of identifiable assets, liabilities and contingent liabilities acquired that arises in a business combination. Goodwill is not amortized, but is assessed for impairment at the end of each reporting period, or when indicators of impairment exist. UBS tests goodwill for impairment annually, irrespective of whether there is any indication of impairment. An impairment charge is recognized in the income statement if the carrying amount exceeds the recoverable amount. 9) Provisions and contingent liabilities Provisions are liabilities of uncertain timing or amount, and are generally recognized in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, when: (i) UBS has a present obligation as a result of a past event; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made. The majority of UBS’s provisions relate to litigation, regulatory and similar matters, restructuring, and employee benefits. Restructuring provisions are generally recognized as a consequence of management agreeing to materially change the scope of the business or the manner in which it is conducted, including changes in management structures. Provisions for employee benefits relate mainly to service anniversaries and sabbatical in accordance with measurement principles set out in item 4 in this Note. In addition, UBS presents expected credit loss allowances within Provisions if they relate to a loan commitment, financial guarantee contract or a revolving revocable credit line. leave, and are recognized IAS 37 provisions are measured considering the best estimate of the consideration required to settle the present obligation at the balance sheet date. When conditions required to recognize a provision are not met, a contingent liability is disclosed, unless the likelihood of an outflow of resources is remote. Contingent liabilities are also disclosed for possible obligations that arise from past events the existence of which will be confirmed only by uncertain future events not wholly within the control of UBS. 312 313 305 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 1 Summary of material accounting policies (continued) Critical accounting estimates and judgments Recognition of provisions often involves significant judgment in assessing the existence of an obligation that results from past events and in estimating the probability, timing and amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to their nature, are subject to many uncertainties, making their outcome difficult to predict. The amount of any provision recognized is sensitive to the assumptions used and there could be a wide range of possible outcomes for any particular matter. Management regularly reviews all the available information regarding such matters, including legal advice, to assess whether the recognition criteria for provisions have been satisfied and to determine the timing and amount of any potential outflows. › Refer to Note 18 for more information 10) Foreign currency translation Transactions denominated in a foreign currency are translated into the functional currency of the reporting entity at the spot exchange rate on the date of the transaction. At the balance sheet date, all monetary assets, including those at FVOCI, and monetary liabilities denominated in foreign currency are translated into the functional currency using the closing exchange rate. Translation differences are reported in Other net income from financial instruments measured at fair value through profit or loss. Non-monetary items measured at historical cost are translated at the exchange rate on the date of the transaction. Upon consolidation, assets and liabilities of foreign operations are translated into US dollars, UBS’s presentation currency, at the closing exchange rate on the balance sheet date, and income and expense items and other comprehensive income are translated at the average rate for the period. The resulting foreign currency translation differences are recognized in Equity and reclassified to the income statement when UBS disposes of, partially or in its entirety, the foreign operation and UBS no longer controls the foreign operation. Share capital issued, share premium and treasury shares held are translated at the historic average rate, with the difference between the historic average rate and the spot rate realized upon repayment of share capital or disposal of treasury shares reported as Share premium. Cumulative amounts recognized in Other comprehensive income in respect of cash flow hedges and financial assets measured at FVOCI are translated at the closing exchange rate as of the balance sheet dates, with any translation effects adjusted through Retained earnings. › Refer to Note 33 for more information 11) Equity, treasury shares and contracts on UBS Group AG shares UBS Group AG shares held (treasury shares) UBS Group AG shares held by the Group, including those purchased as part of market-making activities, are presented in Equity as Treasury shares at their acquisition cost and are deducted from Equity until they are canceled or reissued. The difference between the proceeds from sales of treasury shares and their weighted average cost (net of tax, if any) is reported as Share premium. Net cash settlement contracts Contracts involving UBS Group AG shares that require net cash settlement, or provide the counterparty or UBS with a settlement option that includes a choice of settling net in cash, are classified as derivatives held for trading. 314 306 Consolidated financial statements | UBS Group AG consolidated financial statements Critical accounting estimates and judgments Recognition of provisions often involves significant judgment in assessing the existence of an obligation that results from past events and in estimating the probability, timing and amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to their nature, are subject to many uncertainties, making their outcome difficult to predict. The amount of any provision recognized is sensitive to the assumptions used and there could be a wide range of possible outcomes for any particular matter. Management regularly reviews all the available information regarding such matters, including legal advice, to assess whether the recognition criteria for provisions have been satisfied and to determine the timing and amount of any potential outflows. › Refer to Note 18 for more information translation differences are recognized in Equity and reclassified to the income statement when UBS disposes of, partially or in its entirety, the foreign operation and UBS no longer controls the foreign operation. Share capital issued, share premium and treasury shares held are translated at the historic average rate, with the difference between the historic average rate and the spot rate realized upon repayment of share capital or disposal of treasury shares reported as Share premium. Cumulative amounts recognized in Other comprehensive income in respect of cash flow hedges and financial assets measured at FVOCI are translated at the closing exchange rate as of the balance sheet dates, with any translation effects adjusted through Retained earnings. › Refer to Note 33 for more information 11) Equity, treasury shares and contracts on UBS Group AG 10) Foreign currency translation shares Transactions denominated in a foreign currency are translated into the functional currency of the reporting entity at the spot exchange rate on the date of the transaction. At the balance sheet date, all monetary assets, including those at FVOCI, and monetary liabilities denominated in foreign currency are translated into the functional currency using the closing exchange rate. Translation differences are reported in Other net income from financial instruments measured at fair value through profit or loss. Non-monetary items measured at historical cost are translated UBS Group AG shares held (treasury shares) UBS Group AG shares held by the Group, including those purchased as part of market-making activities, are presented in Equity as Treasury shares at their acquisition cost and are deducted from Equity until they are canceled or reissued. The difference between the proceeds from sales of treasury shares and their weighted average cost (net of tax, if any) is reported as Share premium. at the exchange rate on the date of the transaction. Net cash settlement contracts Upon consolidation, assets and liabilities of foreign operations are translated into US dollars, UBS’s presentation currency, at the closing exchange rate on the balance sheet date, and income and Contracts involving UBS Group AG shares that require net cash settlement, or provide the counterparty or UBS with a settlement option that includes a choice of settling net in cash, are classified expense items and other comprehensive income are translated at as derivatives held for trading. the average rate for the period. The resulting foreign currency Note 1 Summary of material accounting policies (continued) Note 1 Summary of material accounting policies (continued) b) Changes in accounting policies, comparability and other adjustments Amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2, Making Materiality Judgements Effective from 1 January 2021, UBS early adopted amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2, Making Materiality Judgements, issued by IASB in February 2021. The disclosure of material accounting policies in Note 1a has been refined through adopting these amendments. Amendments to IAS 39, IFRS 9 and IFRS 7 (Interest Rate Benchmark Reform – Phase 2) On 1 January 2021, UBS adopted Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), addressing a number of issues in financial reporting areas that arise when interbank offered rates (IBORs) are reformed or replaced. The amendments provide a practical expedient that permits certain changes in the contractual cash flows of debt instruments attributable to the replacement of IBORs with for alternative prospectively by updating a given instrument’s effective interest rate (EIR), provided (i) the change is necessary as a direct consequence of IBOR reform and (ii) the new basis for determining the contractual cash flows is economically equivalent to the previous basis. UBS has adopted the amendments, which had no material effect on the Group’s financial statements. to be accounted reference (ARRs) rates The amendments also provide various hedge accounting reliefs, with the following adopted by UBS: – Designate an ARR as a non-contractually specified risk component, even if it is not separately identifiable at the date when it was designated, provided UBS can reasonably expect that it will meet the requirements within 24 months of the first designation and the risk component is reliably measurable. As of 31 December 2021, the principal ARRs that UBS has designated as the hedged risk in fair value hedges of interest rate risk related to debt instruments, mortgages and cash flow hedges of forecast transactions were the Secured Overnight Financing Rate (SOFR), the Swiss Average Rate Overnight (SARON) and the Sterling Overnight Index Average (SONIA). – Amend hedge documentation for the fair value hedges of interest rate risk related to debt instruments for which the hedged risk changed due to IBOR reform, which allowed UBS to continue the hedge relationship in accordance with the requirements of the phase 2 amendment. – The cash flow hedges of IBOR forecast transactions in Swiss francs and pounds sterling were discontinued and replaced with new ARR designations in December 2021. The amount accumulated in the cash flow hedge reserve is deemed to be based on the ARR on which the hedged future cash flows will be based. Amounts will be released to the income statement when the forecast ARR cash flows affect the income statement or are no longer expected to occur. › Refer to Note 26 for more information The amendments also introduced additional disclosure requirements regarding the Group’s management of the transition to alternative benchmark rates, its progress as at the reporting date and the risks to which it is exposed arising from financial instruments because of the transition. › Refer to Note 25 for more information c) International Financial Reporting Standards and Interpretations to be adopted in 2022 and later and other changes IFRS 17, Insurance Contracts In May 2017, the IASB issued IFRS 17, Insurance Contracts, which sets out the accounting requirements for contractual rights and obligations that arise from insurance contracts issued and reinsurance contracts held. IFRS 17 is effective from 1 January 2023. UBS is assessing the standard, but does not expect it to have a material effect on the Group’s financial statements. 314 315 307 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 2a Segment reporting UBS’s businesses are organized globally into four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management and the Investment Bank. All four business divisions are supported by Group Functions and qualify as reportable segments for the purpose of segment reporting. Together with Group Functions, the four business divisions reflect the management structure of the Group. – Global Wealth Management provides financial services, advice and solutions to private clients, in particular in the ultra high net worth and high net worth segments. Its offering ranges from investment management to estate planning and corporate finance advice, in addition to specific wealth management products and services. The business division is managed globally across the regions. – Personal & Corporate Banking serves its private, corporate, and institutional clients’ needs, from basic banking to retirement, financing, investments and strategic transactions, in Switzerland, through its branch network and digital channels. – Asset Management is a large-scale and diversified global asset manager. It offers investment capabilities and styles across all major traditional and alternative asset classes, as well as advisory support to institutions, wholesale intermediaries and wealth management clients globally. – The Investment Bank provides a range of services to institutional, corporate and wealth management clients globally, to help them raise capital, grow their businesses, invest and manage risks. Its offering includes advisory services, facilitating clients raising debt and equity from the public and private markets and capital markets, cash and derivatives trading across equities and fixed income, and financing. – Group Functions is made up of the following major areas: Group Services (which consists of Technology, Corporate Services, Human Resources, Finance, Legal, Risk Control, Compliance, Regulatory & Governance, Communications & Branding and Group Sustainability and Impact), Group Treasury and Non-core and Legacy Portfolio. Financial information about the four business divisions and Group Functions is presented separately in internal management reports to the Group Executive Board (the GEB), which is considered the “chief operating decision maker” pursuant to IFRS 8, Operating Segments. UBS’s internal accounting policies, which include management accounting policies and service level agreements, determine the revenues and expenses directly attributable to each reportable segment. Transactions between the reportable segments are carried out at internally agreed rates and are reflected in the operating results of the reportable segments. Revenue-sharing agreements are used to allocate external client revenues to reportable segments where several reportable segments are involved in the value creation chain. Total intersegment revenues for the Group are immaterial, as the majority of the revenues are allocated across the segments by means of revenue-sharing agreements. Interest income earned from managing UBS’s consolidated equity is allocated to the reportable segments based on average attributed equity and currency composition. Assets and liabilities of the reportable segments are funded through and invested with Group Functions, and the net interest margin is reflected in the results of each reportable segment. Segment assets are based on a third-party view and do not include intercompany balances. This view is in line with internal reporting to the GEB. If one operating segment is involved in an external transaction together with another operating segment or Group Functions, additional criteria are considered to determine the segment that will report the associated assets. This will include a consideration of which segment’s business needs are being addressed by the transaction and which segment is providing the funding and / or resources. Allocation of liabilities follows the same principles. Non-current assets disclosed for segment reporting purposes represent assets that are expected to be recovered more than 12 months after the reporting date, excluding financial instruments, deferred tax assets and post-employment benefits. 316 308 Note 2a Segment reporting Note 2a Segment reporting (continued) USD million For the year ended 31 December 2021 Net interest income Non-interest income Income Credit loss (expense) / release Total operating income Total operating expenses OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Tax expense / (benefit) NNeett pprrooffiitt // ((lloossss)) AAddddiittiioonnaall iinnffoorrmmaattiioonn Total assets Additions to non-current assets USD million FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002200 Net interest income Non-interest income1 Income Credit loss (expense) / release Total operating income Total operating expenses OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Tax expense / (benefit) NNeett pprrooffiitt // ((lloossss)) AAddddiittiioonnaall iinnffoorrmmaattiioonn Total assets Additions to non-current assets – Group Functions is made up of the following major areas: Non-current assets disclosed for segment reporting purposes USD million Consolidated financial statements | UBS Group AG consolidated financial statements UBS’s businesses are organized globally into four business Financial information about the four business divisions and divisions: Global Wealth Management, Personal & Corporate Group Functions is presented separately in internal management Banking, Asset Management and the Investment Bank. All four reports to the Group Executive Board (the GEB), which is business divisions are supported by Group Functions and qualify considered the “chief operating decision maker” pursuant to as reportable segments for the purpose of segment reporting. IFRS 8, Operating Segments. Together with Group Functions, the four business divisions reflect UBS’s internal accounting policies, which include management the management structure of the Group. accounting policies and service level agreements, determine the revenues and expenses directly attributable to each reportable – Global Wealth Management provides financial services, segment. Transactions between the reportable segments are advice and solutions to private clients, in particular in the ultra carried out at internally agreed rates and are reflected in the high net worth and high net worth segments. Its offering operating results of the reportable segments. Revenue-sharing ranges from investment management to estate planning and agreements are used to allocate external client revenues to corporate finance advice, in addition to specific wealth reportable segments where several reportable segments are management products and services. The business division is involved in the value creation chain. Total intersegment revenues managed globally across the regions. for the Group are immaterial, as the majority of the revenues are – Personal & Corporate Banking serves its private, corporate, allocated across the segments by means of revenue-sharing and institutional clients’ needs, from basic banking to agreements. Interest income earned from managing UBS’s retirement, financing, investments and strategic transactions, consolidated equity is allocated to the reportable segments based in Switzerland, through its branch network and digital on average attributed equity and currency composition. Assets channels. and liabilities of the reportable segments are funded through and – Asset Management is a large-scale and diversified global invested with Group Functions, and the net interest margin is asset manager. It offers investment capabilities and styles reflected in the results of each reportable segment. across all major traditional and alternative asset classes, as well Segment assets are based on a third-party view and do not as advisory support to institutions, wholesale intermediaries include intercompany balances. This view is in line with internal and wealth management clients globally. reporting to the GEB. If one operating segment is involved in an – The Investment Bank provides a range of services to external transaction together with another operating segment or institutional, corporate and wealth management clients Group Functions, additional criteria are considered to determine globally, to help them raise capital, grow their businesses, the segment that will report the associated assets. This will include invest and manage risks. Its offering includes advisory services, a consideration of which segment’s business needs are being facilitating clients raising debt and equity from the public and addressed by the transaction and which segment is providing the private markets and capital markets, cash and derivatives funding and / or resources. Allocation of liabilities follows the trading across equities and fixed income, and financing. same principles. Group Services (which consists of Technology, Corporate represent assets that are expected to be recovered more than 12 Services, Human Resources, Finance, Legal, Risk Control, months after the reporting date, excluding financial instruments, Compliance, Regulatory & Governance, Communications & deferred tax assets and post-employment benefits. Branding and Group Sustainability and Impact), Group Treasury and Non-core and Legacy Portfolio. Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions UBS 4,244 15,175 19,419 29 19,449 14,665 44,,778833 2,120 2,143 4,263 86 4,349 2,618 11,,773311 (15) 2,632 2,617 (1) 2,616 1,586 11,,003300 481 8,972 9,454 34 9,488 6,858 22,,663300 (127) (233) (359) 0 (360) 330 ((668899)) 6,705 28,689 35,393 148 35,542 26,058 99,,448844 1,998 77,,448866 395,235 56 Global Wealth Management 225,370 16 Personal & Corporate Banking 25,639 1 346,431 30 124,507 1,989 1,117,182 2,091 Asset Management Investment Bank Group Functions 4,027 13,107 17,134 (88) 17,045 13,026 44,,001199 2,049 1,858 3,908 (257) 3,651 2,392 11,,225599 (17) 2,993 2,975 (2) 2,974 1,519 11,,445555 284 9,235 9,519 (305) 9,214 6,732 22,,448822 (481) 30 (452) (42) (494) 567 ((11,,006600)) UBS 5,862 27,222 33,084 (694) 32,390 24,235 88,,115555 1,583 66,,557722 367,714 5 231,657 12 28,589 385 369,683 150 128,122 2,294 1,125,765 2,847 Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions UBS For the year ended 31 December 2019 Net interest income Non-interest income Income Credit loss (expense) / release Total operating income Total operating expenses OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx Tax expense / (benefit) NNeett pprrooffiitt // ((lloossss)) AAddddiittiioonnaall iinnffoorrmmaattiioonn Total assets Additions to non-current assets 11 Includes a USD 631 million net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG), of which USD 571 million was recognized in Asset Management and USD 60 million was recognized in Global Wealth Management. 4,501 24,467 28,967 (78) 28,889 23,312 55,,557777 1,267 44,,331100 3,947 12,426 16,373 (20) 16,353 12,955 33,,339977 (25) 1,962 1,938 0 1,938 1,406 553322 (669) 7,968 7,299 (30) 7,269 6,485 778844 1,992 1,744 3,736 (21) 3,715 2,274 11,,444411 (744) 367 (378) (7) (385) 192 ((557777)) 315,855 1 102,603 5,217 972,194 5,297 209,405 10 309,766 68 34,565 0 316 317 309 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 2b Segment reporting by geographic location The operating regions shown in the table below correspond to the regional management structure of the Group. The allocation of operating income to these regions reflects, and is consistent with, the basis on which the business is managed and its performance is evaluated. These allocations involve assumptions and judgments that management considers to be reasonable, and may be refined to reflect changes in estimates or management structure. The main principles of the allocation methodology are that client revenues are attributed to the domicile of the given client and trading and portfolio management revenues are attributed to the country where the risk is managed. This revenue attribution is consistent with the mandate of the regional Presidents. Certain revenues, such as those related to Non-core and Legacy Portfolio in Group Functions, are managed at a Group level. These revenues are included in the Global line. The geographic analysis of non-current assets is based on the location of the entity in which the given assets are recorded. TToottaall ooppeerraattiinngg iinnccoommee TToottaall nnoonn--ccuurrrreenntt aasssseettss UUSSDD bbiilllliioonn SShhaarree %% UUSSDD bbiilllliioonn SShhaarree %% 1144..55 1133..55 66..55 77..00 77..99 ((00..33)) 3355..55 4411 3388 1188 2200 2222 ((11)) 110000 99..00 88..55 11..55 22..99 77..11 00..00 2200..55 4444 4411 77 1144 3355 00 110000 Total operating income Total non-current assets USD billion Share % USD billion Share % 13.0 11.7 6.0 6.5 6.9 0.1 3322..44 40 36 18 20 21 0 110000 9.0 8.4 1.5 3.0 7.6 0.0 2211..11 42 40 7 14 36 0 110000 Total operating income Total non-current assets USD billion Share % USD billion Share % 12.0 10.9 4.7 5.8 6.7 (0.3) 2288..99 42 38 16 20 23 (1) 110000 8.9 8.5 1.4 3.0 7.1 0.0 2200..33 44 42 7 15 35 0 110000 For the year ended 31 December 2021 Americas of which: USA Asia Pacific Europe, Middle East and Africa (excluding Switzerland) Switzerland Global TToottaall For the year ended 31 December 2020 Americas of which: USA Asia Pacific Europe, Middle East and Africa (excluding Switzerland) Switzerland Global TToottaall For the year ended 31 December 2019 Americas of which: USA Asia Pacific Europe, Middle East and Africa (excluding Switzerland) Switzerland Global TToottaall 318 310 Consolidated financial statements | UBS Group AG consolidated financial statements Note 2b Segment reporting by geographic location Income statement notes The operating regions shown in the table below correspond to client and trading and portfolio management revenues are the regional management structure of the Group. The allocation attributed to the country where the risk is managed. This revenue of operating income to these regions reflects, and is consistent attribution is consistent with the mandate of the regional with, the basis on which the business is managed and its Presidents. Certain revenues, such as those related to Non-core performance is evaluated. These allocations involve assumptions and Legacy Portfolio in Group Functions, are managed at a Group and judgments that management considers to be reasonable, and level. These revenues are included in the Global line. may be refined to reflect changes in estimates or management The geographic analysis of non-current assets is based on the structure. The main principles of the allocation methodology are location of the entity in which the given assets are recorded. that client revenues are attributed to the domicile of the given Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss USD million Net interest income from financial instruments measured at fair value through profit or loss Other net income from financial instruments measured at fair value through profit or loss of which: net gains / (losses) from financial liabilities designated at fair value 1 TToottaall nneett iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss For the year ended 3311..1122..2211 11,,443311 55,,885500 ((66,,558822)) 77,,228811 31.12.20 1,299 6,960 1,509 8,259 31.12.19 1,011 6,842 (8,748) 7,853 Net interest income Interest income from loans and deposits2 Interest income from securities financing transactions3 Interest income from other financial instruments measured at amortized cost Interest income from debt instruments measured at fair value through other comprehensive income Interest income from derivative instruments designated as cash flow hedges TToottaall iinntteerreesstt iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt aanndd ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee Interest expense on loans and deposits4 Interest expense on securities financing transactions5 Interest expense on debt issued Interest expense on lease liabilities TToottaall iinntteerreesstt eexxppeennssee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt TToottaall nneett iinntteerreesstt iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt aanndd ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee TToottaall nneett iinntteerreesstt iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss TToottaall nneett iinntteerreesstt iinnccoommee 11 Excludes fair value changes of hedges related to financial liabilities designated at fair value and foreign currency translation effects arising from translating foreign currency transactions into the respective functional currency, both of which are reported within Other net income from financial instruments measured at fair value through profit or loss. 2021 included net losses of USD 2,068 million (net losses of USD 72 million and USD 1,830 million in 2020 and 2019, respectively), driven by financial liabilities related to unit-linked investment contracts, which are designated at fair value through profit or loss. This was offset by net gains of USD 2,068 million (net gains of USD 72 million and USD 1,830 million in 2020 and 2019, respectively), related to financial assets for unit-linked investment contracts that are mandatorily measured at fair value through profit or loss not held for trading. 22 Consists of interest income from cash and balances at central banks, loans and advances to banks and customers, and cash collateral receivables on derivative instruments, as well as negative interest on amounts due to banks, customer deposits, and cash collateral payables on derivative instruments. 33 Includes interest income on receivables from securities financing transactions and negative interest, including fees, on payables from securities financing transactions. 44 Consists of interest expense on amounts due to banks, cash collateral payables on derivative instruments, and customer deposits, as well as negative interest on cash and balances at central banks, loans and advances to banks, and cash collateral receivables on derivative instruments. 55 Includes interest expense on payables from securities financing transactions and negative interest, including fees, on receivables from securities financing transactions. 8,008 2,005 364 120 188 10,684 2,634 1,152 3,285 122 7,194 3,490 1,011 4,501 66,,448888 551133 228844 111155 11,,113333 88,,553333 552233 11,,110022 11,,553333 110022 33,,225599 55,,227744 11,,443311 66,,770055 6,690 862 335 101 822 8,810 1,031 870 2,237 110 4,247 4,563 1,299 5,862 For the year ended 31 December 2021 Europe, Middle East and Africa (excluding Switzerland) For the year ended 31 December 2020 Europe, Middle East and Africa (excluding Switzerland) For the year ended 31 December 2019 Americas of which: USA Asia Pacific Switzerland Global TToottaall Americas of which: USA Asia Pacific Switzerland Global TToottaall Americas of which: USA Asia Pacific Switzerland Global TToottaall Europe, Middle East and Africa (excluding Switzerland) TToottaall ooppeerraattiinngg iinnccoommee TToottaall nnoonn--ccuurrrreenntt aasssseettss UUSSDD bbiilllliioonn SShhaarree %% UUSSDD bbiilllliioonn SShhaarree %% Total operating income Total non-current assets USD billion Share % USD billion Share % 1144..55 1133..55 66..55 77..00 77..99 ((00..33)) 3355..55 13.0 11.7 6.0 6.5 6.9 0.1 3322..44 12.0 10.9 4.7 5.8 6.7 (0.3) 2288..99 4411 3388 1188 2200 2222 ((11)) 110000 40 36 18 20 21 0 110000 42 38 16 20 23 (1) 110000 99..00 88..55 11..55 22..99 77..11 00..00 2200..55 9.0 8.4 1.5 3.0 7.6 0.0 2211..11 8.9 8.5 1.4 3.0 7.1 0.0 2200..33 4444 4411 77 1144 3355 00 110000 42 40 7 14 36 0 110000 44 42 7 15 35 0 110000 Total operating income Total non-current assets USD billion Share % USD billion Share % 318 319 311 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 4 Net fee and commission income USD million FFeeee aanndd ccoommmmiissssiioonn iinnccoommee Underwriting fees M&A and corporate finance fees Brokerage fees Investment fund fees Portfolio management and related services Other TToottaall ffeeee aanndd ccoommmmiissssiioonn iinnccoommee11 of which: recurring of which: transaction-based of which: performance-based FFeeee aanndd ccoommmmiissssiioonn eexxppeennssee Brokerage fees paid Distribution fees paid Other TToottaall ffeeee aanndd ccoommmmiissssiioonn eexxppeennssee NNeett ffeeee aanndd ccoommmmiissssiioonn iinnccoommee of which: net brokerage fees For the year ended 3311..1122..2211 31.12.20 31.12.19 11,,446633 11,,110022 44,,338822 55,,779900 99,,776622 11,,887744 2244,,337722 1155,,441100 88,,669922 226699 225599 661111 11,,111155 11,,998855 2222,,338877 44,,112233 1,085 736 4,132 5,289 8,009 1,710 20,961 13,009 7,491 461 274 589 912 1,775 19,186 3,858 741 774 3,248 4,858 7,656 1,832 19,110 12,544 6,402 163 310 590 797 1,696 17,413 2,938 11 For the year ended 31 December 2021, reflects third-party fee and commission income of USD 14,545 million for Global Wealth Management, USD 1,644 million for Personal & Corporate Banking, USD 3,337 million for Asset Management, USD 4,814 million for the Investment Bank and USD 33 million for Group Functions (for the year ended 31 December 2020: USD 12,475 million for Global Wealth Management, USD 1,426 million for Personal & Corporate Banking, USD 3,129 million for Asset Management, USD 3,882 million for the Investment Bank and USD 49 million for Group Functions; for the year ended 31 December 2019: USD 11,694 million for Global Wealth Management, USD 1,307 million for Personal & Corporate Banking, USD 2,659 million for Asset Management, USD 3,355 million for the Investment Bank and USD 94 million for Group Functions). Note 5 Other income USD million AAssssoocciiaatteess,, jjooiinntt vveennttuurreess aanndd ssuubbssiiddiiaarriieess Net gains / (losses) from acquisitions and disposals of subsidiaries1 Net gains / (losses) from disposals of investments in associates Share of net profits of associates and joint ventures Impairments related to associates TToottaall Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income Income from properties3 Net gains / (losses) from properties held for sale Other TToottaall ootthheerr iinnccoommee For the year ended 3311..1122..2211 31.12.20 31.12.19 ((1111)) 4411 110055 00 113355 99 2233 11000044 11885566 445522 6352 0 84 0 719 40 26 765 2167 1,076 (36) 4 46 (1) 13 31 27 (19) 160 212 11 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to the disposal or closure of foreign operations. 22 Includes a USD 631 million net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG). 33 Includes rent received from third parties. 44 Mainly relates to the sale of a property in Basel. 55 Includes net gains of USD 140 million arising from sale-and- leaseback transactions, primarily related to a property in Geneva, partly offset by remeasurement losses relating to properties that were reclassified as held for sale. 66 Includes a gain of USD 100 million from the sale of UBS's domestic wealth management business in Austria. Refer to Note 30 for more information. 77 Includes a USD 215 million gain on the sale of intellectual property rights associated with the Bloomberg Commodity Index family. 320 312 Consolidated financial statements | UBS Group AG consolidated financial statements Note 4 Net fee and commission income Portfolio management and related services USD million FFeeee aanndd ccoommmmiissssiioonn iinnccoommee Underwriting fees M&A and corporate finance fees Brokerage fees Investment fund fees Other TToottaall ffeeee aanndd ccoommmmiissssiioonn iinnccoommee11 of which: recurring of which: transaction-based of which: performance-based FFeeee aanndd ccoommmmiissssiioonn eexxppeennssee Brokerage fees paid Distribution fees paid Other TToottaall ffeeee aanndd ccoommmmiissssiioonn eexxppeennssee NNeett ffeeee aanndd ccoommmmiissssiioonn iinnccoommee of which: net brokerage fees million for Group Functions). Note 5 Other income USD million AAssssoocciiaatteess,, jjooiinntt vveennttuurreess aanndd ssuubbssiiddiiaarriieess Net gains / (losses) from acquisitions and disposals of subsidiaries1 Net gains / (losses) from disposals of investments in associates Share of net profits of associates and joint ventures Impairments related to associates TToottaall Income from properties3 Net gains / (losses) from properties held for sale Other TToottaall ootthheerr iinnccoommee Commodity Index family. For the year ended 3311..1122..2211 31.12.20 31.12.19 11,,446633 11,,110022 44,,338822 55,,779900 99,,776622 11,,887744 2244,,337722 1155,,441100 88,,669922 226699 225599 661111 11,,111155 11,,998855 2222,,338877 44,,112233 ((1111)) 4411 110055 00 113355 99 2233 11000044 11885566 445522 1,085 736 4,132 5,289 8,009 1,710 20,961 13,009 7,491 461 274 589 912 1,775 19,186 3,858 6352 0 84 0 719 40 26 765 2167 1,076 741 774 3,248 4,858 7,656 1,832 19,110 12,544 6,402 163 310 590 797 1,696 17,413 2,938 (36) 4 46 (1) 13 31 27 (19) 160 212 For the year ended 3311..1122..2211 31.12.20 31.12.19 11 For the year ended 31 December 2021, reflects third-party fee and commission income of USD 14,545 million for Global Wealth Management, USD 1,644 million for Personal & Corporate Banking, USD 3,337 million for Asset Management, USD 4,814 million for the Investment Bank and USD 33 million for Group Functions (for the year ended 31 December 2020: USD 12,475 million for Global Wealth Management, USD 1,426 million for Personal & Corporate Banking, USD 3,129 million for Asset Management, USD 3,882 million for the Investment Bank and USD 49 million for Group Functions; for the year ended 31 December 2019: USD 11,694 million for Global Wealth Management, USD 1,307 million for Personal & Corporate Banking, USD 2,659 million for Asset Management, USD 3,355 million for the Investment Bank and USD 94 Note 6 Personnel expenses USD million Salaries1 Variable compensation – performance awards2 Variable compensation – other2 Financial advisor compensation2,4 Contractors Social security Post-employment benefit plans5 of which: defined benefit plans of which: defined contribution plans Other personnel expenses TToottaall ppeerrssoonnnneell eexxppeennsseess For the year ended 3311..1122..2211 31.12.20 31.12.19 77,,333399 33,,119900 222299 44,,886600 338811 997788 88333366 447700 336633 557766 7,023 3,2093 220 4,091 375 8993 845 502 343 5613 6,518 2,755 246 4,043 381 799 787 461 326 555 1188,,338877 17,224 16,084 11 Includes role-based allowances. 22 Refer to Note 28 for more information. 33 During 2020, UBS modified the conditions for continued vesting of certain outstanding deferred compensation awards for qualifying employees, resulting in an expense of approximately USD 280 million, of which USD 240 million is disclosed within Variable compensation – performance awards, USD 20 million within Social security and USD 20 million within Other personnel expenses. 44 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 55 Refer to Note 27 for more information. 66 Includes curtailment gains of USD 80 million, which represent a reduction in the defined benefit obligation related to the Swiss pension plan resulting from a decrease in headcount following restructuring activities. Note 7 General and administrative expenses1 USD million Outsourcing costs IT expenses Consulting, legal and audit fees Real estate and logistics costs Market data services Marketing and communication Travel and entertainment Litigation, regulatory and similar matters2 Other of which: UK and German bank levies3 TToottaall ggeenneerraall aanndd aaddmmiinniissttrraattiivvee eexxppeennsseess For the year ended 3311..1122..2211 31.12.20 889933 11,,005555 554400 663344 441177 224422 7722 991111 778888 5588 55,,555533 951 949 646 671 413 217 84 197 757 31.12.19 1,072 860 850 662 414 270 298 165 696 55 4,885 41 5,288 Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income 11 In 2021, UBS changed the presentation of the line items within general and administrative expenses. Prior-period information reflects the new presentation structure, with no effect on Total general and administrative expenses. 22 Reflects the net increase in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 18 for more information. Also, includes recoveries from third parties of USD 1 million in 2021 (USD 3 million and USD 11 million in 2020 and 2019, respectively). 33 UK bank levy expenses of USD 22 million (USD 38 million for 2020 and USD 30 million for 2019) included a credit of USD 16 million (USD 27 million for 2020 and USD 31 million for 2019) related to prior years. 11 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to the disposal or closure of foreign operations. 22 Includes a USD 631 million net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG). 33 Includes rent received from third parties. 44 Mainly relates to the sale of a property in Basel. 55 Includes net gains of USD 140 million arising from sale-and- leaseback transactions, primarily related to a property in Geneva, partly offset by remeasurement losses relating to properties that were reclassified as held for sale. 66 Includes a gain of USD 100 million from the sale of UBS's domestic wealth management business in Austria. Refer to Note 30 for more information. 77 Includes a USD 215 million gain on the sale of intellectual property rights associated with the Bloomberg 320 321 313 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 8 Income taxes USD million Tax expense / (benefit) SSwwiissss Current Deferred TToottaall SSwwiissss NNoonn--SSwwiissss Current Deferred TToottaall nnoonn--SSwwiissss TToottaall iinnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt)) rreeccooggnniizzeedd iinn tthhee iinnccoommee ssttaatteemmeenntt For the year ended 31.12.20 3311..1122..2211 31.12.19 668800 3344 771144 888844 440000 11,,228844 11,,999988 482 116 559988 749 236 998855 11,,558833 365 265 663300 426 211 663377 11,,226677 Income tax recognized in the income statement Income tax expenses of USD 1,998 million were recognized for the Group in 2021, representing an effective tax rate of 21.1%. These included Swiss tax expenses of USD 714 million and non- Swiss tax expenses of USD 1,284 million. The Swiss tax expenses included current tax expenses of USD 680 million related to taxable profits of UBS Switzerland AG and other Swiss entities. They also included deferred tax expenses of USD 34 million, which reflect movements in temporary differences. The non-Swiss tax expenses included current tax expenses of USD 884 million related to taxable profits earned by non-Swiss subsidiaries and branches, and net deferred tax expenses of USD 400 million. Expenses of USD 734 million, which primarily related to the amortization of deferred tax assets (DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences of UBS Americas Inc., were partly offset by a benefit of USD 334 million in respect of the included upward remeasurement of DTAs. This benefit revaluations of DTAs of USD 152 million for certain entities, primarily in connection with our business planning process. It also included USD 113 million in respect of additional DTA recognition that primarily related to the contribution of real estate assets by UBS AG to UBS Americas Inc. and UBS Financial Services Inc., which allowed the full recognition of DTAs in respect of the associated historic real estate costs that were previously capitalized for US tax purposes under elections that were made in the fourth quarter of 2018. In addition, it included USD 69 million in respect of an increase in the expected value of future tax deductions for deferred compensation awards, due to an increase in the Group’s share price during the year. The pre-tax expense that was recognized in the year in respect of the increase in litigation provisions for the French cross-border matter did not result in any tax benefit. USD million Operating profit / (loss) before tax of which: Swiss of which: non-Swiss Income taxes at Swiss tax rate of 18.5% for 2021, 19.5% for 2020 and 20.5% for 2019 Increase / (decrease) resulting from: Non-Swiss tax rates differing from Swiss tax rate Tax effects of losses not recognized Previously unrecognized tax losses now utilized Non-taxable and lower-taxed income Non-deductible expenses and additional taxable income Adjustments related to prior years – current tax Adjustments related to prior years – deferred tax Change in deferred tax recognition Adjustments to deferred tax balances arising from changes in tax rates Other items IInnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt)) For the year ended 31.12.20 8,155 3,403 4,752 1,590 3311..1122..2211 99,,448844 33,,333344 66,,115500 11,,775555 223344 112244 ((117799)) ((227788)) 551100 ((4400)) ((1100)) ((334422)) ((55)) 223311 11,,999988 110 144 (212) (394) 385 (67) 12 (381) 234 161 1,583 31.12.19 5,577 2,571 3,006 1,143 82 131 (265) (351) 732 (5) (6) (294) (9) 107 1,267 322 314 For the year ended 3311..1122..2211 31.12.20 31.12.19 The components of operating profit before tax, and the differences between income tax expense reflected in the financial statements and the amounts calculated at the Swiss tax rate, are provided in the table on the previous page and explained below. Note 8 Income taxes (continued) Component Description Non-Swiss tax rates differing from Swiss tax rate To the extent that Group profits or losses arise outside Switzerland, the applicable local tax rate may differ from the Swiss tax rate. This item reflects, for such profits, an adjustment from the tax expense that would arise at the Swiss tax rate to the tax expense that would arise at the applicable local tax rate. Similarly, it reflects, for such losses, an adjustment from the tax benefit that would arise at the Swiss tax rate to the tax benefit that would arise at the applicable local tax rate. Tax effects of losses not recognized This item relates to tax losses of entities arising in the year that are not recognized as DTAs and where no tax benefit arises in relation to those losses. Therefore, the tax benefit calculated by applying the local tax rate to those losses as described above is reversed. Previously unrecognized tax losses now utilized This item relates to taxable profits of the year that are offset by tax losses of previous years for which no DTAs were previously recorded. Consequently, no current tax or deferred tax expense arises in relation to those taxable profits and the tax expense calculated by applying the local tax rate on those profits is reversed. Non-taxable and lower- taxed income This item relates to tax deductions for the year in respect of permanent differences. These include deductions in respect of profits that are either not taxable or are taxable at a lower rate of tax than the local tax rate. They also include deductions made for tax purposes, which are not reflected in the accounts. Non-deductible expenses and additional taxable income This item relates to additional taxable income for the year in respect of permanent differences. These include income that is recognized for tax purposes by an entity but is not included in its profit that is reported in the financial statements, as well as expenses for the year that are non-deductible (e.g., client entertainment costs are not deductible in certain locations). Adjustments related to prior years – current tax This item relates to adjustments to current tax expense for prior years (e.g., if the tax payable for a year is agreed with the tax authorities in an amount that differs from the amount previously reflected in the financial statements). Adjustments related to prior years – deferred tax This item relates to adjustments to deferred tax positions recognized in prior years (e.g., if a tax loss for a year is fully recognized and the amount of the tax loss agreed with the tax authorities is expected to differ from the amount previously recognized as DTAs in the accounts). Change in deferred tax recognition This item relates to changes in DTAs, including changes in DTAs previously recognized resulting from reassessments of expected future taxable profits. It also includes changes in temporary differences in the year, for which deferred tax is not recognized. Adjustments to deferred tax balances arising from changes in tax rates This item relates to remeasurements of DTAs and liabilities recognized due to changes in tax rates. These have the effect of changing the future tax saving that is expected from tax losses or deductible tax differences and therefore the amount of DTAs recognized or, alternatively, changing the tax cost of additional taxable income from taxable temporary differences and therefore the deferred tax liability. Other items Other items include other differences between profits or losses at the local tax rate and the actual local tax expense or benefit, including movements in provisions for uncertain positions in relation to the current year and other items. Income taxes at Swiss tax rate of 18.5% for 2021, 19.5% for 2020 and 20.5% for 2019 Income tax recognized directly in equity A net tax benefit of USD 479 million was recognized in Other comprehensive income (2020: net expense of USD 237 million) and a net tax expense of USD 88 million was recognized in Share premium (2020: benefit of USD 18 million). Consolidated financial statements | UBS Group AG consolidated financial statements Note 8 Income taxes Tax expense / (benefit) USD million SSwwiissss Current Deferred TToottaall SSwwiissss NNoonn--SSwwiissss Current Deferred TToottaall nnoonn--SSwwiissss 668800 3344 771144 888844 440000 11,,228844 11,,999988 482 116 559988 749 236 998855 365 265 663300 426 211 663377 TToottaall iinnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt)) rreeccooggnniizzeedd iinn tthhee iinnccoommee ssttaatteemmeenntt 11,,558833 11,,226677 Income tax recognized in the income statement partly offset by a benefit of USD 334 million in respect of the remeasurement of DTAs. This benefit included upward Income tax expenses of USD 1,998 million were recognized for revaluations of DTAs of USD 152 million for certain entities, the Group in 2021, representing an effective tax rate of 21.1%. primarily in connection with our business planning process. It also These included Swiss tax expenses of USD 714 million and non- included USD 113 million in respect of additional DTA recognition Swiss tax expenses of USD 1,284 million. that primarily related to the contribution of real estate assets by The Swiss tax expenses included current tax expenses of UBS AG to UBS Americas Inc. and UBS Financial Services Inc., USD 680 million related to taxable profits of UBS Switzerland AG which allowed the full recognition of DTAs in respect of the and other Swiss entities. They also included deferred tax expenses associated historic real estate costs that were previously of USD 34 million, which reflect movements in temporary capitalized for US tax purposes under elections that were made in differences. the fourth quarter of 2018. In addition, it included USD 69 million The non-Swiss tax expenses included current tax expenses of in respect of an increase in the expected value of future tax USD 884 million related to taxable profits earned by non-Swiss deductions for deferred compensation awards, due to an increase subsidiaries and branches, and net deferred tax expenses of in the Group’s share price during the year. USD 400 million. Expenses of USD 734 million, which primarily The pre-tax expense that was recognized in the year in respect related to the amortization of deferred tax assets (DTAs) of the increase in litigation provisions for the French cross-border previously recognized in relation to tax losses carried forward and matter did not result in any tax benefit. deductible temporary differences of UBS Americas Inc., were USD million Operating profit / (loss) before tax of which: Swiss of which: non-Swiss Increase / (decrease) resulting from: Non-Swiss tax rates differing from Swiss tax rate Tax effects of losses not recognized Previously unrecognized tax losses now utilized Non-taxable and lower-taxed income Non-deductible expenses and additional taxable income Adjustments related to prior years – current tax Adjustments related to prior years – deferred tax Change in deferred tax recognition Adjustments to deferred tax balances arising from changes in tax rates Other items IInnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt)) For the year ended 3311..1122..2211 31.12.20 31.12.19 99,,448844 33,,333344 66,,115500 11,,775555 223344 112244 ((117799)) ((227788)) 551100 ((4400)) ((1100)) ((334422)) ((55)) 223311 11,,999988 8,155 3,403 4,752 1,590 110 144 (212) (394) 385 (67) 12 (381) 234 161 1,583 5,577 2,571 3,006 1,143 82 131 (265) (351) 732 (5) (6) (294) (9) 107 1,267 322 323 315 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 8 Income taxes (continued) Deferred tax assets and liabilities The Group has gross DTAs, valuation allowances and recognized DTAs related to tax loss carry-forwards and deductible temporary differences, and also deferred tax liabilities in respect of taxable temporary differences, as shown in the table below. The valuation allowances reflect DTAs that were not recognized because, as of the last remeasurement period, management did not consider it probable that there would be sufficient future taxable profits available to utilize the related tax loss carry-forwards and deductible temporary differences. The recognition of DTAs is supported by forecasts of taxable profits for the entities concerned. In addition, tax planning opportunities are available that would result in additional future taxable income and these would be utilized, if necessary. Deferred tax liabilities are recognized in respect of investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that the Group can control the timing of the reversal of the associated taxable temporary difference and it is probable that such will not reverse in the foreseeable future. However, as of 31 December 2021, this exception was not considered to apply to any taxable temporary differences. USD million Deferred tax assets1 Tax loss carry-forwards Temporary differences of which: related to real estate costs capitalized for US tax purposes of which: related to compensation and benefits of which: other TToottaall ddeeffeerrrreedd ttaaxx aasssseettss of which: related to the US of which: related to other locations 3311..1122..2211 31.12.20 GGrroossss 1133,,663366 55,,113333 22,,227722 11,,222222 11,,663399 1188,,776699 VVaalluuaattiioonn aalllloowwaannccee ((99,,119933)) ((770000)) 00 ((220099)) ((449911)) ((99,,889933)) RReeccooggnniizzeedd 44,,444433 44,,443333 22,,227722 11,,001133 11,,114488 88,,88776622 88,,552211 335555 Gross 14,108 4,384 2,268 1,128 989 18,492 Valuation allowance (8,715) (565) 0 (173) (392) (9,280) Recognized 5,393 3,819 2,268 955 564 9,2122 8,780 431 Deferred tax liabilities Cash flow hedges Other TToottaall ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess 11 After offset of DTLs, as applicable. 22 As of 31 December 2021, the Group recognized DTAs of USD 77 million (31 December 2020: USD 138 million) in respect of entities that incurred losses in either the current or preceding year. 425 139 564 111188 118833 330000 In general, US federal tax losses incurred prior to 31 December 2017 can be carried forward for 20 years. However, US federal tax losses incurred after 31 December 2017 and UK tax losses can be carried forward indefinitely, although the utilization of such losses is limited to 80% of the entity’s future year taxable profits for the US and generally to 25% thereof for the UK. The amounts of US tax loss carry-forwards that are included in the table below are based on their amount for federal tax purposes rather than for state and local tax purposes. Unrecognized tax loss carry-forwards USD million Within 1 year From 2 to 5 years From 6 to 10 years From 11 to 20 years No expiry TToottaall of which: related to the US 1 of which: related to the UK of which: related to other locations 11 Related to UBS AG's US branch. 324 316 3311..1122..2211 114411 11,,002266 1133,,228833 22,,009933 1188,,114477 3344,,669900 1144,,887700 1144,,990099 44,,991111 31.12.20 146 638 13,257 3,858 17,227 35,127 16,256 13,848 5,023 Consolidated financial statements | UBS Group AG consolidated financial statements Note 8 Income taxes (continued) Deferred tax assets and liabilities The recognition of DTAs is supported by forecasts of taxable profits for the entities concerned. In addition, tax planning The Group has gross DTAs, valuation allowances and recognized opportunities are available that would result in additional future DTAs related to tax loss carry-forwards and deductible temporary taxable income and these would be utilized, if necessary. differences, and also deferred tax liabilities in respect of taxable Deferred tax liabilities are recognized in respect of investments temporary differences, as shown in the table below. The valuation in subsidiaries, branches and associates, and interests in joint allowances reflect DTAs that were not recognized because, as of arrangements, except to the extent that the Group can control the last remeasurement period, management did not consider it the timing of the reversal of the associated taxable temporary probable that there would be sufficient future taxable profits difference and it is probable that such will not reverse in the available to utilize the related tax loss carry-forwards and foreseeable future. However, as of 31 December 2021, this deductible temporary differences. exception was not considered to apply to any taxable temporary of which: related to real estate costs capitalized for US tax purposes of which: related to compensation and benefits USD million Deferred tax assets1 Tax loss carry-forwards Temporary differences of which: other TToottaall ddeeffeerrrreedd ttaaxx aasssseettss of which: related to the US of which: related to other locations Deferred tax liabilities Cash flow hedges Other TToottaall ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess or preceding year. differences. GGrroossss 1133,,663366 55,,113333 22,,227722 11,,222222 11,,663399 1188,,776699 VVaalluuaattiioonn aalllloowwaannccee ((99,,119933)) ((770000)) 00 ((220099)) ((449911)) ((99,,889933)) 3311..1122..2211 31.12.20 RReeccooggnniizzeedd 44,,444433 44,,443333 22,,227722 11,,001133 11,,114488 88,,88776622 88,,552211 335555 111188 118833 330000 Gross 14,108 4,384 2,268 1,128 989 18,492 Valuation allowance (8,715) (565) 0 (173) (392) (9,280) Recognized 5,393 3,819 2,268 955 564 9,2122 8,780 431 425 139 564 11 After offset of DTLs, as applicable. 22 As of 31 December 2021, the Group recognized DTAs of USD 77 million (31 December 2020: USD 138 million) in respect of entities that incurred losses in either the current Balance sheet notes Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement The tables on the following pages provide information about financial instruments and certain credit lines that are subject to expected credit loss (ECL) requirements. UBS’s ECL disclosure segments or “ECL segments” are aggregated portfolios based on shared risk characteristics and on the same or similar rating methods applied. The key segments are presented in the table below. › Refer to Note 20 for more information about expected credit loss measurement Segment Segment description Description of credit risk sensitivity Business division / Group Functions Private clients with mortgages Lending to private clients secured by owner-occupied real estate and personal account overdrafts of those clients Sensitive to the interest rate environment, unemployment levels, real estate collateral values and other regional aspects – Personal & Corporate Banking – Global Wealth Management Real estate financing Rental or income-producing real estate financing to private and corporate clients secured by real estate Sensitive to unemployment levels, the interest rate environment, real estate collateral values and other regional aspects – Personal & Corporate Banking – Global Wealth Management – Investment Bank Large corporate clients Lending to large corporate and multi- national clients SME clients Lending to small and medium-sized corporate clients Sensitive to GDP developments, unemployment levels, seasonality, business cycles and collateral values (diverse collateral, including real estate and other collateral types) Sensitive to GDP developments, unemployment levels, the interest rate environment and, to some extent, seasonality, business cycles and collateral values (diverse collateral, including real estate and other collateral types) – Personal & Corporate Banking – Investment Bank – Personal & Corporate Banking Lombard Loans secured by pledges of marketable securities, guarantees and other forms of collateral Sensitive to equity and debt markets (e.g., changes in collateral values) – Global Wealth Management In general, US federal tax losses incurred prior to 31 December for the US and generally to 25% thereof for the UK. The amounts 2017 can be carried forward for 20 years. However, US federal of US tax loss carry-forwards that are included in the table below tax losses incurred after 31 December 2017 and UK tax losses can are based on their amount for federal tax purposes rather than be carried forward indefinitely, although the utilization of such for state and local tax purposes. losses is limited to 80% of the entity’s future year taxable profits Credit cards Credit card solutions in Switzerland and the US Commodity trade finance Working capital financing of commodity traders, generally extended on a self- liquidating transactional basis Unrecognized tax loss carry-forwards USD million Within 1 year From 2 to 5 years From 6 to 10 years From 11 to 20 years No expiry TToottaall of which: related to the US 1 of which: related to the UK of which: related to other locations 11 Related to UBS AG's US branch. 3311..1122..2211 31.12.20 114411 11,,002266 1133,,228833 22,,009933 1188,,114477 3344,,669900 1144,,887700 1144,,990099 44,,991111 146 638 13,257 3,858 17,227 35,127 16,256 13,848 5,023 Financial intermediaries and hedge funds Lending to financial institutions and pension funds, including exposures to broker-dealers and clearing houses › Refer to Note 20f for more details regarding sensitivity Sensitive to unemployment levels – Personal & Corporate Banking Sensitive primarily to the strength of individual transaction structures and collateral values (price volatility of commodities), as the primary source for debt service is directly linked to the shipments financed Sensitive to GDP development, the interest rate environment, price and volatility risks in financial markets, and regulatory and political risk – Global Wealth Management – Personal & Corporate Banking – Personal & Corporate Banking – Investment Bank 324 325 317 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) The tables below and on the following pages provide ECL exposure and ECL allowance and provision information about financial instruments and certain non-financial instruments that are subject to ECL. USD million 3311..1122..2211 FFiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance Other financial assets measured at amortized cost of which: Loans to financial advisors TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall aasssseettss iinn ssccooppee ooff EECCLL rreeqquuiirreemmeennttss OOffff--bbaallaannccee sshheeeett ((iinn ssccooppee ooff EECCLL)) Guarantees of which: Large corporate clients of which: SME clients of which: Financial intermediaries and hedge funds of which: Lombard of which: Commodity trade finance Irrevocable loan commitments of which: Large corporate clients Forward starting reverse repurchase and securities borrowing agreements Committed unconditionally revocable credit lines of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance CCaarrrryyiinngg aammoouunntt11 SSttaaggee 11 TToottaall 192,817 192,817 15,453 15,480 75,012 75,012 30,514 30,514 397,761 380,564 152,479 143,505 43,945 40,463 13,990 12,643 14,004 12,076 149,283 149,255 1,345 3,799 25,718 2,184 772200,,007799 88,,884444 772288,,992233 SSttaaggee 22 0 26 0 0 15,620 8,262 3,472 1,037 1,492 0 342 7 302 106 1155,,994488 00 1155,,994488 1,716 3,813 26,209 2,453 773377,,779944 88,,884444 774466,,663388 TToottaall eexxppoossuurree SSttaaggee 11 TToottaall 19,695 20,972 2,567 3,464 1,143 1,353 9,491 9,575 2,454 2,454 3,137 3,137 39,478 37,097 23,922 21,811 1,444 38,207 7,046 4,599 4,736 8,670 9,000 117 5,527 110011,,997711 1,444 40,778 7,328 5,358 5,160 8,670 9,466 117 5,611 110088,,228844 SSttaaggee 22 1,127 793 164 84 0 0 2,335 2,102 0 2,508 281 736 389 0 462 0 36 66,,000066 SSttaaggee 33 0 1 0 0 1,577 711 9 310 436 27 29 7 189 163 11,,776677 00 11,,776677 SSttaaggee 33 150 104 46 0 0 0 46 9 0 63 0 23 35 0 4 0 48 330077 TToottaall 0 (8) (2) 0 (850) (132) (60) (170) (259) (33) (36) (114) (109) (86) ((996699)) 00 ((996699)) TToottaall (41) (6) (8) (17) (1) (1) (114) (100) 0 (38) (5) (7) (15) 0 (6) 0 (3) ((119966)) ((11,,116655)) EECCLL aalllloowwaanncceess SSttaaggee 11 0 (7) (2) 0 (126) (28) (19) (22) (19) (6) (10) (6) (27) (19) ((116611)) 00 ((116611)) SSttaaggee 22 0 (1) 0 0 (152) (71) (40) (16) (15) 0 (9) 0 (7) (3) ((116600)) 00 ((116600)) EECCLL pprroovviissiioonnss SSttaaggee 11 (18) (3) (1) (13) 0 (1) (72) (66) 0 (28) (4) (4) (11) 0 (5) 0 (3) ((112211)) ((228822)) SSttaaggee 22 (8) (3) (1) (4) 0 0 (42) (34) 0 (10) (1) (3) (3) 0 (2) 0 0 ((6600)) ((222200)) SSttaaggee 33 0 0 0 0 (572) (33) 0 (133) (225) (28) (17) (108) (76) (63) ((664477)) 00 ((664477)) SSttaaggee 33 (15) 0 (7) 0 (1) 0 0 0 0 0 0 0 0 0 0 0 0 ((1155)) ((666622)) Irrevocable committed prolongation of existing loans TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ccrreeddiitt lliinneess TToottaall aalllloowwaanncceess aanndd pprroovviissiioonnss 11 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances. 326 318 Consolidated financial statements | UBS Group AG consolidated financial statements The tables below and on the following pages provide ECL exposure and ECL allowance and provision information about financial instruments and certain non-financial instruments that are subject to ECL. FFiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt TToottaall SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 TToottaall SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 CCaarrrryyiinngg aammoouunntt11 EECCLL aalllloowwaanncceess 3311..1122..2211 USD million Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance Other financial assets measured at amortized cost of which: Loans to financial advisors TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt OOffff--bbaallaannccee sshheeeett ((iinn ssccooppee ooff EECCLL)) Guarantees of which: Large corporate clients of which: SME clients of which: Lombard of which: Commodity trade finance Irrevocable loan commitments of which: Large corporate clients of which: Financial intermediaries and hedge funds of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance Irrevocable committed prolongation of existing loans TToottaall aalllloowwaanncceess aanndd pprroovviissiioonnss 397,761 380,564 15,620 1,577 (126) (152) 192,817 192,817 15,480 75,012 30,514 15,453 75,012 30,514 152,479 143,505 43,945 40,463 13,990 12,643 14,004 12,076 149,283 149,255 1,716 3,813 1,345 3,799 26,209 25,718 2,453 2,184 3,464 1,353 9,575 2,454 3,137 2,567 1,143 9,491 2,454 3,137 39,478 37,097 23,922 21,811 1,444 1,444 7,328 5,358 5,160 8,670 9,466 117 5,611 7,046 4,599 4,736 8,670 9,000 117 5,527 0 26 0 0 8,262 3,472 1,037 1,492 0 342 7 302 106 793 164 84 0 0 2,335 2,102 0 281 736 389 0 462 0 36 0 1 0 0 711 9 310 436 27 29 7 189 163 SSttaaggee 33 150 104 46 0 0 0 46 9 0 63 0 23 35 0 4 0 48 330077 0 (8) (2) 0 (850) (132) (60) (170) (259) (33) (36) (114) (109) (86) ((996699)) 00 ((996699)) TToottaall (41) (6) (8) (17) (1) (1) (114) (100) 0 (38) (5) (7) (15) 0 (6) 0 (3) 0 (7) (2) 0 (28) (19) (22) (19) (6) (10) (6) (27) (19) ((116611)) 00 ((116611)) (18) (3) (1) (13) 0 (1) (72) (66) 0 (28) (4) (4) (11) 0 (5) 0 (3) 0 (1) 0 0 (71) (40) (16) (15) 0 (9) 0 (7) (3) ((116600)) 00 ((116600)) (8) (3) (1) (4) 0 0 (42) (34) 0 (10) (1) (3) (3) 0 (2) 0 0 0 0 0 0 (572) (33) 0 (133) (225) (28) (17) (108) (76) (63) ((664477)) 00 ((664477)) (15) 0 (7) 0 (1) 0 0 0 0 0 0 0 0 0 0 0 0 TToottaall eexxppoossuurree TToottaall SSttaaggee 11 20,972 19,695 SSttaaggee 22 1,127 EECCLL pprroovviissiioonnss SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 Forward starting reverse repurchase and securities borrowing agreements Committed unconditionally revocable credit lines 40,778 38,207 2,508 TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ccrreeddiitt lliinneess 110088,,228844 110011,,997711 66,,000066 ((119966)) ((11,,116655)) ((112211)) ((228822)) ((6600)) ((222200)) ((1155)) ((666622)) 11 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances. FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee 88,,884444 88,,884444 00 00 TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall aasssseettss iinn ssccooppee ooff EECCLL rreeqquuiirreemmeennttss 774466,,663388 772288,,992233 1155,,994488 11,,776677 773377,,779944 772200,,007799 1155,,994488 11,,776677 Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) USD million 31.12.20 FFiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance Other financial assets measured at amortized cost of which: Loans to financial advisors TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall aasssseettss iinn ssccooppee ooff EECCLL rreeqquuiirreemmeennttss OOffff--bbaallaannccee sshheeeett ((iinn ssccooppee ooff EECCLL)) Guarantees of which: Large corporate clients of which: SME clients of which: Financial intermediaries and hedge funds of which: Lombard of which: Commodity trade finance Irrevocable loan commitments of which: Large corporate clients Forward starting reverse repurchase and securities borrowing agreements Committed unconditionally revocable credit lines of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Lombard of which: Credit cards of which: Commodity trade finance Carrying amount1 Stage 1 Total 158,231 158,231 15,260 15,444 74,210 74,210 32,737 32,737 379,528 356,948 148,175 138,769 43,429 37,568 15,161 12,658 14,872 11,990 133,850 133,795 1,198 3,214 26,377 1,982 666633,,776633 88,,225588 667722,,002211 Stage 2 0 184 0 0 20,341 8,448 5,838 2,029 2,254 0 330 43 348 137 2200,,887733 00 2200,,887733 1,558 3,269 27,194 2,569 668877,,334455 88,,225588 669955,,660033 Total exposure Stage 1 Total 14,687 17,081 2,048 3,710 936 1,310 7,413 7,637 633 641 1,416 1,441 41,372 36,894 24,209 20,195 3,247 35,233 5,811 2,783 4,596 9,671 8,220 242 3,277 9933,,333377 Stage 2 2,225 1,549 326 224 0 25 4,374 3,950 0 4,792 517 2,099 1,169 0 430 0 5 1111,,339966 3,247 40,134 6,328 4,909 5,827 9,671 8,661 242 3,282 110055,,111166 Stage 3 0 0 0 0 2,240 959 23 474 628 55 30 12 469 450 22,,770099 00 22,,770099 Stage 3 170 113 48 0 8 0 104 64 0 108 0 27 63 0 11 0 0 338822 Total 0 (16) (2) 0 (1,060) (166) (63) (279) (310) (36) (38) (106) (133) (108) ((11,,221111)) 00 ((11,,221111)) Total (63) (20) (13) (17) (2) (2) (142) (121) 0 (50) (12) (9) (16) 0 (8) 0 (2) ((225577)) ((11,,446688)) ECL allowances Stage 1 0 (9) (2) 0 (142) (35) (15) (27) (19) (5) (11) (5) (34) (27) ((118877)) 00 ((118877)) Stage 2 0 (5) 0 0 (215) (93) (44) (40) (23) 0 (11) 0 (9) (5) ((222299)) 00 ((222299)) ECL provisions Stage 1 (14) (4) (1) (7) 0 (1) (74) (63) 0 (29) (5) (2) (12) (1) (6) 0 (2) ((111199)) ((330066)) Stage 2 (15) (5) (1) (9) 0 0 (68) (58) 0 (21) (7) (7) (4) 0 (2) 0 0 ((110044)) ((333333)) Stage 3 0 (1) 0 0 (703) (39) (4) (212) (268) (31) (16) (101) (90) (76) ((779955)) 00 ((779955)) Stage 3 (34) (12) (11) 0 (2) 0 0 0 0 0 0 0 0 0 0 0 0 ((3344)) ((882299)) Irrevocable committed prolongation of existing loans TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ccrreeddiitt lliinneess TToottaall aalllloowwaanncceess aanndd pprroovviissiioonnss 11 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances. 326 327 319 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) Coverage ratios are calculated for the core loan portfolio by taking ECL allowances and provisions divided by the gross carrying amount of the exposures. Core loan exposure is defined as the sum of Loans and advances to customers and Loans to financial advisors. These ratios are influenced by the following key factors: – Lombard loans are generally secured with marketable securities in portfolios that are, as a rule, highly diversified, with strict lending policies that are intended to ensure that credit risk is minimal under most circumstances; – mortgage loans to private clients and real estate financing are controlled by conservative eligibility criteria, including low loan-to-value ratios and strong debt service capabilities; – the amount of unsecured retail lending (including credit cards) is insignificant; – lending in Switzerland includes government-backed COVID-19 loans; – contractual maturities in the loan portfolio, which are a factor in the calculation of ECLs, are generally short, with Lombard lending typically having average contractual maturities of 12 months or less, real estate lending generally between 2 years and 3 years in Switzerland with longer dated maturities in the US and corporate lending between 1 to 2 years with related loan commitments up to 4 years; and – write-offs of ECL allowances against the gross loan balances when all or part of a financial asset is deemed uncollectible or forgiven, reduces the coverage ratios. Coverage ratios for core loan portfolio 3311..1122..2211 OOnn--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Other loans and advances to customers Loans to financial advisors TToottaall11 GGrroossss ccaarrrryyiinngg aammoouunntt ((UUSSDD mmiilllliioonn)) TToottaall 152,610 44,004 14,161 14,263 149,316 1,752 3,927 18,578 2,539 440011,,115500 SSttaaggee 11 143,533 40,483 12,665 12,095 149,261 1,355 3,805 17,493 2,203 338822,,889933 SSttaaggee 22 8,333 3,512 1,053 1,507 0 351 7 1,010 109 1155,,888822 SSttaaggee 33 744 10 443 661 55 46 115 75 226 22,,337744 GGrroossss eexxppoossuurree ((UUSSDD mmiilllliioonn)) EECCLL ccoovveerraaggee ((bbppss)) SSttaaggee 11 2 5 18 16 0 72 15 9 88 44 SSttaaggee 22 85 114 148 103 0 255 3 15 303 9988 TToottaall 9 14 120 182 2 204 290 25 338 2233 SSttaaggee 33 446 231 2,997 3,402 5,026 3,735 9,388 3,730 2,791 22,,667733 OOffff--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Financial intermediaries and hedge funds Other off-balance sheet commitments TToottaall 9,123 8,766 32,748 8,077 14,438 9,466 3,262 12,153 8,806 TToottaall22 110066,,884400 11 Includes Loans and advances to customers of USD 398,611 million and Loans to financial advisors of USD 2,539 million which are presented on the balance sheet line Other assets measured at amortized cost. 22 Excludes Forward starting reverse repurchase and securities borrowing agreements. SSttaaggee 11 8,798 8,481 28,981 7,276 14,438 9,000 3,262 11,784 8,507 110000,,552277 SSttaaggee 22 276 285 3,630 688 0 462 0 369 296 66,,000066 SSttaaggee 33 15 0 1 585 0 0 0 0 0 448866 SSttaaggee 22 9 88 110 151 0 34 0 120 30 110000 SSttaaggee 33 49 0 136 114 0 4 0 0 4 330077 TToottaall 3 9 34 38 1 7 4 15 15 1188 EECCLL ccoovveerraaggee ((bbppss)) SSttaaggee 11 3 7 25 19 0 5 4 12 6 1122 328 320 Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued) Coverage ratios are calculated for the core loan portfolio by – lending in Switzerland includes government-backed COVID-19 Coverage ratios for core loan portfolio 31.12.20 OOnn--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Other loans and advances to customers Loans to financial advisors TToottaall11 Gross carrying amount (USD million) Total 148,341 43,492 15,440 15,183 133,886 1,596 3,375 19,274 2,677 338833,,226666 Stage 1 138,803 37,583 12,684 12,010 133,800 1,209 3,219 17,781 2,009 335599,,009999 Stage 2 8,540 5,883 2,069 2,277 0 342 43 1,402 142 2200,,669977 Stage 3 998 27 686 896 86 46 113 91 526 33,,447700 Gross exposure (USD million) ECL coverage (bps) Stage 1 2 4 21 16 0 91 16 14 135 55 Stage 2 108 75 192 101 0 333 2 25 351 110066 Total 11 15 181 204 3 240 315 31 404 3300 Stage 3 390 1,414 3,089 2,991 3,592 3,488 8,939 3,563 1,446 22,,224477 OOffff--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Financial intermediaries and hedge funds Other off-balance sheet commitments Total 6,285 7,056 32,828 9,121 14,178 8,661 1,683 7,690 14,366 TToottaall22 110011,,886699 11 Includes Loans and advances to customers of USD 380,589 million and Loans to financial advisors of USD 2,677 million which are presented on the balance sheet line Other assets measured at amortized cost. 22 Excludes Forward starting reverse repurchase and securities borrowing agreements. Stage 1 6,083 6,576 25,026 7,239 14,170 8,220 1,658 7,242 13,876 9900,,009900 Stage 2 198 481 7,598 1,734 0 430 25 448 482 1111,,339966 Stage 3 197 0 565 779 1,941 0 8,279 166 12,414 889944 Stage 3 3 0 205 148 8 11 0 0 8 338822 Stage 2 16 185 92 63 0 44 15 248 11 9911 Total 7 21 46 40 2 9 10 26 13 2255 ECL coverage (bps) Stage 1 6 9 27 19 1 8 8 13 7 1133 Consolidated financial statements | UBS Group AG consolidated financial statements taking ECL allowances and provisions divided by the gross loans; carrying amount of the exposures. Core loan exposure is defined – contractual maturities in the loan portfolio, which are a factor as the sum of Loans and advances to customers and Loans to in the calculation of ECLs, are generally short, with Lombard financial advisors. lending typically having average contractual maturities of 12 These ratios are influenced by the following key factors: months or less, real estate lending generally between 2 years – Lombard loans are generally secured with marketable and 3 years in Switzerland with longer dated maturities in the securities in portfolios that are, as a rule, highly diversified, with US and corporate lending between 1 to 2 years with related strict lending policies that are intended to ensure that credit loan commitments up to 4 years; and risk is minimal under most circumstances; – write-offs of ECL allowances against the gross loan balances – mortgage loans to private clients and real estate financing are when all or part of a financial asset is deemed uncollectible or controlled by conservative eligibility criteria, including low forgiven, reduces the coverage ratios. loan-to-value ratios and strong debt service capabilities; – the amount of unsecured retail lending (including credit cards) is insignificant; Coverage ratios for core loan portfolio 3311..1122..2211 OOnn--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Other loans and advances to customers Loans to financial advisors TToottaall11 OOffff--bbaallaannccee sshheeeett Private clients with mortgages Real estate financing Large corporate clients SME clients Lombard Credit cards Commodity trade finance Financial intermediaries and hedge funds Other off-balance sheet commitments TToottaall22 GGrroossss ccaarrrryyiinngg aammoouunntt ((UUSSDD mmiilllliioonn)) EECCLL ccoovveerraaggee ((bbppss)) TToottaall SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 TToottaall SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 440011,,115500 338822,,889933 1155,,888822 22,,337744 152,610 143,533 44,004 14,161 14,263 40,483 12,665 12,095 149,316 149,261 1,752 3,927 1,355 3,805 18,578 17,493 2,539 2,203 TToottaall 9,123 8,766 8,798 8,481 32,748 28,981 8,077 7,276 14,438 14,438 9,466 3,262 9,000 3,262 12,153 11,784 8,806 8,507 8,333 3,512 1,053 1,507 351 0 7 1,010 109 276 285 3,630 688 462 0 0 369 296 744 10 443 661 55 46 115 75 226 49 0 136 114 0 4 0 0 4 9 14 120 182 2 204 290 25 338 2233 3 9 34 38 1 7 4 15 15 1188 2 5 18 16 0 72 15 9 88 44 3 7 25 19 0 5 4 12 6 1122 85 114 148 103 0 255 3 15 303 9988 9 88 110 151 0 34 0 120 30 110000 446 231 2,997 3,402 5,026 3,735 9,388 3,730 2,791 22,,667733 585 15 0 1 0 0 0 0 0 448866 GGrroossss eexxppoossuurree ((UUSSDD mmiilllliioonn)) EECCLL ccoovveerraaggee ((bbppss)) SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 TToottaall SSttaaggee 11 SSttaaggee 22 SSttaaggee 33 11 Includes Loans and advances to customers of USD 398,611 million and Loans to financial advisors of USD 2,539 million which are presented on the balance sheet line Other assets measured at amortized cost. 22 Excludes Forward starting reverse repurchase and securities borrowing agreements. 110066,,884400 110000,,552277 66,,000066 330077 328 329 321 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 10 Derivative instruments Overview Risks of derivative instruments The derivative financial assets shown on the balance sheet can be an important component of the Group’s credit exposure; however, the positive replacement values related to a respective counterparty are rarely an adequate reflection of the Group’s credit exposure in its derivatives business with that counterparty. This is generally the case because, on the one hand, replacement values can increase over time (potential future exposure), while, on the other hand, exposure may be mitigated by entering into master netting agreements and bilateral collateral arrangements. Both the exposure measures used internally by the Group to control credit risk and the capital requirements imposed by regulators reflect these additional factors. › Refer to Note 22 for more information about derivative financial assets and liabilities after consideration of netting potential allowed under enforceable netting arrangements › Refer to the “Risk management and control” section of this report for more information about the risks arising from derivative instruments Over-the-counter (OTC) derivative contracts are usually traded under a standardized International Swaps and Derivatives Association (ISDA) master agreement between UBS and its counterparties. Terms are negotiated directly with counterparties and the contracts have industry-standard settlement mechanisms prescribed by ISDA. Other OTC derivatives are cleared through clearing houses, in particular interest rate swaps with LCH, where a settled-to-market method has been generally adopted, under which cash collateral exchanged on a daily basis is considered to legally settle the market value of the derivatives. Regulators in various jurisdictions have begun a phased introduction of rules requiring the payment and collection of initial and variation margins on certain OTC derivative contracts, which may have a bearing on price and other relevant terms. Due to challenges brought on by COVID-19, the International Organization of Securities Commissions (IOSCO) has extended the deadline for completion of the final phase-in of margin requirements for non- centrally cleared derivatives, to 1 September 2022. Other derivative contracts are standardized in terms of their amounts and settlement dates, and are bought and sold on regulated exchanges. These are commonly referred to as exchange-traded derivatives (ETD) contracts. Exchanges offer the benefits of pricing transparency, standardized daily settlement of changes in value and, consequently, reduced credit risk. Most of the Group’s derivative transactions relate to sales and market-making activity. Sales activities include the structuring and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Market- making aims to directly support the facilitation and execution of client activity, and involves quoting bid and offer prices to other market participants with the aim of generating revenues based on spread and volume. The Group also uses various derivative instruments for hedging purposes. › Refer to Notes 16 and 21 for more information about derivative instruments › Refer to Note 26 for more information about derivatives designated in hedge accounting relationships 330 322 Consolidated financial statements | UBS Group AG consolidated financial statements Note 10 Derivative instruments Note 10 Derivative instruments (continued) Overview Risks of derivative instruments Derivative instruments Over-the-counter (OTC) derivative contracts are usually traded The derivative financial assets shown on the balance sheet can be under a standardized International Swaps and Derivatives an important component of the Group’s credit exposure; Association (ISDA) master agreement between UBS and its however, the positive replacement values related to a respective counterparties. Terms are negotiated directly with counterparties counterparty are rarely an adequate reflection of the Group’s and the contracts have industry-standard settlement mechanisms credit exposure in its derivatives business with that counterparty. prescribed by ISDA. Other OTC derivatives are cleared through This is generally the case because, on the one hand, replacement clearing houses, in particular interest rate swaps with LCH, where values can increase over time (potential future exposure), while, a settled-to-market method has been generally adopted, under on the other hand, exposure may be mitigated by entering into which cash collateral exchanged on a daily basis is considered to master netting agreements and bilateral collateral arrangements. legally settle the market value of the derivatives. Regulators in Both the exposure measures used internally by the Group to various jurisdictions have begun a phased introduction of rules control credit risk and the capital requirements imposed by requiring the payment and collection of initial and variation regulators reflect these additional factors. margins on certain OTC derivative contracts, which may have a bearing on price and other relevant terms. Due to challenges brought on by COVID-19, the International Organization of Securities Commissions (IOSCO) has extended the deadline for completion of the final phase-in of margin requirements for non- › Refer to Note 22 for more information about derivative financial assets and liabilities after consideration of netting potential allowed under enforceable netting arrangements › Refer to the “Risk management and control” section of this report for more information about the risks arising from centrally cleared derivatives, to 1 September 2022. derivative instruments Other derivative contracts are standardized in terms of their amounts and settlement dates, and are bought and sold on regulated exchanges. These are commonly referred to as exchange-traded derivatives (ETD) contracts. Exchanges offer the benefits of pricing transparency, standardized daily settlement of changes in value and, consequently, reduced credit risk. Most of the Group’s derivative transactions relate to sales and market-making activity. Sales activities include the structuring and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Market- making aims to directly support the facilitation and execution of client activity, and involves quoting bid and offer prices to other market participants with the aim of generating revenues based on spread and volume. The Group also uses various derivative instruments for hedging purposes. › Refer to Notes 16 and 21 for more information about derivative instruments › Refer to Note 26 for more information about derivatives designated in hedge accounting relationships NNoottiioonnaall aammoouunnttss rreellaatteedd ttoo ddeerriivvaattiivvee ffiinnaanncciiaall aasssseettss22,,33 999911..22 2299..44 339944..33 554455..22 2222..44 4444..77 3399..44 11..33 33,,003300..88 DDeerriivvaattiivvee ffiinnaanncciiaall aasssseettss 3333..22 00..11 2266..44 66..66 00..00 11..44 11..33 00..11 5533..33 3311..1122..2211 DDeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess 2288..77 NNoottiioonnaall aammoouunnttss rreellaatteedd ttoo ddeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess22,,33 994433..11 OOtthheerr nnoottiioonnaall aammoouunnttss22,,44 88,,667755..11 Derivative financial assets 50.9 2288..66 444433..66 334444..11 77,,554499..44 555533..66 00..22 1199..22 99..22 00..00 11..88 11..66 00..22 5544..11 1166..88 4466..33 4444..11 11..77 22,,993388..88 0.0 40.8 10.1 0.0 2.4 2.2 0.1 68.7 Notional amounts related to derivative financial assets2,3 928.0 19.8 407.0 447.5 53.6 57.6 53.6 1.9 2,951.1 552255..00 115577..11 11..22 8800..11 7711..22 88..88 1144..77 1133..99 27.3 779.1 34.3 1,727.3 440.9 7.1 449.6 34.8 6.4 7.0 10.7 10.7 2.2 0.5 1.0 0.0 0.5 89.4 87.1 273.1 57.8 17.7 23.5 8.0 2233..88 11,,000088..99 2244..33 11,,660066..33 441122..66 55..22 445566..99 2288..22 2233..88 11,,004433..22 2244..99 11,,448800..33 440088..66 55..33 660033..99 3344..99 44..77 44..66 1100..22 88..66 11..66 00..55 00..44 00..00 00..66 110055..77 6611..44 228899..66 5577..88 1199..99 1144..00 1188..11 115544..88 110022..33 334466..33 5566..44 2255..44 1100..44 1155..22 99..33 66..55 99..88 99..44 11..66 00..88 00..22 00..00 00..44 31.12.20 Derivative financial liabilities 43.9 0.4 30.9 12.5 0.0 2.9 2.6 0.3 70.5 29.0 34.4 7.1 41.2 9.8 10.9 11.3 9.1 2.0 0.8 0.7 0.0 0.3 Notional amounts related to derivative financial liabilities2,3 880.4 21.9 364.8 460.5 33.1 64.8 62.3 2.5 2,820.4 853.3 1,567.3 394.7 581.3 108.4 146.2 326.8 49.7 18.0 17.8 6.3 Other notional amounts2,4 11,291.5 2,602.5 8,105.2 480.6 103.3 1.4 91.3 67.9 23.5 10.1 9.3 USD billion IInntteerreesstt rraattee ccoonnttrraaccttss of which: forward contracts (OTC)1 of which: swaps (OTC) of which: options (OTC) of which: futures (ETD) of which: options (ETD) CCrreeddiitt ddeerriivvaattiivvee ccoonnttrraaccttss of which: credit default swaps (OTC) of which: total return swaps (OTC) FFoorreeiiggnn eexxcchhaannggee ccoonnttrraaccttss of which: forward contracts (OTC) of which: swaps (OTC) of which: options (OTC) EEqquuiittyy ccoonnttrraaccttss of which: swaps (OTC) of which: options (OTC) of which: futures (ETD) of which: options (ETD) of which: client-cleared transactions (ETD) CCoommmmooddiittyy ccoonnttrraaccttss of which: swaps (OTC) of which: options (OTC) of which: futures (ETD) of which: forward contracts (ETD) of which: client-cleared transactions (ETD) 88..22 00..11 00..00 00..88 00..00 1133..33 LLooaann ccoommmmiittmmeennttss mmeeaassuurreedd aatt FFVVTTPPLL ((OOTTCC)) UUnnsseettttlleedd ppuurrcchhaasseess ooff nnoonn--ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss55 UUnnsseettttlleedd ssaalleess ooff nnoonn--ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss55 TToottaall ddeerriivvaattiivvee iinnssttrruummeennttss,, bbaasseedd oonn IIFFRRSS nneettttiinngg66 11,394.4 11 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value through profit or loss and are recognized within derivative instruments. 22 In cases where derivative financial instruments are presented on a net basis on the balance sheet, the respective notional amounts of the netted derivative financial instruments are still presented on a gross basis. 33 Notional amounts of client-cleared ETD and OTC transactions through central clearing counterparties are not disclosed, as they have significantly different risk profile. 44 Other notional amounts relate to derivatives that are cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative instruments and Cash collateral payables on derivative instruments and was not material for all periods presented. 55 Changes in the fair value of purchased and sold non-derivative financial instruments between trade date and settlement date are recognized as derivative financial instruments. 66 Derivative financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally enforceable right to offset the recognized amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of the entity and all of the counterparties, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Refer to Note 22 for more information on netting arrangements. 4,479.5 44,,661166..66 4,429.7 88,,777711..11 44,,661133..88 159.6 111188..11 161.1 112211..33 17.2 10.0 12.9 1100..66 10.2 18.3 1188..22 00..22 00..22 00..11 99..44 0.0 0.3 0.3 0.2 0.2 On a notional amount basis, approximately 40% of OTC interest rate contracts held as of 31 December 2021 (31 December 2020: 50%) mature within one year, 36% (31 December 2020: 30%) within one to five years and 25% (31 December 2020: 20%) after five years. Notional amounts of interest rate contracts cleared through either a central counterparty or an exchange that are legally settled on a daily basis are presented under Other notional amounts in the table above and are categorized into maturity buckets on the basis of contractual maturities of the cleared underlying derivative contracts. Other notional amounts related to interest rate contracts decreased by USD 2.6 trillion compared with 31 December 2020, mainly reflecting trade compressions, which included activity as part of the ongoing transition to alternative reference rates, and maturities. 330 331 323 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 11 Financial assets measured at fair value through other comprehensive income USD million FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee11 DDeebbtt iinnssttrruummeennttss Governments and government agencies of which: USA Banks TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee UUnnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn OOtthheerr ccoommpprreehheennssiivvee iinnccoommee Unrealized gains, before tax Unrealized (losses), before tax NNeett uunnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)),, bbeeffoorree ttaaxx 3311..1122..2211 31.12.20 88,,552222 77,,550077 332222 88,,884444 6677 ((8800)) ((1133)) 8,155 7,727 103 8,258 204 (4) 200 151 NNeett uunnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)),, aafftteerr ttaaxx 11 Refer to Note 21c for more information about product type and fair value hierarchy categorization. Refer also to Note 9 and Note 20 for more information about expected credit loss measurement. ((77)) Note 12 Property, equipment and software At historical cost less accumulated depreciation USD million HHiissttoorriiccaall ccoosstt Balance at the beginning of the year Additions Disposals / write-offs3 Reclassifications4 Foreign currency translation Balance at the end of the year AAccccuummuullaatteedd ddeepprreecciiaattiioonn Balance at the beginning of the year Depreciation Impairment5 Disposals / write-offs3 Reclassifications4 Foreign currency translation Balance at the end of the year Owned properties and equipment1 Leased properties and equipment2 Software Projects in progress 22002211 2020 13,185 273 (430) 323 (303) 13,048 8,060 635 9 (424) (12) (196) 8,072 4,249 213 (223) 0 (66) 4,174 1,082 498 1 (215) 0 (20) 1,346 7,768 228 (98) 808 (64) 8,642 3,987 945 0 (98) 0 (28) 4,807 1,036 1,376 0 (1,149) (12) 1,250 0 0 0 0 0 0 0 2266,,223388 22,,009900 ((775511)) ((1188)) ((444455)) 2277,,111133 1133,,112299 22,,007788 1100 ((773377)) ((1122)) ((224433)) 1144,,222255 24,431 2,312 (990) (590) 1,074 26,238 11,628 1,997 72 (855) (328) 616 13,129 NNeett bbooookk vvaalluuee Net book value at the beginning of the year NNeett bbooookk vvaalluuee aatt tthhee eenndd ooff tthhee yyeeaarr 11 Includes leasehold improvements and IT hardware. 22 Represents right-of-use assets recognized by UBS as lessee. UBS predominantly enters into lease contracts, or contracts that include lease components, in relation to real estate, including offices, retail branches and sales offices. The total cash outflow for leases during 2021 was USD 657 million (2020: USD 679 million). Interest expense on lease liabilities is included within Interest expense from financial instruments measured at amortized cost and Lease liabilities are included within Other financial liabilities measured at amortized cost. Refer to Notes 3 and 19a, respectively. There were no material gains or losses arising from sale-and-leaseback transactions in 2021 (2020: USD 140 million). 33 Includes write-offs of fully depreciated assets. 44 The total reclassification amount for the respective periods represents net reclassifications to Properties and other non-current assets held for sale. 55 Impairment charges recorded in 2021 generally relate to assets that are no longer used, for which the recoverable amount based on a value in use approach was determined to be zero. 66 Consists of USD 1,087 million related to software and USD 163 million related to Owned properties and equipment. 1,036 11,,22550066 12,804 13,109 1133,,110099 1122,,888888 3,780 33,,883355 3,167 22,,882288 5,126 44,,997766 332 324 Consolidated financial statements | UBS Group AG consolidated financial statements 88,,552222 77,,550077 332222 88,,884444 6677 ((8800)) ((1133)) ((77)) 8,155 7,727 103 8,258 204 (4) 200 151 USD million DDeebbtt iinnssttrruummeennttss of which: USA Banks Governments and government agencies Unrealized gains, before tax Unrealized (losses), before tax NNeett uunnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)),, bbeeffoorree ttaaxx NNeett uunnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)),, aafftteerr ttaaxx TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee UUnnrreeaalliizzeedd ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn OOtthheerr ccoommpprreehheennssiivvee iinnccoommee Note 12 Property, equipment and software At historical cost less accumulated depreciation 11 Refer to Note 21c for more information about product type and fair value hierarchy categorization. Refer also to Note 9 and Note 20 for more information about expected credit loss measurement. Balance at the beginning of the year USD million HHiissttoorriiccaall ccoosstt Additions Disposals / write-offs3 Reclassifications4 Foreign currency translation Balance at the end of the year AAccccuummuullaatteedd ddeepprreecciiaattiioonn Balance at the beginning of the year Depreciation Impairment5 Disposals / write-offs3 Reclassifications4 Foreign currency translation Balance at the end of the year NNeett bbooookk vvaalluuee Net book value at the beginning of the year NNeett bbooookk vvaalluuee aatt tthhee eenndd ooff tthhee yyeeaarr Owned Leased properties and properties and equipment1 equipment2 Software Projects in progress 22002211 2020 13,185 273 (430) 323 (303) 13,048 8,060 635 9 (424) (12) (196) 8,072 5,126 44,,997766 4,249 213 (223) 0 (66) 4,174 1,082 498 (215) 1 0 (20) 1,346 3,167 22,,882288 7,768 228 (98) 808 (64) 8,642 3,987 945 (98) 0 0 (28) 4,807 3,780 33,,883355 1,036 1,376 0 (1,149) (12) 1,250 0 0 0 0 0 0 0 2266,,223388 22,,009900 ((775511)) ((1188)) ((444455)) 2277,,111133 1133,,112299 22,,007788 1100 ((773377)) ((1122)) ((224433)) 24,431 2,312 (990) (590) 1,074 26,238 11,628 1,997 72 (855) (328) 616 1144,,222255 13,129 1,036 11,,22550066 1133,,110099 1122,,888888 12,804 13,109 11 Includes leasehold improvements and IT hardware. 22 Represents right-of-use assets recognized by UBS as lessee. UBS predominantly enters into lease contracts, or contracts that include lease components, in relation to real estate, including offices, retail branches and sales offices. The total cash outflow for leases during 2021 was USD 657 million (2020: USD 679 million). Interest expense on lease liabilities is included within Interest expense from financial instruments measured at amortized cost and Lease liabilities are included within Other financial liabilities measured at amortized cost. Refer to Notes 3 and 19a, respectively. There were no material gains or losses arising from sale-and-leaseback transactions in 2021 (2020: USD 140 million). 33 Includes write-offs of fully depreciated assets. 44 The total reclassification amount for the respective periods represents net reclassifications to Properties and other non-current assets held for sale. 55 Impairment charges recorded in 2021 generally relate to assets that are no longer used, for which the recoverable amount based on a value in use approach was determined to be zero. 66 Consists of USD 1,087 million related to software and USD 163 million related to Owned properties and equipment. Note 11 Financial assets measured at fair value through other comprehensive income Note 13 Goodwill and intangible assets FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee11 3311..1122..2211 31.12.20 Introduction UBS performs an impairment test on its goodwill assets on an annual basis or when indicators of impairment exist. UBS considers Asset Management, as it is reported in Note 2a, as a separate cash-generating unit (a CGU), as that is the level at which the performance of investment (and the related goodwill) is reviewed and assessed by management. Given that a significant amount of goodwill in Global Wealth Management relates to the PaineWebber acquisition in 2000, which mainly affected the Americas portion of the business, this goodwill remains separately monitored by the Americas, despite the formation of Global Wealth Management in 2018. Therefore, goodwill for Global Wealth Management is separately considered for impairment at the level of two CGUs: Americas; and Switzerland and International (consisting of EMEA, Asia Pacific and Global). The impairment test is performed for each CGU to which goodwill is allocated by comparing the recoverable amount, based on its value in use, with the carrying amount of the respective CGU. An impairment charge is recognized if the carrying amount exceeds the recoverable amount. As of 31 December 2021, total goodwill recognized on the balance sheet was USD 6.1 billion, of which USD 3.7 billion was carried by the Global Wealth Management Americas CGU, USD 1.2 billion was carried by the Global Wealth Management Switzerland and International CGU, and USD 1.2 billion was carried by Asset Management. Based on the impairment testing methodology described below, UBS concluded that the goodwill balances as of 31 December 2021 allocated to these CGUs are not impaired. Methodology for goodwill impairment testing The recoverable amounts are determined using a discounted cash flow model, which has been adapted to use inputs that consider features of the banking business and its regulatory environment. The recoverable amount of a CGU is the sum of the discounted earnings attributable to shareholders from the first three forecast years and the terminal value, adjusted for the effect of the capital assumed to be needed over the next three years and to support growth beyond that period. The terminal value, which covers all periods beyond the third year, is calculated on the basis of the forecast of third-year profit, the discount rate and the long-term growth rate, as well as the implied perpetual capital growth. The carrying amount for each CGU is determined by reference to the Group’s equity attribution framework. Within this framework, which is described in the “Capital, liquidity and funding, and balance sheet” section of this report, UBS attributes equity to the businesses on the basis of their risk-weighted assets and leverage ratio denominator (both metrics include resource allocations from Group Functions to the business divisions), their goodwill and their intangible assets, as well as attributed equity related to certain CET1 deduction items. The framework is primarily used for the purpose of measuring the performance of the businesses and includes certain management assumptions. Attributed equity is equal to the capital a CGU requires to conduct its business and reasonable approximation of the carrying amount of the CGUs. The attributed equity methodology is also applied in the business planning process, the inputs from which are used in calculating the recoverable amounts of the respective CGU. is currently considered a › Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the equity attribution framework Assumptions linked to external market Valuation parameters used within the Group’s impairment test information, where model are applicable. The model used to determine the recoverable amount is most sensitive to changes in the forecast earnings available to shareholders in years one to three, to changes in the discount rates and to changes in the long-term growth rate. The applied long-term growth rate is based on long-term economic growth rates for different regions worldwide. Earnings available to shareholders are estimated on the basis of forecast results, which are part of the business plan approved by the Board of Directors. The discount rates are determined by applying a capital asset pricing model-based approach, as well as considering quantitative and qualitative inputs from both internal and external analysts and the view of management. They also take into account regional differences in risk-free rates at the level of the individual CGUs. In line with discount rates, long-term growth rates are determined at the regional level based on nominal or real GDP growth rate forecasts. 332 333 325 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 13 Goodwill and intangible assets (continued) Key assumptions used to determine the recoverable amounts of each CGU are tested for sensitivity by applying a reasonably possible change to those assumptions. Forecast earnings available to shareholders were changed by 20%, the discount rates were changed by 1.5 percentage points, and the long-term growth rates were changed by 0.75 percentage points. Under all scenarios, reasonably possible changes in key assumptions did not result in an impairment of goodwill or intangible assets reported by Global Wealth Management Americas, Global Wealth Management Switzerland and International, and Asset Management. If the estimated earnings and other assumptions in future periods deviate from the current outlook, the value of goodwill attributable to Global Wealth Management Americas, Global Wealth Management Switzerland and International, and Asset Management may become impaired in the future, giving rise to losses in the income statement. Recognition of any impairment of goodwill would reduce IFRS equity and net profit. It would not affect cash flows and, as goodwill is required to be deducted from capital under the Basel III capital framework, no effect would be expected on the Group’s capital ratios. Discount and growth rates In % Global Wealth Management Americas Global Wealth Management Switzerland and International Asset Management USD million HHiissttoorriiccaall ccoosstt Balance at the beginning of the year Additions Disposals Write-offs Foreign currency translation Balance at the end of the year AAccccuummuullaatteedd aammoorrttiizzaattiioonn aanndd iimmppaaiirrmmeenntt Balance at the beginning of the year Amortization Impairment / (reversal of impairment)2 Disposals Write-offs Foreign currency translation Balance at the end of the year NNeett bbooookk vvaalluuee aatt tthhee eenndd ooff tthhee yyeeaarr of which: Global Wealth Management Americas of which: Global Wealth Management Switzerland and International of which: Asset Management of which: Investment Bank of which: Group Functions Discount rates Growth rates 3311..1122..2211 99..55 88..55 88..55 Goodwill 6,182 (3) (53) 6,126 6,126 3,720 1,204 1,202 31.12.20 9.5 8.5 8.5 Intangible assets1 3311..1122..2211 44..00 33..11 22..99 31.12.20 5.1 3.7 3.5 22002211 2020 1,683 1 (41) (30) 1,612 1,385 31 (1) (41) (13) 1,360 252 41 72 139 77,,886655 11 ((33)) ((4411)) ((8833)) 77,,773399 11,,338855 3311 ((11)) 00 ((4411)) ((1133)) 11,,336600 66,,337788 33,,776600 11,,227766 11,,220022 113399 00 7,820 147 (158) (35) 91 7,865 1,351 55 2 0 (35) 11 1,385 6,480 3,770 1,320 1,226 161 4 11 Intangible assets mainly include customer relationships, contractual rights and the fully amortized branch network intangible asset recognized in connection with the acquisition of PaineWebber Group, Inc. 22 Impairment charges recorded in 2020 relate to assets for which the recoverable amount was determined considering their value in use (recoverable amount of the impaired intangible assets: USD 5 million for 2020). The table below presents estimated aggregated amortization expenses for intangible assets. USD million EEssttiimmaatteedd aaggggrreeggaatteedd aammoorrttiizzaattiioonn eexxppeennsseess ffoorr:: 2022 2023 2024 2025 2026 Thereafter Not amortized due to indefinite useful life TToottaall 334 326 Intangible assets 29 27 23 23 23 126 2 252 Consolidated financial statements | UBS Group AG consolidated financial statements Note 13 Goodwill and intangible assets (continued) Note 14 Other assets Key assumptions used to determine the recoverable amounts If the estimated earnings and other assumptions in future a) Other financial assets measured at amortized cost USD million Debt securities of which: government bills / bonds Loans to financial advisors Fee- and commission-related receivables Finance lease receivables Settlement and clearing accounts Accrued interest income Other TToottaall ootthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt b) Other non-financial assets USD million Precious metals and other physical commodities Deposits and collateral provided in connection with litigation, regulatory and similar matters1 Prepaid expenses VAT and other tax receivables Properties and other non-current assets held for sale Assets of disposal groups held for sale2 Other TToottaall ootthheerr nnoonn--ffiinnaanncciiaall aasssseettss 11 Refer to Note 18 for more information. 22 Refer to Note 30 for more information. Note 15 Amounts due to banks and customer deposits USD million Amounts due to banks Customer deposits of which: demand deposits of which: retail savings / deposits of which: time deposits1 TToottaall aammoouunnttss dduuee ttoo bbaannkkss aanndd ccuussttoommeerr ddeeppoossiittss 11 Includes customer deposits in UBS AG Jersey Branch placed by UBS Switzerland AG on behalf of its clients. of each CGU are tested for sensitivity by applying a reasonably periods deviate from the current outlook, the value of goodwill possible change to those assumptions. Forecast earnings attributable to Global Wealth Management Americas, Global available to shareholders were changed by 20%, the discount Wealth Management Switzerland and International, and Asset rates were changed by 1.5 percentage points, and the long-term Management may become impaired in the future, giving rise to growth rates were changed by 0.75 percentage points. Under all losses in the income statement. Recognition of any impairment of scenarios, reasonably possible changes in key assumptions did goodwill would reduce IFRS equity and net profit. It would not not result in an impairment of goodwill or intangible assets affect cash flows and, as goodwill is required to be deducted from reported by Global Wealth Management Americas, Global capital under the Basel III capital framework, no effect would be Wealth Management Switzerland and International, and Asset expected on the Group’s capital ratios. Management. Discount and growth rates In % Global Wealth Management Americas Global Wealth Management Switzerland and International Asset Management Balance at the beginning of the year USD million HHiissttoorriiccaall ccoosstt Additions Disposals Write-offs Foreign currency translation Balance at the end of the year AAccccuummuullaatteedd aammoorrttiizzaattiioonn aanndd iimmppaaiirrmmeenntt Balance at the beginning of the year Impairment / (reversal of impairment)2 Amortization Disposals Write-offs Foreign currency translation Balance at the end of the year NNeett bbooookk vvaalluuee aatt tthhee eenndd ooff tthhee yyeeaarr of which: Global Wealth Management Americas of which: Global Wealth Management Switzerland and International of which: Asset Management of which: Investment Bank of which: Group Functions 2020). USD million 2022 2023 2024 2025 2026 TToottaall Thereafter 334 Not amortized due to indefinite useful life Discount rates Growth rates 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 99..55 88..55 88..55 Goodwill 6,182 (3) (53) 6,126 6,126 3,720 1,204 1,202 9.5 8.5 8.5 Intangible assets1 1,683 1 (41) (30) 31 (1) (41) (13) 1,360 252 41 72 139 44..00 33..11 22..99 22002211 77,,886655 11 ((33)) ((4411)) ((8833)) 3311 ((11)) 00 ((4411)) ((1133)) 11,,336600 66,,337788 33,,776600 11,,227766 11,,220022 113399 00 1,612 77,,773399 1,385 11,,338855 1,351 5.1 3.7 3.5 2020 7,820 147 (158) (35) 91 7,865 55 2 0 (35) 11 1,385 6,480 3,770 1,320 1,226 161 4 29 27 23 23 23 126 2 252 11 Intangible assets mainly include customer relationships, contractual rights and the fully amortized branch network intangible asset recognized in connection with the acquisition of PaineWebber Group, Inc. 22 Impairment charges recorded in 2020 relate to assets for which the recoverable amount was determined considering their value in use (recoverable amount of the impaired intangible assets: USD 5 million for The table below presents estimated aggregated amortization expenses for intangible assets. EEssttiimmaatteedd aaggggrreeggaatteedd aammoorrttiizzaattiioonn eexxppeennsseess ffoorr:: Intangible assets 3311..1122..2211 1188,,885588 31.12.20 18,801 99,,883333 22,,445533 11,,997722 11,,335566 445555 552200 559944 2266,,220099 9,789 2,569 2,014 1,447 614 591 1,158 27,194 3311..1122..2211 31.12.20 55,,225588 11,,552266 11,,110088 663388 3322 11,,009933 662211 1100,,227777 6,264 1,418 1,081 433 246 326 9,768 3311..1122..2211 1133,,110011 554422,,000077 224466,,441177 224477,,222244 4488,,336655 555555,,110088 31.12.20 11,050 524,605 236,447 220,898 67,260 535,655 335 327 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 16 Debt issued designated at fair value USD million IIssssuueedd ddeebbtt iinnssttrruummeennttss Equity-linked1 Rates-linked Credit-linked Fixed-rate Commodity-linked Other of which: debt that contributes to total loss-absorbing capacity TToottaall ddeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee of which: issued by UBS AG with original maturity greater than one year2 3311..1122..2211 31.12.20 4477,,005599 1166,,336699 11,,772233 22,,886688 22,,991111 22,,886688 22,,113366 7733,,779999 5577,,996677 41,069 11,038 1,933 3,604 1,497 2,101 1,190 61,243 46,427 of which: life-to-date own credit (gain) / loss 418 11 Includes investment fund unit-linked instruments issued. 22 Based on original contractual maturity without considering any early redemption features. As of 31 December 2021, 100% of the balance was unsecured (31 December 2020: 100%). 334477 As of 31 December 2021 and 31 December 2020, the contractual redemption amount at maturity of debt issued designated at fair value through profit or loss was not materially different from the carrying amount. The table below shows the residual contractual maturity of the carrying amount of debt issued designated at fair value, split between fixed-rate and floating-rate instruments based on the contractual terms, and does not consider any early redemption features. Interest rate ranges for future interest payments related to debt issued designated at fair value have not been included in the table below, as the majority of the debt instruments issued are structured products and therefore the future interest payments are highly dependent upon the embedded derivative and prevailing market conditions at the point in time that each interest payment is made. › Refer to Note 24 for maturity information on an undiscounted cash flow basis Contractual maturity of carrying amount USD million UUBBSS GGrroouupp AAGG11 Non-subordinated debt Fixed-rate UUBBSS AAGG22 Non-subordinated debt Fixed-rate Floating-rate Subtotal OOtthheerr ssuubbssiiddiiaarriieess33 Non-subordinated debt Fixed-rate Floating-rate Subtotal TToottaall 2022 2023 2024 2025 2026 2027–2031 Thereafter TToottaall 3311..1122..2211 Total 31.12.20 0 0 0 0 0 0 2,340 22,,334400 1,375 4,296 19,338 23,635 1,658 15,621 17,279 716 5,067 5,783 495 5,816 6,311 226 3,840 4,066 6 150 156 0 47 47 0 145 145 0 0 0 0 0 0 273 8,364 8,637 423 0 423 1,732 3,238 4,971 99,,339977 6611,,228844 7700,,668822 9,409 49,528 58,937 0 7 7 442299 334499 777788 539 392 931 23,791 17,325 5,929 6,311 4,066 9,060 7,317 7733,,779999 61,243 11 Consists of instruments issued by the legal entity UBS Group AG. 22 Consists of instruments issued by the legal entity UBS AG. 33 Consists of instruments issued by subsidiaries of UBS AG. 336 328 Note 16 Debt issued designated at fair value Note 17 Debt issued measured at amortized cost 3311..1122..2211 31.12.20 USD million 3311..1122..2211 31.12.20 4477,,005599 1166,,336699 11,,772233 22,,886688 22,,991111 22,,886688 22,,113366 7733,,779999 5577,,996677 334477 41,069 11,038 1,933 3,604 1,497 2,101 1,190 61,243 46,427 418 Certificates of deposit and commercial paper Other short-term debt SShhoorrtt--tteerrmm ddeebbtt11 Senior unsecured debt that contributes to total loss-absorbing capacity (TLAC) Senior unsecured debt other than TLAC of which: issued by UBS AG with original maturity greater than one year2 Covered bonds Subordinated debt of which: high-trigger loss-absorbing additional tier 1 capital instruments of which: low-trigger loss-absorbing additional tier 1 capital instruments of which: low-trigger loss-absorbing tier 2 capital instruments of which: non-Basel III-compliant tier 2 capital instruments Debt issued through the Swiss central mortgage institutions Other long-term debt LLoonngg--tteerrmm ddeebbtt33 4400,,664400 22,,445588 4433,,009988 3388,,998844 2277,,559900 2233,,330077 11,,338899 1188,,664400 1111,,005522 22,,442255 22,,559966 554477 99,,445544 00 41,151 5,515 46,666 36,611 21,340 18,464 2,796 22,157 11,837 2,577 7,201 543 9,660 3 9966,,005577 92,566 TToottaall ddeebbtt iissssuueedd mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt44 11 Debt with an original contractual maturity of less than one year. 22 Based on original contractual maturity without considering any early redemption features. As of 31 December 2021, 100% of the balance was unsecured (31 December 2020: 100%). 33 Debt with an original contractual maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider any early redemption features. 44 Net of bifurcated embedded derivatives, the fair value of which was not material for the periods presented. 139,232 113399,,115555 The Group uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt instruments held at amortized cost. In some cases, the Group applies hedge accounting for interest rate risk as discussed in item 2j in Note 1a and Note 26. As a result of applying hedge accounting, the life- to-date adjustment to the carrying amount of debt issued was an increase of USD 478 million as of 31 December 2021 and an increase of USD 2,401 million as of 31 December 2020, reflecting changes in fair value due to interest rate movements. Subordinated debt consists of unsecured debt obligations that are contractually subordinated in right of payment to all other present and future non-subordinated obligations of the respective issuing entity. All of the subordinated debt instruments outstanding as of 31 December 2021 pay a fixed rate of interest. The table below shows the residual contractual maturity of the carrying amount of debt issued, split between fixed-rate and floating-rate based on the contractual terms, and does not consider any early redemption features. The effects from interest rate swaps, which are used to hedge various fixed-rate debt issuances by changing the repricing characteristics into those similar to floating-rate debt, are also not considered in the table below. › Refer to Note 24 for maturity information on an undiscounted cash flow basis Contractual maturity of carrying amount Consolidated financial statements | UBS Group AG consolidated financial statements USD million IIssssuueedd ddeebbtt iinnssttrruummeennttss Equity-linked1 Rates-linked Credit-linked Fixed-rate Commodity-linked Other of which: debt that contributes to total loss-absorbing capacity TToottaall ddeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee of which: issued by UBS AG with original maturity greater than one year2 of which: life-to-date own credit (gain) / loss (31 December 2020: 100%). 11 Includes investment fund unit-linked instruments issued. 22 Based on original contractual maturity without considering any early redemption features. As of 31 December 2021, 100% of the balance was unsecured As of 31 December 2021 and 31 December 2020, the contractual to debt issued designated at fair value have not been included in redemption amount at maturity of debt issued designated at fair the table below, as the majority of the debt instruments issued value through profit or loss was not materially different from the are structured products and therefore the future interest carrying amount. payments are highly dependent upon the embedded derivative The table below shows the residual contractual maturity of the and prevailing market conditions at the point in time that each carrying amount of debt issued designated at fair value, split interest payment is made. between fixed-rate and floating-rate instruments based on the › Refer to Note 24 for maturity information on an undiscounted contractual terms, and does not consider any early redemption cash flow basis features. Interest rate ranges for future interest payments related Contractual maturity of carrying amount 2022 2023 2024 2025 2026 2027–2031 Thereafter 3311..1122..2211 31.12.20 TToottaall Total USD million UUBBSS GGrroouupp AAGG11 Non-subordinated debt Non-subordinated debt Fixed-rate UUBBSS AAGG22 Fixed-rate Floating-rate Subtotal OOtthheerr ssuubbssiiddiiaarriieess33 Non-subordinated debt Fixed-rate Floating-rate Subtotal TToottaall 0 0 0 0 0 0 2,340 22,,334400 1,375 4,296 19,338 23,635 1,658 15,621 17,279 716 5,067 5,783 495 5,816 6,311 226 3,840 4,066 1,732 3,238 4,971 99,,339977 6611,,228844 7700,,668822 9,409 49,528 58,937 273 8,364 8,637 423 0 423 6 150 156 0 47 47 0 145 145 0 0 0 0 0 0 0 7 7 442299 334499 777788 539 392 931 23,791 17,325 5,929 6,311 4,066 9,060 7,317 7733,,779999 61,243 11 Consists of instruments issued by the legal entity UBS Group AG. 22 Consists of instruments issued by the legal entity UBS AG. 33 Consists of instruments issued by subsidiaries of UBS AG. 3,769 492 4,027 2,183 0 0 5,145 5,052 6,748 12,534 0 0 0 0 0 0 0 0 4,261 6,211 5,145 5,052 6,748 12,534 3,294 0 13,477 16,771 2022 2023 2024 2025 2026 2027–2031 Thereafter TToottaall 3311..1122..2211 Total 31.12.20 USD million UUBBSS GGrroouupp AAGG11 Non-subordinated debt Fixed-rate Floating-rate Subordinated debt Fixed-rate Subtotal UUBBSS AAGG22 Non-subordinated debt Fixed-rate Floating-rate Subordinated debt Fixed-rate Subtotal OOtthheerr ssuubbssiiddiiaarriieess33 Non-subordinated debt Fixed-rate Subtotal TToottaall 4400,,556699 22,,667766 1133,,447777 5566,,772222 5522,,557711 1155,,223388 55,,116633 7722,,997722 33,578 5,890 14,413 53,881 52,618 15,299 7,744 75,661 3,439 508 210 4,158 1,381 1,213 0 0 0 0 1,381 1,213 38,647 9,807 2,020 50,474 5,578 2,093 0 7,671 1,964 1,922 2,596 6,482 907 907 1,007 1,007 1,072 1,072 55,642 14,889 12,698 349 907 337 1,594 1,173 1,173 7,818 1,045 1,045 11,951 3,674 3,674 17,590 582 582 99,,446600 99,,446600 9,690 9,690 18,566 113399,,115555 139,232 336 337 329 11 Consists of debt issued by the legal entity UBS Group AG. 22 Consists of debt issued by the legal entity UBS AG. 33 Consists of debt issued by subsidiaries of UBS AG. Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 18 Provisions and contingent liabilities a) Provisions The table below presents an overview of total provisions. USD million Provisions other than provisions for expected credit losses Provisions for expected credit losses TToottaall pprroovviissiioonnss 3311..1122..2211 33,,332222 119966 33,,551188 31.12.20 2,571 257 2,828 The following table presents additional information for provisions other than provisions for expected credit losses. USD million BBaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Increase in provisions recognized in the income statement Release of provisions recognized in the income statement Provisions used in conformity with designated purpose Capitalized reinstatement costs Foreign currency translation / unwind of discount BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr 11 Consists of provisions for losses resulting from legal, liability and compliance risks. 22 Primarily consists of personnel-related restructuring provisions of USD 125 million as of 31 December 2021 (31 December 2020: USD 18 million) and provisions for onerous contracts of USD 47 million as of 31 December 2021 (31 December 2020: USD 49 million). 33 Mainly includes provisions related to real estate, employee benefits and operational risks. Restructuring 72 297 (30) (165) 0 (3) 11772222 TToottaall 22002211 22,,557711 11,,336611 ((113366)) ((443344)) 3322 ((7722)) 33,,332222 Other3 363 78 (32) (80) 32 (10) 335522 Litigation, regulatory and similar matters1 2,135 986 (74) (189) 0 (59) 22,,779988 Restructuring provisions primarily relate to personnel-related provisions and onerous contracts. Personnel-related restructuring provisions are used within a short period of time but potential changes in amount may be triggered when natural staff attrition reduces the number of people affected by a restructuring event and therefore the estimated costs. Onerous contracts for property are recognized when UBS is committed to pay for non-lease components, such as utilities, service charges, taxes and maintenance, when a property is vacated or not fully recovered from sub-tenants. Information about provisions and contingent liabilities in respect of litigation, regulatory and similar matters, as a class, is included in Note 18b. There are no material contingent liabilities associated with the other classes of provisions. b) Litigation, regulatory and similar matters The Group operates in a legal and regulatory environment that exposes it to significant litigation and similar risks arising from disputes and regulatory proceedings. As a result, UBS (which for purposes of this Note may refer to UBS Group AG and/or one or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including litigation, arbitration, and regulatory and criminal investigations. Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to predict, particularly in the earlier stages of a case. There are also situations where the Group may enter into a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, even for those matters for which the Group believes it should be exonerated. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to which provisions have been established and other contingent liabilities. The Group makes provisions for such matters brought against it when, in the opinion of management after seeking legal advice, it is more likely than not that the Group has a present legal or constructive obligation as a result of past 338 330 events, it is probable that an outflow of resources will be required, and the amount can be reliably estimated. Where these factors are otherwise satisfied, a provision may be established for claims that have not yet been asserted against the Group, but are nevertheless expected to be, based on the Group’s experience with similar asserted claims. If any of those conditions is not met, such matters result in contingent liabilities. If the amount of an obligation cannot be reliably estimated, a liability exists that is not recognized even if an outflow of resources is probable. Accordingly, no provision is established even if the potential outflow of resources with respect to such matters could be significant. Developments relating to a matter that occur after the relevant reporting period, but prior to the issuance of financial statements, which affect management’s assessment of the provision the developments provide evidence of conditions that existed at the end of the reporting period), are adjusting events after the reporting period under IAS 10 and must be recognized in the financial statements for the reporting period. for example, such matter (because, for Note 18 Provisions and contingent liabilities Note 18 Provisions and contingent liabilities (continued) Specific litigation, regulatory and other matters are described below, including all such matters that management considers to be material and others that management believes to be of significance due to potential financial, reputational and other effects. The amount of damages claimed, the size of a transaction or other information is provided where available and appropriate in order to assist users in considering the magnitude of potential exposures. In the case of certain matters below, we state that we have established a provision, and for the other matters, we make no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and reliably estimable outflow, we do not disclose that amount. In some cases we are that preclude such subject disclosure. With respect to the matters for which we do not state whether we have established a provision, either: (a) we have not established a provision, in which case the matter is treated as a contingent liability under the applicable accounting standard; or (b) we have established a provision but expect disclosure of that fact to prejudice seriously our position with other parties in the matter because it would reveal the fact that UBS believes an outflow of resources to be probable and reliably estimable. to confidentiality obligations With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to estimate the expected timing of outflows. However, the aggregate amount of the expected outflows for those matters for which we are able to estimate expected timing is immaterial relative to our current and expected levels of liquidity over the relevant time periods. The aggregate amount provisioned for litigation, regulatory and similar matters as a class is disclosed in the “Provisions” table in Note 18a above. It is not practicable to provide an aggregate estimate of liability for our litigation, regulatory and similar matters as a class of contingent liabilities. Doing so would require UBS to provide speculative legal assessments as to claims and proceedings that involve unique fact patterns or novel legal theories, that have not yet been initiated or are at early stages of adjudication, or as to which alleged damages have not been quantified by the claimants. Although UBS therefore cannot provide a numerical estimate of the future losses that could arise from litigation, regulatory and similar matters, UBS believes that the aggregate amount of possible future losses from this class that are more than remote substantially exceeds the level of current provisions. Litigation, regulatory and similar matters may also result in non-monetary penalties and consequences. A guilty plea to, or conviction of, a crime could have material consequences for UBS. Resolution of regulatory proceedings may require UBS to obtain waivers of regulatory disqualifications to maintain certain operations, may entitle regulatory authorities to limit, suspend or terminate licenses and regulatory authorizations, and may permit financial market utilities to limit, suspend or terminate UBS’s participation in such utilities. Failure to obtain such waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material consequences for UBS. The risk of loss associated with litigation, regulatory and similar matters is a component of operational risk for purposes of determining capital requirements. Information concerning our capital requirements and the calculation of operational risk for this purpose is included in the “Capital, liquidity and funding, and balance sheet” section of this report. Provisions for litigation, regulatory and similar matters by business division and in Group Functions1 USD million BBaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Increase in provisions recognized in the income statement Release of provisions recognized in the income statement Provisions used in conformity with designated purpose Foreign currency translation / unwind of discount BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr Global Wealth Manage- ment 861 754 (60) (175) (42) 11,,333388 Personal & Corporate Banking 115 84 Asset Manage- ment 0 9 Investment Bank 227 107 Group Functions 932 32 TToottaall 22002211 22,,113355 998866 (11) (1) (6) 118811 0 (1) 0 88 (4) (10) (11) 331100 0 (2) 0 ((7744)) ((118899)) ((5599)) 996622 22,,779988 11 Provisions, if any, for the matters described in items 3 and 4 of this Note are recorded in Global Wealth Management, and provisions, if any, for the matters described in item 2 are recorded in Group Functions. Provisions, if any, for the matters described in items 1 and 6 of this Note are allocated between Global Wealth Management and Personal & Corporate Banking, and provisions, if any, for the matters described in item 5 are allocated between the Investment Bank and Group Functions. Consolidated financial statements | UBS Group AG consolidated financial statements The following table presents additional information for provisions other than provisions for expected credit losses. a) Provisions The table below presents an overview of total provisions. USD million Provisions other than provisions for expected credit losses Provisions for expected credit losses TToottaall pprroovviissiioonnss USD million BBaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Increase in provisions recognized in the income statement Release of provisions recognized in the income statement Provisions used in conformity with designated purpose Capitalized reinstatement costs Foreign currency translation / unwind of discount BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr operational risks. 3311..1122..2211 31.12.20 33,,332222 119966 33,,551188 2,571 257 2,828 Litigation, regulatory and similar matters1 2,135 986 (74) (189) 0 (59) 22,,779988 Restructuring Other3 TToottaall 22002211 72 297 (30) (165) 0 (3) 11772222 363 78 (32) (80) 32 (10) 335522 22,,557711 11,,336611 ((113366)) ((443344)) 3322 ((7722)) 33,,332222 11 Consists of provisions for losses resulting from legal, liability and compliance risks. 22 Primarily consists of personnel-related restructuring provisions of USD 125 million as of 31 December 2021 (31 December 2020: USD 18 million) and provisions for onerous contracts of USD 47 million as of 31 December 2021 (31 December 2020: USD 49 million). 33 Mainly includes provisions related to real estate, employee benefits and Restructuring provisions primarily relate to personnel-related components, such as utilities, service charges, taxes and provisions and onerous contracts. Personnel-related restructuring maintenance, when a property is vacated or not fully recovered provisions are used within a short period of time but potential from sub-tenants. changes in amount may be triggered when natural staff attrition Information about provisions and contingent liabilities in reduces the number of people affected by a restructuring event respect of litigation, regulatory and similar matters, as a class, is and therefore the estimated costs. Onerous contracts for property included in Note 18b. There are no material contingent liabilities are recognized when UBS is committed to pay for non-lease associated with the other classes of provisions. b) Litigation, regulatory and similar matters The Group operates in a legal and regulatory environment that events, it is probable that an outflow of resources will be required, exposes it to significant litigation and similar risks arising from and the amount can be reliably estimated. Where these factors disputes and regulatory proceedings. As a result, UBS (which for are otherwise satisfied, a provision may be established for claims purposes of this Note may refer to UBS Group AG and/or one or that have not yet been asserted against the Group, but are more of its subsidiaries, as applicable) is involved in various nevertheless expected to be, based on the Group’s experience disputes and legal proceedings, including litigation, arbitration, with similar asserted claims. If any of those conditions is not met, and regulatory and criminal investigations. such matters result in contingent liabilities. If the amount of an Such matters are subject to many uncertainties, and the obligation cannot be reliably estimated, a liability exists that is not outcome and the timing of resolution are often difficult to predict, recognized even if an outflow of resources is probable. particularly in the earlier stages of a case. There are also situations Accordingly, no provision is established even if the potential where the Group may enter into a settlement agreement. This outflow of resources with respect to such matters could be may occur in order to avoid the expense, management distraction significant. Developments relating to a matter that occur after the or reputational implications of continuing to contest liability, even relevant reporting period, but prior to the issuance of financial for those matters for which the Group believes it should be statements, which affect management’s assessment of the exonerated. The uncertainties inherent in all such matters affect provision for such matter (because, for example, the the amount and timing of any potential outflows for both matters developments provide evidence of conditions that existed at the with respect to which provisions have been established and other end of the reporting period), are adjusting events after the contingent liabilities. The Group makes provisions for such reporting period under IAS 10 and must be recognized in the matters brought against it when, in the opinion of management financial statements for the reporting period. after seeking legal advice, it is more likely than not that the Group has a present legal or constructive obligation as a result of past 338 339 331 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 18 Provisions and contingent liabilities (continued) 1. Inquiries regarding cross-border wealth management businesses Tax and regulatory authorities in a number of countries have made inquiries, served requests for information or examined employees located in their respective jurisdictions relating to the cross-border wealth management services provided by UBS and other financial institutions. It is possible that the implementation of automatic tax information exchange and other measures relating to cross-border provision of financial services could give rise to further inquiries in the future. UBS has received disclosure orders from the Swiss Federal Tax Administration (FTA) to transfer information based on requests for international administrative assistance in tax matters. The requests concern a number of UBS account numbers pertaining to current and former clients and are based on data from 2006 and 2008. UBS has taken steps to inform affected clients about the administrative assistance proceedings and their procedural rights, including the right to appeal. The requests are based on data received from the German authorities, who seized certain data related to UBS clients booked in Switzerland during their investigations and have apparently shared this data with other European countries. UBS expects additional countries to file similar requests. Since 2013, UBS (France) S.A., UBS AG and certain former employees have been under investigation in France for alleged complicity in unlawful solicitation of clients on French territory, regarding the laundering of proceeds of tax fraud, and banking and financial solicitation by unauthorized persons. In connection with this investigation, the investigating judges ordered UBS AG to provide bail (“caution”) of EUR 1.1 billion and UBS (France) S.A. to post bail of EUR 40 million, which was reduced on appeal to EUR 10 million. On 20 February 2019, the court of first instance returned a verdict finding UBS AG guilty of unlawful solicitation of clients on French territory and aggravated laundering of the proceeds of tax fraud, and UBS (France) S.A. guilty of aiding and abetting unlawful solicitation and of laundering the proceeds of tax fraud. The court imposed fines aggregating EUR 3.7 billion on UBS AG and UBS (France) S.A. and awarded EUR 800 million of civil damages to the French state. A trial in the French Court of Appeal took place in March 2021. On 13 December 2021, the Court of Appeal found UBS AG guilty of unlawful solicitation and aggravated laundering of the proceeds of tax fraud. The court ordered a fine of EUR 3.75 million, the confiscation of EUR 1 billion, and awarded civil damages to the French state of EUR 800 million. The court also found UBS (France) SA guilty of the aiding and abetting of unlawful solicitation and ordered it to pay a fine of EUR 1.875 million. UBS AG has filed an appeal with the French Supreme Court to preserve its rights. The appeal enables UBS AG to thoroughly assess the verdict of the Court of Appeal and to determine next steps in the best interest of its stakeholders. The fine and confiscation imposed by the Court of Appeal are suspended during the appeal. The civil damages award has been paid to the French state (EUR 99 million of which was deducted from the bail), subject to the result of UBS’s appeal. Our balance sheet at 31 December 2021 reflected provisions with respect to this matter in an amount of EUR 1.1 billion (USD 1.252 billion at 31 December 2021). The wide range of possible outcomes in this case contributes to a high degree of estimation uncertainty and the provision reflects our best estimate of possible financial implications, although actual penalties and civil damages could exceed (or may be less than) the provision amount. In 2016, UBS was notified by the Belgian investigating judge that it was under formal investigation (“inculpé”) regarding the allegations of laundering of proceeds of tax fraud, banking and financial solicitation by unauthorized persons, and serious tax fraud. In November 2021, the Council Chamber approved a settlement with the Brussels Prosecution Office for EUR 49 million without recognition of guilt with regard to the allegations of banking and financial solicitation by unauthorized persons and serious tax fraud. The allegation of laundering of proceeds of tax fraud was dismissed. Our balance sheet at 31 December 2021 reflected provisions with respect to matters described in this item 1 in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized. 2. Claims related to sales of residential mortgage-backed securities and mortgages From 2002 through 2007, prior to the crisis in the US residential loan market, UBS was a substantial issuer and underwriter of US (RMBS) and was a residential mortgage-backed securities purchaser and seller of US residential mortgages. In November 2018, the DOJ filed a civil complaint in the District Court for the Eastern District of New York. The complaint seeks unspecified civil monetary penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 related to UBS’s issuance, underwriting and sale of 40 RMBS transactions in 2006 and 2007. UBS moved to dismiss the civil complaint on 6 February 2019. On 10 December 2019, the district court denied UBS’s motion to dismiss. Our balance sheet at 31 December 2021 reflected a provision with respect to matters described in this item 2 in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of this matter cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized. 340 332 Consolidated financial statements | UBS Group AG consolidated financial statements 1. Inquiries regarding cross-border wealth management Our balance sheet at 31 December 2021 reflected provisions businesses with respect to this matter in an amount of EUR 1.1 billion Tax and regulatory authorities in a number of countries have (USD 1.252 billion at 31 December 2021). The wide range of made inquiries, served requests for information or examined possible outcomes in this case contributes to a high degree of employees located in their respective jurisdictions relating to the estimation uncertainty and the provision reflects our best estimate cross-border wealth management services provided by UBS and of possible financial implications, although actual penalties and other financial institutions. It is possible that the implementation civil damages could exceed (or may be less than) the provision of automatic tax information exchange and other measures amount. relating to cross-border provision of financial services could give In 2016, UBS was notified by the Belgian investigating judge rise to further inquiries in the future. UBS has received disclosure that it was under formal investigation (“inculpé”) regarding the orders from the Swiss Federal Tax Administration (FTA) to transfer allegations of laundering of proceeds of tax fraud, banking and information based on requests for international administrative financial solicitation by unauthorized persons, and serious tax assistance in tax matters. The requests concern a number of UBS fraud. In November 2021, the Council Chamber approved a account numbers pertaining to current and former clients and are settlement with the Brussels Prosecution Office for EUR 49 million based on data from 2006 and 2008. UBS has taken steps to without recognition of guilt with regard to the allegations of inform affected clients about the administrative assistance banking and financial solicitation by unauthorized persons and proceedings and their procedural rights, including the right to serious tax fraud. The allegation of laundering of proceeds of tax appeal. The requests are based on data received from the German fraud was dismissed. authorities, who seized certain data related to UBS clients booked Our balance sheet at 31 December 2021 reflected provisions in Switzerland during their investigations and have apparently with respect to matters described in this item 1 in an amount that shared this data with other European countries. UBS expects UBS believes to be appropriate under the applicable accounting additional countries to file similar requests. standard. As in the case of other matters for which we have Since 2013, UBS (France) S.A., UBS AG and certain former established provisions, the future outflow of resources in respect employees have been under investigation in France for alleged of such matters cannot be determined with certainty based on complicity in unlawful solicitation of clients on French territory, currently available information and accordingly may ultimately regarding the laundering of proceeds of tax fraud, and banking prove to be substantially greater (or may be less) than the and financial solicitation by unauthorized persons. In connection provision that we have recognized. with this investigation, the investigating judges ordered UBS AG to provide bail (“caution”) of EUR 1.1 billion and UBS (France) S.A. 2. Claims related to sales of residential mortgage-backed to post bail of EUR 40 million, which was reduced on appeal to securities and mortgages EUR 10 million. From 2002 through 2007, prior to the crisis in the US residential On 20 February 2019, the court of first instance returned a loan market, UBS was a substantial issuer and underwriter of US verdict finding UBS AG guilty of unlawful solicitation of clients on residential mortgage-backed securities (RMBS) and was a French territory and aggravated laundering of the proceeds of tax purchaser and seller of US residential mortgages. fraud, and UBS (France) S.A. guilty of aiding and abetting In November 2018, the DOJ filed a civil complaint in the District unlawful solicitation and of laundering the proceeds of tax fraud. Court for the Eastern District of New York. The complaint seeks The court imposed fines aggregating EUR 3.7 billion on UBS AG unspecified civil monetary penalties under the Financial and UBS (France) S.A. and awarded EUR 800 million of civil Institutions Reform, Recovery and Enforcement Act of 1989 damages to the French state. A trial in the French Court of Appeal related to UBS’s issuance, underwriting and sale of 40 RMBS took place in March 2021. On 13 December 2021, the Court of transactions in 2006 and 2007. UBS moved to dismiss the civil Appeal found UBS AG guilty of unlawful solicitation and complaint on 6 February 2019. On 10 December 2019, the aggravated laundering of the proceeds of tax fraud. The court district court denied UBS’s motion to dismiss. ordered a fine of EUR 3.75 million, the confiscation of Our balance sheet at 31 December 2021 reflected a provision EUR 1 billion, and awarded civil damages to the French state of with respect to matters described in this item 2 in an amount that EUR 800 million. The court also found UBS (France) SA guilty of UBS believes to be appropriate under the applicable accounting the aiding and abetting of unlawful solicitation and ordered it to standard. As in the case of other matters for which we have pay a fine of EUR 1.875 million. UBS AG has filed an appeal with established provisions, the future outflow of resources in respect the French Supreme Court to preserve its rights. The appeal of this matter cannot be determined with certainty based on enables UBS AG to thoroughly assess the verdict of the Court of currently available information and accordingly may ultimately Appeal and to determine next steps in the best interest of its prove to be substantially greater (or may be less) than the stakeholders. The fine and confiscation imposed by the Court of provision that we have recognized. Appeal are suspended during the appeal. The civil damages award has been paid to the French state (EUR 99 million of which was deducted from the bail), subject to the result of UBS’s appeal. Note 18 Provisions and contingent liabilities (continued) Note 18 Provisions and contingent liabilities (continued) 3. Madoff In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A. (now UBS Europe SE, Luxembourg branch) and certain other UBS subsidiaries have been subject to inquiries by a number of regulators, including the Swiss Financial Market Supervisory (FINMA) and the Luxembourg Commission de Authority Surveillance du Secteur Financier. Those inquiries concerned two third-party funds established under Luxembourg law, substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either direct or indirect exposure to BMIS. These funds faced severe losses, and the Luxembourg funds are liquidation. The documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator, manager, distributor and promoter, and indicates that UBS employees serve as board members. in In 2009 and 2010, the liquidators of the two Luxembourg funds filed claims against UBS entities, non-UBS entities and certain individuals, including current and former UBS employees, seeking amounts totaling approximately EUR 2.1 billion, which includes amounts that the funds may be held liable to pay the trustee for the liquidation of BMIS (BMIS Trustee). A large number of alleged beneficiaries have filed claims against UBS entities (and non-UBS entities) for purported losses relating to the Madoff fraud. The majority of these cases have been filed in Luxembourg, where decisions that the claims in eight test cases were inadmissible have been affirmed by the Luxembourg Court of Appeal, and the Luxembourg Supreme Court has dismissed a further appeal in one of the test cases. In the US, the BMIS Trustee filed claims against UBS entities, among others, in relation to the two Luxembourg funds and one of the offshore funds. The total amount claimed against all defendants in these actions was not less than USD 2 billion. In 2014, the US Supreme Court rejected the BMIS Trustee’s motion for leave to appeal decisions dismissing all claims except those for the recovery of approximately USD 125 million of payments alleged to be fraudulent conveyances and preference payments. In 2016, the bankruptcy court dismissed these claims against the UBS entities. In February 2019, the Court of Appeals reversed the dismissal of the BMIS Trustee’s remaining claims, and the US Supreme Court subsequently denied a petition seeking review of the Court of Appeals’ decision. The case has been remanded to the Bankruptcy Court for further proceedings. 4. Puerto Rico Declines since 2013 in the market prices of Puerto Rico municipal bonds and of closed-end funds (funds) that are sole-managed and co-managed by UBS Trust Company of Puerto Rico and distributed by UBS Financial Services Incorporated of Puerto Rico (UBS PR) led to multiple regulatory inquiries, which in 2014 and 2015, led to settlements with the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico, the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority. Since then, UBS clients in Puerto Rico who own the funds or Puerto Rico municipal bonds and/or who used their UBS account assets as collateral for UBS non-purpose loans filed customer complaints and arbitration demands seeking aggregate damages of USD 3.4 billion, of which USD 3.1 billion have been resolved through settlements, arbitration or withdrawal of claims. Allegations include fraud, misrepresentation and unsuitability of the funds and of the loans. A shareholder derivative action was filed in 2014 against various UBS entities and current and certain former directors of the funds, alleging hundreds of millions of US dollars in losses in the funds. In 2021, the parties reached an agreement to settle this matter for USD 15 million, subject to court approval. In 2011, a purported derivative action was filed on behalf of the Employee Retirement System of the Commonwealth of Puerto Rico (System) against over 40 defendants, including UBS PR, which was named in connection with its underwriting and consulting services. Plaintiffs alleged that defendants violated their purported fiduciary duties and contractual obligations in connection with the issuance and underwriting of USD 3 billion of bonds by the System in 2008 and sought damages of over USD 800 million. In 2016, the court granted the System’s request to join the action as a plaintiff. In 2017, the court denied defendants’ motion to dismiss the complaint. In 2020, the court denied plaintiffs’ motion for summary judgment. Beginning in 2015, certain agencies and public corporations of the Commonwealth of Puerto Rico (Commonwealth) defaulted on certain interest payments on Puerto Rico bonds. In 2016, US federal legislation created an oversight board with power to oversee Puerto Rico’s finances and to restructure its debt. The oversight board has imposed a stay on the exercise of certain creditors’ rights. In 2017, the oversight board placed certain of into a bankruptcy-like proceeding under the the bonds supervision of a Federal District Judge. In May 2019, the oversight board filed complaints in Puerto Rico federal district court bringing claims against financial, legal and accounting firms that had participated in Puerto Rico municipal bond offerings, including UBS, seeking a return of underwriting and swap fees paid in connection with those offerings. UBS estimates that it received approximately USD 125 million in fees in the relevant offerings. In August 2019, and February and November 2020, four US insurance companies that insured issues of Puerto Rico municipal bonds sued UBS and several other underwriters of Puerto Rico municipal bonds in three separate cases. The actions collectively seek recovery of an aggregate of USD 955 million in damages from the defendants. The plaintiffs in these cases claim that defendants failed to reasonably investigate financial statements in the offering materials for the insured Puerto Rico bonds issued between 2002 and 2007, which plaintiffs argue they relied upon in agreeing to insure the bonds notwithstanding that they had no contractual relationship with the underwriters. Defendants’ motions to dismiss were granted in two of the cases; those decisions are being appealed by the plaintiffs. In the third case, defendants’ motion to dismiss was denied, but on appeal that ruling was reversed and the motion to dismiss was granted. 340 341 333 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 18 Provisions and contingent liabilities (continued) Our balance sheet at 31 December 2021 reflected provisions with respect to matters described in this item 4 in amounts that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provisions that we have recognized. 5. Foreign exchange, LIBOR and benchmark rates, and other trading practices Foreign exchange-related regulatory matters: Beginning in 2013, numerous authorities commenced investigations concerning possible manipulation of foreign exchange markets and precious metals prices. As a result of these investigations, UBS entered into resolutions with Swiss, US and United Kingdom regulators and the European Commission. UBS was granted conditional immunity by the Antitrust Division of the DOJ and by authorities in other jurisdictions in connection with potential competition law violations relating to foreign exchange and precious metals businesses. Foreign exchange-related civil litigation: Putative class actions have been filed since 2013 in US federal courts and in other jurisdictions against UBS and other banks on behalf of putative classes of persons who engaged in foreign currency transactions with any of the defendant banks. UBS has resolved US federal court class actions relating to foreign currency transactions with the defendant banks and persons who transacted in foreign exchange futures contracts and options on such futures under a settlement agreement that provides for UBS to pay an aggregate of USD 141 million and provide cooperation to the settlement classes. Certain class members have excluded themselves from that settlement and have filed individual actions in US and English courts against UBS and other banks, alleging violations of US and European competition laws and unjust enrichment. In 2015, a putative class action was filed in federal court against UBS and numerous other banks on behalf of persons and businesses in the US who directly purchased foreign currency from the defendants and alleged co-conspirators for their own end use. In March 2017, the court granted UBS’s (and the other banks’) motions to dismiss the complaint. The plaintiffs filed an amended complaint in August 2017. In March 2018, the court denied the defendants’ motions to dismiss the amended complaint. LIBOR and other benchmark-related regulatory matters: investigations Numerous government agencies conducted regarding potential improper attempts by UBS, among others, to manipulate LIBOR and other benchmark rates at certain times. UBS reached settlements or otherwise concluded investigations relating to benchmark interest rates with the investigating authorities. UBS was granted conditional leniency or conditional immunity from authorities in certain jurisdictions, including the Antitrust Division of the DOJ and the Swiss Competition Commission (WEKO), in connection with potential antitrust or competition law violations related to certain rates. However, UBS has not reached a final settlement with WEKO, as the Secretariat of WEKO has asserted that UBS does not qualify for full immunity. LIBOR and other benchmark-related civil litigation: A number of putative class actions and other actions are pending in the federal courts in New York against UBS and numerous other banks on behalf of parties who transacted in certain interest rate benchmark-based derivatives. Also pending in the US and in other jurisdictions are a number of other actions asserting losses related to various products whose interest rates were linked to LIBOR and other benchmarks, including adjustable rate mortgages, preferred and debt securities, bonds pledged as collateral, loans, depository accounts, investments and other interest-bearing instruments. The complaints allege manipulation, through various means, of certain benchmark interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR, SGD SIBOR and SOR and Australian BBSW, and seek unspecified compensatory and other damages under varying legal theories. USD LIBOR class and individual actions in the US: In 2013 and 2015, the district court in the USD LIBOR actions dismissed, in whole or in part, certain plaintiffs’ antitrust claims, federal racketeering claims, CEA claims, and state common law claims, and again dismissed the antitrust claims in 2016 following an appeal. In December 2021, the Second Circuit affirmed the district court’s dismissal in part and reversed in part and remanded to the district court for further proceedings. The Second Circuit, among other things, held that there was personal jurisdiction over UBS and other foreign defendants based on allegations that at least one alleged co-conspirator undertook an overt act in the United States. Separately, in 2018, the Second Circuit reversed in part the district court’s 2015 decision dismissing certain individual plaintiffs’ claims and certain of these actions are now proceeding. In 2018, the district court denied plaintiffs’ motions for class certification in the USD class actions for claims pending against UBS, and plaintiffs sought permission to appeal that ruling to the Second Circuit. In July 2018, the Second Circuit denied the petition to appeal of the class of USD lenders and in November 2018 denied the petition of the USD exchange class. In January 2019, a putative class action was filed in the District Court for the Southern District of New York against UBS and numerous other banks on behalf of US residents who, since 1 February 2014, in USD LIBOR directly transacted with a defendant bank instruments. The complaint asserts antitrust claims. The defendants moved to dismiss the complaint in August 2019. On 26 March 2020 the court granted defendants’ motion to dismiss the complaint in its entirety. Plaintiffs have appealed the dismissal. In August 2020, an individual action was filed in the Northern District of California against UBS and numerous other banks alleging that the defendants conspired to fix the interest rate used as the basis for loans to consumers by jointly setting the USD LIBOR rate and monopolized the market for LIBOR-based consumer loans and credit cards. Defendants moved to dismiss the complaint in September 2021. 342 334 Consolidated financial statements | UBS Group AG consolidated financial statements Our balance sheet at 31 December 2021 reflected provisions competition law violations related to certain rates. However, UBS with respect to matters described in this item 4 in amounts that has not reached a final settlement with WEKO, as the Secretariat UBS believes to be appropriate under the applicable accounting of WEKO has asserted that UBS does not qualify for full immunity. standard. As in the case of other matters for which we have LIBOR and other benchmark-related civil litigation: A number established provisions, the future outflow of resources in respect of putative class actions and other actions are pending in the of such matters cannot be determined with certainty based on federal courts in New York against UBS and numerous other currently available information and accordingly may ultimately banks on behalf of parties who transacted in certain interest rate prove to be substantially greater (or may be less) than the benchmark-based derivatives. Also pending in the US and in other provisions that we have recognized. jurisdictions are a number of other actions asserting losses related to various products whose interest rates were linked to LIBOR and 5. Foreign exchange, LIBOR and benchmark rates, and other other benchmarks, including adjustable rate mortgages, preferred trading practices and debt securities, bonds pledged as collateral, loans, depository Foreign exchange-related regulatory matters: Beginning in 2013, accounts, investments and other interest-bearing instruments. numerous authorities commenced investigations concerning The complaints allege manipulation, through various means, of possible manipulation of foreign exchange markets and precious certain benchmark interest rates, including USD LIBOR, Euroyen metals prices. As a result of these investigations, UBS entered into TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR, SGD SIBOR resolutions with Swiss, US and United Kingdom regulators and and SOR and Australian BBSW, and seek unspecified the European Commission. UBS was granted conditional compensatory and other damages under varying legal theories. immunity by the Antitrust Division of the DOJ and by authorities USD LIBOR class and individual actions in the US: In 2013 and in other jurisdictions in connection with potential competition law 2015, the district court in the USD LIBOR actions dismissed, in violations relating to foreign exchange and precious metals whole or in part, certain plaintiffs’ antitrust claims, federal businesses. racketeering claims, CEA claims, and state common law claims, Foreign exchange-related civil litigation: Putative class actions and again dismissed the antitrust claims in 2016 following an have been filed since 2013 in US federal courts and in other appeal. In December 2021, the Second Circuit affirmed the district jurisdictions against UBS and other banks on behalf of putative court’s dismissal in part and reversed in part and remanded to the classes of persons who engaged in foreign currency transactions district court for further proceedings. The Second Circuit, among with any of the defendant banks. UBS has resolved US federal other things, held that there was personal jurisdiction over UBS court class actions relating to foreign currency transactions with and other foreign defendants based on allegations that at least the defendant banks and persons who transacted in foreign one alleged co-conspirator undertook an overt act in the United exchange futures contracts and options on such futures under a States. Separately, in 2018, the Second Circuit reversed in part the settlement agreement that provides for UBS to pay an aggregate district court’s 2015 decision dismissing certain individual of USD 141 million and provide cooperation to the settlement plaintiffs’ claims and certain of these actions are now proceeding. classes. Certain class members have excluded themselves from In 2018, the district court denied plaintiffs’ motions for class that settlement and have filed individual actions in US and English certification in the USD class actions for claims pending against courts against UBS and other banks, alleging violations of US and UBS, and plaintiffs sought permission to appeal that ruling to the European competition laws and unjust enrichment. Second Circuit. In July 2018, the Second Circuit denied the In 2015, a putative class action was filed in federal court petition to appeal of the class of USD lenders and in November against UBS and numerous other banks on behalf of persons and 2018 denied the petition of the USD exchange class. In January businesses in the US who directly purchased foreign currency from 2019, a putative class action was filed in the District Court for the the defendants and alleged co-conspirators for their own end use. Southern District of New York against UBS and numerous other In March 2017, the court granted UBS’s (and the other banks’) banks on behalf of US residents who, since 1 February 2014, complaint in August 2017. In March 2018, the court denied the instruments. The complaint asserts antitrust claims. The defendants’ motions to dismiss the amended complaint. defendants moved to dismiss the complaint in August 2019. On LIBOR and other benchmark-related regulatory matters: 26 March 2020 the court granted defendants’ motion to dismiss Numerous government agencies conducted investigations the complaint in its entirety. Plaintiffs have appealed the dismissal. regarding potential improper attempts by UBS, among others, to In August 2020, an individual action was filed in the Northern manipulate LIBOR and other benchmark rates at certain times. District of California against UBS and numerous other banks UBS reached settlements or otherwise concluded investigations alleging that the defendants conspired to fix the interest rate used relating to benchmark interest rates with the investigating as the basis for loans to consumers by jointly setting the authorities. UBS was granted conditional leniency or conditional USD LIBOR rate and monopolized the market for LIBOR-based immunity from authorities in certain jurisdictions, including the consumer loans and credit cards. Defendants moved to dismiss Antitrust Division of the DOJ and the Swiss Competition the complaint in September 2021. Commission (WEKO), in connection with potential antitrust or Note 18 Provisions and contingent liabilities (continued) Note 18 Provisions and contingent liabilities (continued) Other benchmark class actions in the US: Yen LIBOR / Euroyen TIBOR – In 2014, 2015 and 2017, the court in one of the Yen LIBOR / Euroyen TIBOR lawsuits dismissed certain of the plaintiffs’ claims, including the plaintiffs’ federal antitrust and racketeering claims. In August 2020, the court granted defendants’ motion for judgment on the pleadings and dismissed the lone remaining claim in the action as impermissibly extraterritorial. Plaintiffs have appealed. In 2017, the court dismissed the other Yen LIBOR / Euroyen TIBOR action in its entirety on standing grounds. In April 2020, the appeals court reversed the dismissal and in August 2020 plaintiffs in that action filed an amended complaint focused on Yen LIBOR. The court granted in part and denied in part defendants’ motion to dismiss the amended complaint in September 2021 and plaintiffs and the remaining defendants have moved for reconsideration. CHF LIBOR – In 2017, the court dismissed the CHF LIBOR action on standing grounds and failure to state a claim. Plaintiffs filed an amended complaint, and the court granted a renewed motion to dismiss in September 2019. Plaintiffs appealed. In September 2021, the Second Circuit granted the parties’ joint motion to vacate the dismissal and remand the case for further proceedings. EURIBOR – In 2017, the court in the EURIBOR lawsuit dismissed the case as to UBS and certain other foreign defendants for lack of personal jurisdiction. Plaintiffs have appealed. SIBOR / SOR – In October 2018, the court in the SIBOR / SOR action dismissed all but one of plaintiffs’ claims against UBS. Plaintiffs filed an amended complaint, and the court granted a renewed motion to dismiss in July 2019. Plaintiffs appealed. In March 2021, the Second Circuit reversed the dismissal. Plaintiffs filed an amended complaint in October 2021, which defendants have moved to dismiss. BBSW – In November 2018, the court dismissed the BBSW lawsuit as to UBS and certain other foreign defendants for lack of personal jurisdiction. Plaintiffs filed an amended complaint in April 2019, which UBS and other defendants moved to dismiss. In February 2020, the court granted in part and denied in part defendants’ motions to dismiss the amended complaint. In August 2020, UBS and other BBSW defendants joined a motion for judgment on the pleadings, which the court denied in May 2021. GBP LIBOR – The court dismissed the GBP LIBOR action in motions to dismiss the complaint. The plaintiffs filed an amended directly transacted with a defendant bank in USD LIBOR August 2019. Plaintiffs have appealed. Government bonds: Putative class actions have been filed since 2015 in US federal courts against UBS and other banks on behalf of persons who participated in markets for US Treasury securities since 2007. A consolidated complaint was filed in 2017 in the US District Court for the Southern District of New York alleging that the banks colluded with respect to, and manipulated prices of, US Treasury securities sold at auction and in the secondary market and asserting claims under the antitrust laws and for unjust enrichment. Defendants’ motions to dismiss the consolidated complaint was granted in March 2021. Plaintiffs filed an amended complaint, which defendants moved to dismiss in June 2021. Similar class actions have been filed concerning European government bonds and other government bonds. In May 2021, the European Commission issued a decision finding that UBS and six other banks breached European Union antitrust rules in 2007–2011 relating to European government bonds. The European Commission fined UBS EUR 172 million. UBS is appealing the amount of the fine. With respect to additional matters and jurisdictions not encompassed by the settlements and orders referred to above, our balance sheet at 31 December 2021 reflected a provision in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized. 6. Swiss retrocessions The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered to clients who have entered into a discretionary mandate agreement with the firm, absent a valid waiver. FINMA issued a supervisory note to all Swiss banks in response to the Supreme Court decision. UBS has met the FINMA requirements and has notified all potentially affected clients. The Supreme Court decision has resulted, and continues to result, in a number of client requests for UBS to disclose and potentially surrender retrocessions. Client requests are assessed on a case-by-case basis. Considerations taken into account when assessing these cases include, among other things, the existence of a discretionary mandate and whether or not the client documentation contained a valid waiver with respect to distribution fees. Our balance sheet at 31 December 2021 reflected a provision with respect to matters described in this item 6 in an amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will depend on client requests and the resolution thereof, factors that are difficult to predict and assess. Hence, as in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized. 342 343 335 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 19 Other liabilities a) Other financial liabilities measured at amortized cost USD million Other accrued expenses Accrued interest expenses Settlement and clearing accounts Lease liabilities Other TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt b) Other financial liabilities designated at fair value USD million Financial liabilities related to unit-linked investment contracts Securities financing transactions Over-the-counter debt instruments Other TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee of which: life-to-date own credit (gain) / loss c) Other non-financial liabilities USD million Compensation-related liabilities of which: Deferred Contingent Capital Plan of which: financial advisor compensation plans of which: other compensation plans of which: net defined benefit liability of which: other compensation-related liabilities 1 Deferred tax liabilities Current tax liabilities VAT and other tax payables Deferred income Liabilities of disposal groups held for sale2 Other TToottaall ootthheerr nnoonn--ffiinnaanncciiaall lliiaabbiilliittiieess 11 Includes liabilities for payroll taxes and untaken vacation. 22 Refer to Note 30 for more information. 3311..1122..2211 31.12.20 11,,887766 11,,009944 11,,330044 33,,555588 11,,116677 99,,000011 3311..1122..2211 2211,,446666 66,,337777 22,,112288 110033 3300,,007744 1,696 1,355 1,199 3,927 1,553 9,729 31.12.20 20,975 7,317 2,060 35 30,387 ((3322)) (36) 3311..1122..2211 31.12.20 77,,225577 11,,662288 11,,551122 22,,884466 663333 663388 330000 11,,339988 559900 224400 11,,229988 6688 1111,,115511 7,468 1,858 1,500 2,740 722 648 564 1,009 523 228 61 9,854 344 336 Consolidated financial statements | UBS Group AG consolidated financial statements a) Other financial liabilities measured at amortized cost Note 19 Other liabilities USD million Other accrued expenses Accrued interest expenses Settlement and clearing accounts Lease liabilities Other TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt b) Other financial liabilities designated at fair value USD million Financial liabilities related to unit-linked investment contracts Securities financing transactions Over-the-counter debt instruments Other TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee of which: life-to-date own credit (gain) / loss c) Other non-financial liabilities USD million Compensation-related liabilities of which: Deferred Contingent Capital Plan of which: financial advisor compensation plans of which: other compensation plans of which: net defined benefit liability of which: other compensation-related liabilities 1 Deferred tax liabilities Current tax liabilities VAT and other tax payables Deferred income Liabilities of disposal groups held for sale2 Other TToottaall ootthheerr nnoonn--ffiinnaanncciiaall lliiaabbiilliittiieess 11 Includes liabilities for payroll taxes and untaken vacation. 22 Refer to Note 30 for more information. 11,,887766 11,,009944 11,,330044 33,,555588 11,,116677 99,,000011 3311..1122..2211 2211,,446666 66,,337777 22,,112288 110033 3300,,007744 77,,225577 11,,662288 11,,551122 22,,884466 663333 663388 330000 11,,339988 559900 224400 11,,229988 6688 1111,,115511 1,696 1,355 1,199 3,927 1,553 9,729 31.12.20 20,975 7,317 2,060 35 30,387 7,468 1,858 1,500 2,740 722 648 564 1,009 523 228 61 9,854 ((3322)) (36) 3311..1122..2211 31.12.20 344 Additional information 3311..1122..2211 31.12.20 Note 20 Expected credit loss measurement a) Expected credit losses in the period Total net credit loss releases were USD 148 million in 2021, reflecting net credit loss releases of USD 123 million related to stage 1 and 2 positions and USD 25 million net credit loss releases related to credit-impaired (stage 3) positions. Stage 3 net releases of USD 25 million were recognized across a number of defaulted positions with a USD 24 million net release in Personal & Corporate Banking. to the continued positive Stage 1 and 2 net credit loss releases of USD 123 million included a USD 68 million partial net release of a post-model adjustment, due in macroeconomic scenario input data during the year, a USD 45 million net release from a number of model and methodology changes and a residual USD 10 million net release from remeasurements within loan book, derecognized the transactions, partially offset by expenses from new transactions. › Refer to Note 20b for more information regarding changes to ECL model, scenarios, scenario weights and the post-model trend adjustment and to Note 20c for more information regarding the development of ECL allowances and provisions Credit loss (expense) / release USD million FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2200 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee FFoorr tthhee yyeeaarr eennddeedd 3311..1122..1199 Stages 1 and 2 Stage 3 TToottaall ccrreeddiitt lloossss ((eexxppeennssee)) // rreelleeaassee Global Wealth Management Personal & Corporate Banking Asset Management Investment Bank Group Functions 2288 11 2299 (48) (40) ((8888)) 3 (23) ((2200)) 6622 2244 8866 (129) (128) ((225577)) 23 (44) ((2211)) 00 ((11)) ((11)) 0 (2) ((22)) 0 0 00 3344 00 3344 (88) (217) ((330055)) (4) (26) ((3300)) 00 00 00 0 (42) ((4422)) 0 (7) ((77)) Total 112233 2255 114488 (266) (429) ((669944)) 22 (100) ((7788)) 345 337 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) b) Changes to ECL models, scenarios, scenario weights and key inputs The narrative of the hypothetical severe downside scenario, which is the Group’s binding stress scenario, has been adapted and assumes that, while the immediate risks from COVID-19 have decreased, the associated disruptions and the consequences of the unprecedented monetary and fiscal stimulus measures will remain critical. Concerns regarding the sustainability of public debt, following the marked deterioration of fiscal positions, lead to a loss of confidence and market turbulence, while protectionism results in a fall in global trade. Governments and central banks have limited scope to support the economies. As a consequence, the Eurozone and China suffer a hard landing, under this scenario which severely affects the Swiss export- oriented economy, and the US economy contracts as global demand is significantly affected. Given the severity of the macroeconomic impact, unemployment rates rise to historical highs and real estate sectors contract sharply. With effect from the second quarter, the hypothetical upside and mild downside scenarios, which were viewed as less plausible as of 31 December 2020 and had a probability weight of zero attached, were redesigned and reintroduced in the ECL calculation. These two scenarios have become more relevant following this update, as they better reflect a more positive outlook with regard to COVID-19 and market expectations regarding a potential change in central bank policies, respectively. The upside scenario is based on positive developments following COVID-19 and strong economic activity supported by pent-up demand in certain sectors, as well as the expectation that interest rates will remain relatively low in the near future. Asset prices rise significantly, but a view that currently observed higher inflation rates are temporary and spare economic capacity would mean that consumer prices remain moderate in the first year of the scenario. The mild downside scenario focuses on the implications of rising concerns regarding inflationary trends following a recovery from COVID-19. Higher-than-expected inflation data triggers a steepening of yield curves across the globe and leads to market volatility. Higher interest rates lead to a sell-off in assets and a period of deleveraging under this scenario. With inflation remaining high, central banks start hiking their policy rates after a few quarters, leading to further increases in interest rates and impacting corporate and private debt sustainability. A recessionary period is the consequence. The table on the following page details the key assumptions for the four scenarios applied as of 31 December 2021. Refer to Note 1a for information about the principles governing expected credit loss (ECL) models, scenarios, scenario weights and key inputs applied. Governance Comprehensive cross-functional and cross-divisional governance processes are in place and are used to discuss and approve scenario updates and weights, to assess whether significant increases in credit risk resulted in stage transfers, to review model regarding post-model outputs and adjustments. reach conclusions to Model changes During 2021, the model review and enhancement process led to adjustments of the probability of default (PD), loss given default (LGD) and credit conversion factor (CCF) models, resulting in a USD 45 million decrease in ECL allowances. An amount of USD 25 million related to the Large corporate clients segment in the Investment Bank. The remainder related to various segments in Personal & Corporate Banking and Global Wealth Management. Scenario and key input updates During 2021, the scenarios and related macroeconomic factors were updated from those that were applied at the end of 2020 by taking into account the prevailing economic and political conditions and uncertainty. As the economic development was more positive than anticipated following the COVID-19-related downturn, the forward-looking scenarios benefited from an improved forecast starting level. The projections of the baseline scenario, which are aligned to the economic and market assumptions used for UBS’s business planning purposes, are broadly in line with external data, such as from Bloomberg Consensus, Oxford Economics and the International Monetary Fund World Economic Outlook. The economic performance during 2021 in relevant markets, especially in the US and in Switzerland, highlighted an accelerated improvement after the COVID-19-related shocks. The scenario assumes continued growth in 2022 in all key markets, albeit at a slower rate than seen in 2021, and unemployment rates are not expected to fall noticeably below the current levels. Interest rates are expected to remain low in line with the central bank policies pursued in the Eurozone and Switzerland, and any potential rises in the US would be limited in the foreseeable future. House prices are expected to reflect the momentum and continue to rise, especially in Switzerland and, to a lesser degree, in the US. 346 338 Consolidated financial statements | UBS Group AG consolidated financial statements b) Changes to ECL models, scenarios, scenario weights and key inputs Refer to Note 1a for information about the principles governing The narrative of the hypothetical severe downside scenario, expected credit loss (ECL) models, scenarios, scenario weights and which is the Group’s binding stress scenario, has been adapted and assumes that, while the immediate risks from COVID-19 have decreased, the associated disruptions and the consequences of the unprecedented monetary and fiscal stimulus measures will key inputs applied. Governance adjustments. Model changes Comprehensive cross-functional and cross-divisional governance remain critical. Concerns regarding the sustainability of public processes are in place and are used to discuss and approve debt, following the marked deterioration of fiscal positions, lead scenario updates and weights, to assess whether significant to a loss of confidence and market turbulence, while increases in credit risk resulted in stage transfers, to review model protectionism results in a fall in global trade. Governments and outputs and to reach conclusions regarding post-model central banks have limited scope to support the economies. As a consequence, the Eurozone and China suffer a hard landing, under this scenario which severely affects the Swiss export- oriented economy, and the US economy contracts as global During 2021, the model review and enhancement process led to demand is significantly affected. Given the severity of the adjustments of the probability of default (PD), loss given default macroeconomic impact, unemployment rates rise to historical (LGD) and credit conversion factor (CCF) models, resulting in a highs and real estate sectors contract sharply. USD 45 million decrease in ECL allowances. An amount of USD With effect from the second quarter, the hypothetical upside 25 million related to the Large corporate clients segment in the and mild downside scenarios, which were viewed as less plausible Investment Bank. The remainder related to various segments in as of 31 December 2020 and had a probability weight of zero Personal & Corporate Banking and Global Wealth Management. attached, were redesigned and reintroduced in the ECL Scenario and key input updates calculation. These two scenarios have become more relevant following this update, as they better reflect a more positive During 2021, the scenarios and related macroeconomic factors outlook with regard to COVID-19 and market expectations were updated from those that were applied at the end of 2020 regarding a potential change in central bank policies, respectively. by taking into account the prevailing economic and political The upside scenario is based on positive developments conditions and uncertainty. As the economic development was following COVID-19 and strong economic activity supported by more positive than anticipated following the COVID-19-related pent-up demand in certain sectors, as well as the expectation that downturn, the forward-looking scenarios benefited from an interest rates will remain relatively low in the near future. Asset improved forecast starting level. prices rise significantly, but a view that currently observed higher The projections of the baseline scenario, which are aligned to inflation rates are temporary and spare economic capacity would the economic and market assumptions used for UBS’s business mean that consumer prices remain moderate in the first year of planning purposes, are broadly in line with external data, such as the scenario. from Bloomberg Consensus, Oxford Economics and the The mild downside scenario focuses on the implications of International Monetary Fund World Economic Outlook. The rising concerns regarding inflationary trends following a recovery economic performance during 2021 in relevant markets, from COVID-19. Higher-than-expected inflation data triggers a especially in the US and in Switzerland, highlighted an accelerated steepening of yield curves across the globe and leads to market improvement after the COVID-19-related shocks. The scenario volatility. Higher interest rates lead to a sell-off in assets and a assumes continued growth in 2022 in all key markets, albeit at a period of deleveraging under this scenario. With inflation slower rate than seen in 2021, and unemployment rates are not remaining high, central banks start hiking their policy rates after expected to fall noticeably below the current levels. Interest rates a few quarters, leading to further increases in interest rates and are expected to remain low in line with the central bank policies impacting corporate and private debt sustainability. A pursued in the Eurozone and Switzerland, and any potential rises recessionary period is the consequence. in the US would be limited in the foreseeable future. House prices The table on the following page details the key assumptions are expected to reflect the momentum and continue to rise, for the four scenarios applied as of 31 December 2021. especially in Switzerland and, to a lesser degree, in the US. Note 20 Expected credit loss measurement (continued) Note 20 Expected credit loss measurement (continued) Scenario weights and post-model adjustments With the weighting of four scenarios above 0% and considering the generally more positive outlook regarding an abating effect on the world economy from the COVID-19 pandemic, the distribution of weights shifted during 2021. As of 31 December 2021, 5 percentage points of the weight of the baseline scenario and 10 percentage points of the severe downside scenario were redistributed to the upside scenario (5%) and the mild downside scenario (10%), as shown in the table below. information Although the scenarios and weight allocation were established in line with the general market sentiment that COVID-19 has passed its peak and a gradual return to normal is the most likely path, significant uncertainties still remain. Models, which are based on supportable statistical from past experiences regarding interdependencies of macroeconomic factors and their implications for credit risk portfolios, cannot comprehensively reflect extraordinary events, such as a pandemic or a fundamental change in the world political order. Especially in these uncertain times, it is in the realm of possibilities that the generally accepted view that the effects of COVID-19 are abating may prove to be disappointed by the emergence of new variants of the virus, which may be more harmful and may undermine current vaccination efforts. Political events involving tensions introduce unforeseen forces may between major global challenges, such as disruptions in the global supply chain and a distortion of energy markets. Such events could affect economies severely and change the baseline assumptions significantly. Rather than creating multiple additional scenarios to gauge these risks and applying model parameters that lack supportable information and cannot be robustly validated, management continued to apply significant post-model adjustments. These adjustments were benchmarked against coverage ratio levels as of 30 June 2021, when a partial net release of USD 91 million was recognized, corresponding to one third of the accumulated effect of scenario improvements, following comprehensive expert assessment and judgment, and were also deemed appropriate for year-end 2021 reporting. The post-model adjustments relating to COVID-19 amounted to USD 224 million as of 31 December 2021 (2020: USD 117 million in addition to overlays of USD 16 million for other aspects, where model results were deemed to be uncertain). ECL scenario Assigned weights in % 31.12.21 31.12.20 Upside Baseline Mild downside Severe downside 5.0 55.0 10.0 30.0 0.0 60.0 0.0 40.0 Scenario assumptions 3311..1122..2211 RReeaall GGDDPP ggrroowwtthh ((%% cchhaannggee)) United States Eurozone Switzerland CCoonnssuummeerr pprriiccee iinnddeexx ((%% cchhaannggee)) United States Eurozone Switzerland UUnneemmppllooyymmeenntt rraattee ((eenndd--ooff--ppeerriioodd lleevveell,, %%)) United States Eurozone Switzerland FFiixxeedd iinnccoommee:: 1100--yyeeaarr ggoovveerrnnmmeenntt bboonnddss ((cchhaannggee iinn yyiieellddss,, bbaassiiss ppooiinnttss)) USD EUR CHF EEqquuiittyy iinnddiicceess ((%% cchhaannggee)) S&P 500 EuroStoxx 50 SPI SSwwiissss rreeaall eessttaattee ((%% cchhaannggee)) Single-Family Homes OOtthheerr rreeaall eessttaattee ((%% cchhaannggee)) United States (S&P / Case-Shiller) Eurozone (House Price Index) OOnnee yyeeaarr TThhrreeee yyeeaarrss ccuummuullaattiivvee UUppssiiddee BBaasseelliinnee MMiilldd ddoowwnnssiiddee SSeevveerree ddoowwnnssiiddee UUppssiiddee BBaasseelliinnee MMiilldd ddoowwnnssiiddee SSeevveerree ddoowwnnssiiddee 9.1 9.4 5.5 3.1 2.3 1.8 3.0 6.2 2.3 50.0 40.0 50.0 12.0 16.0 14.0 5.1 10.0 8.4 4.4 3.9 2.4 2.2 1.4 0.3 3.9 7.4 2.5 16.5 11.1 12.1 14.1 12.3 12.1 4.4 3.5 5.1 (0.1) (0.1) (0.9) 5.7 4.2 3.5 6.1 8.7 3.4 259.2 283.8 245.5 (27.0) (23.4) (22.9) (5.9) (8.7) (6.6) (1.2) (1.3) (1.8) 10.9 12.9 5.2 (50.0) (35.0) (70.0) (50.2) (57.6) (53.6) (4.3) (17.0) (2.3) (4.0) (9.5) (5.4) 17.8 17.3 13.1 9.5 8.0 6.1 3.0 6.0 1.6 170.0 140.0 150.0 35.5 41.6 37.9 15.5 21.7 17.8 10.1 7.5 5.8 6.3 4.8 1.7 3.5 7.2 2.3 41.2 34.9 34.4 24.7 20.7 19.1 7.4 7.1 9.6 1.8 0.9 (0.1) 13.0 10.4 9.0 7.2 9.1 4.2 329.2 349.3 307.3 (21.8) (19.9) (19.6) (3.8) (10.3) (5.7) 0.4 (1.7) (1.6) 10.8 15.1 5.9 (15.0) (25.0) (35.0) (40.1) (50.4) (44.2) (8.8) (30.0) (8.7) (7.6) (26.3) (10.8) 346 347 339 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) Scenario assumptions 3311..1122..2200 RReeaall GGDDPP ggrroowwtthh ((%% cchhaannggee)) United States Eurozone Switzerland CCoonnssuummeerr pprriiccee iinnddeexx ((%% cchhaannggee)) United States Eurozone Switzerland UUnneemmppllooyymmeenntt rraattee ((eenndd--ooff--ppeerriioodd lleevveell,, %%)) United States Eurozone Switzerland FFiixxeedd iinnccoommee:: 1100--yyeeaarr ggoovveerrnnmmeenntt bboonnddss ((cchhaannggee iinn yyiieellddss,, bbaassiiss ppooiinnttss)) USD EUR CHF EEqquuiittyy iinnddiicceess ((%% cchhaannggee)) S&P 500 EuroStoxx 50 SPI SSwwiissss rreeaall eessttaattee ((%% cchhaannggee)) Single-Family Homes OOtthheerr rreeaall eessttaattee ((%% cchhaannggee)) United States (S&P / Case-Shiller) Eurozone (House Price Index) OOnnee yyeeaarr TThhrreeee yyeeaarrss ccuummuullaattiivvee BBaasseelliinnee SSeevveerree ddoowwnnssiiddee BBaasseelliinnee SSeevveerree ddoowwnnssiiddee 2.7 2.5 3.3 1.7 1.4 0.3 5.5 9.5 3.8 22.0 4.0 13.0 (2.9) 3.8 (0.8) 3.4 2.5 1.1 (5.9) (8.7) (6.6) (1.2) (1.3) (1.8) 12.1 14.1 6.1 (50.0) (35.0) (70.0) (50.2) (57.6) (53.6) (17.0) (15.3) (22.9) 9.1 9.9 9.0 5.5 3.9 0.9 4.5 8.0 3.2 46.0 21.0 31.0 (1.7) 13.5 5.8 7.1 9.2 7.2 (3.8) (10.3) (5.7) 0.4 (1.7) (1.6) 9.9 16.4 6.8 (15.0) (25.0) (35.0) (40.1) (50.4) (44.2) (30.0) (28.7) (35.4) c) Development of ECL allowances and provisions The ECL allowances and provisions recognized in the period are impacted by a variety of factors, such as: – origination of new instruments during the period; – effect of passage of time as the ECLs on an instrument for the remaining lifetime decrease (all other factors remaining the same); – discount unwind within ECLs as it is measured on a present value basis; – derecognition of instruments in the period; – change in individual asset quality of instruments; – effect of updating forward-looking scenarios and the respective weights; – movements from a maximum 12-month ECL to the recognition of lifetime ECLs (and vice versa) following transfers between stages 1 and 2; – movements from stages 1 and 2 to stage 3 (credit-impaired status) when default has become certain and PD increases to 100% (or vice versa); – changes in models or updates to model parameters; – write-off; and – foreign exchange translations for assets denominated in foreign currencies and other movements. 348 340 Consolidated financial statements | UBS Group AG consolidated financial statements Scenario assumptions 3311..1122..2200 RReeaall GGDDPP ggrroowwtthh ((%% cchhaannggee)) CCoonnssuummeerr pprriiccee iinnddeexx ((%% cchhaannggee)) UUnneemmppllooyymmeenntt rraattee ((eenndd--ooff--ppeerriioodd lleevveell,, %%)) United States Eurozone Switzerland United States Eurozone Switzerland United States Eurozone Switzerland USD EUR CHF S&P 500 EuroStoxx 50 SPI EEqquuiittyy iinnddiicceess ((%% cchhaannggee)) SSwwiissss rreeaall eessttaattee ((%% cchhaannggee)) Single-Family Homes OOtthheerr rreeaall eessttaattee ((%% cchhaannggee)) United States (S&P / Case-Shiller) Eurozone (House Price Index) FFiixxeedd iinnccoommee:: 1100--yyeeaarr ggoovveerrnnmmeenntt bboonnddss ((cchhaannggee iinn yyiieellddss,, bbaassiiss ppooiinnttss)) 2.7 2.5 3.3 1.7 1.4 0.3 5.5 9.5 3.8 22.0 4.0 13.0 (2.9) 3.8 (0.8) 3.4 2.5 1.1 (5.9) (8.7) (6.6) (1.2) (1.3) (1.8) 12.1 14.1 6.1 (50.0) (35.0) (70.0) (50.2) (57.6) (53.6) (17.0) (15.3) (22.9) 9.1 9.9 9.0 5.5 3.9 0.9 4.5 8.0 3.2 46.0 21.0 31.0 (1.7) 13.5 5.8 7.1 9.2 7.2 (3.8) (10.3) (5.7) 0.4 (1.7) (1.6) 9.9 16.4 6.8 (15.0) (25.0) (35.0) (40.1) (50.4) (44.2) (30.0) (28.7) (35.4) c) Development of ECL allowances and provisions The ECL allowances and provisions recognized in the period are – movements from a maximum 12-month ECL to the recognition impacted by a variety of factors, such as: of lifetime ECLs (and vice versa) following transfers between – origination of new instruments during the period; stages 1 and 2; – effect of passage of time as the ECLs on an instrument for the – movements from stages 1 and 2 to stage 3 (credit-impaired remaining lifetime decrease (all other factors remaining the status) when default has become certain and PD increases to – discount unwind within ECLs as it is measured on a present – changes in models or updates to model parameters; same); value basis; 100% (or vice versa); – write-off; and – derecognition of instruments in the period; – foreign exchange translations for assets denominated in – change in individual asset quality of instruments; foreign currencies and other movements. – effect of updating forward-looking scenarios and the respective weights; Note 20 Expected credit loss measurement (continued) Note 20 Expected credit loss measurement (continued) OOnnee yyeeaarr TThhrreeee yyeeaarrss ccuummuullaattiivvee BBaasseelliinnee SSeevveerree ddoowwnnssiiddee BBaasseelliinnee SSeevveerree ddoowwnnssiiddee The following table explains the changes in the ECL allowances and provisions for on- and off-balance sheet financial instruments and credit lines in scope of ECL requirements between the beginning and the end of the period due to the factors listed on the previous page. Development of ECL allowances and provisions USD million BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 RReemmeeaassuurreemmeennttss wwiitthh ssttaaggee ttrraannssffeerrss22 NNeett mmoovveemmeenntt ffrroomm nneeww aanndd ddeerreeccooggnniizzeedd ttrraannssaaccttiioonnss11 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Financial intermediaries and hedge funds of which: Loans to financial advisors of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Financial intermediaries and hedge funds of which: Loans to financial advisors RReemmeeaassuurreemmeennttss wwiitthhoouutt ssttaaggee ttrraannssffeerrss33 SSttaaggee 33 ((882299)) 00 0 0 0 0 0 0 0 ((4499)) 0 0 (8) (36) (4) 0 0 7744 (1) 3 17 53 2 0 (3) 00 MMoovveemmeennttss wwiitthh pprrooffiitt oorr lloossss iimmppaacctt55 2255 MMoovveemmeennttss wwiitthhoouutt pprrooffiitt oorr lloossss iimmppaacctt ((wwrriittee--ooffff,, FFXX aanndd ootthheerr))66 114411 BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 ((666622)) 11 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantees and facilities) that were newly originated, purchased or renewed and from the final derecognition of loans or facilities on their maturity date or earlier. 22 Represents the remeasurement between 12-month and lifetime ECL due to stage transfers. 33 Represents the change in allowances and provisions related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value. 44 Represents the change in the allowances and provisions related to changes in models and methodologies. 55 Includes ECL movements from new and derecognized transactions, remeasurement changes, model and methodology changes. 66 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed uncollectible or forgiven and movements in foreign exchange rates. of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Financial intermediaries and hedge funds of which: Loans to financial advisors TToottaall ((11,,446688)) ((5599)) (7) (7) (13) (8) (24) (21) 0 ((4400)) (9) (3) 2 (27) (3) 2 0 220033 33 30 44 53 44 27 6 4455 114488 115544 ((11,,116655)) SSttaaggee 11 ((330066)) ((7722)) (10) (11) (21) (8) (23) (18) (1) 88 4 1 (2) 5 0 (1) 1 5555 8 13 5 (1) 29 15 8 2299 1199 55 ((228822)) SSttaaggee 22 ((333333)) 1133 3 4 7 0 (2) (4) 1 00 (13) (4) 12 4 2 3 (1) 7744 26 13 21 1 14 12 1 1166 110044 99 ((222200)) MMooddeell cchhaannggeess44 In 2021, ECL allowances and provisions decreased by USD 148 million from net credit loss releases impacting profit or loss: – a USD 59 million net increase from new and derecognized transactions that resulted from a USD 72 million stage 1 increase primarily in the corporate lending and real estate lending portfolio, offset by a USD 13 million net release from stage 2 positions, driven by positions that were terminated before their contractual maturity; – a USD 163 million net decrease from book quality movements that resulted from a USD 203 million net decrease from remeasurements without stage transfers, with approximately half of that related to corporate lending – another significant portion related to real estate-related lending, primarily due to the partial release of a post-model adjustment, partially offset by USD 40 million from transactions moving from stages 1 and 2 into stages 2 and 3, respectively, primarily related to SME clients; and – a USD 45 million net decrease that resulted from a number of model changes. An amount of USD 25 million related to the Large corporate clients segment in the Investment Bank. The remainder related to various segments in Personal & Corporate Banking and Global Wealth Management. In addition to the movements impacting profit or loss, allowances decreased by USD 154 million as a result of USD 137 million of write-offs and USD 18 million from foreign exchange and other movements, both of which did not impact the income statement. 348 349 341 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) Development of ECL allowances and provisions USD million BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 NNeett mmoovveemmeenntt ffrroomm nneeww aanndd ddeerreeccooggnniizzeedd ttrraannssaaccttiioonnss11 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Securities financing transactions REIT of which: Loans to financial advisors of which: Lombard loans of which Commodity trade finance RReemmeeaassuurreemmeennttss wwiitthhoouutt ssttaaggee ttrraannssffeerrss33 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Securities financing transactions REIT of which: Loans to financial advisors of which: Lombard loans of which Financial intermediaries RReemmeeaassuurreemmeennttss wwiitthh ssttaaggee ttrraannssffeerrss22 Stage 3 ((668888)) 4466 0 0 0 0 46 17 0 29 0 ((333388)) 0 0 (175) (31) (131) (19) (11) (36) (59) ((113366)) (7) 1 (79) (6) (44) (3) (9) (12) 00 MMoovveemmeennttss wwiitthh pprrooffiitt oorr lloossss iimmppaacctt55 ((442299)) MMoovveemmeennttss wwiitthhoouutt pprrooffiitt oorr lloossss iimmppaacctt ((wwrriittee--ooffff,, FFXX aanndd ootthheerr))66 228877 BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 ((882299)) 11 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantees and facilities) that were newly originated, purchased or renewed and from the final derecognition of loans or facilities on their maturity date or earlier. 22 Represents the remeasurement between 12-month and lifetime ECL due to stage transfers. 33 Represents the change in allowances and provisions related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value. 44 Represents the change in the allowances and provisions related to changes in models and methodologies. 55 Includes ECL movements from new and derecognized transactions, remeasurement changes, model and methodology changes. 66 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed uncollectible or forgiven and movements in foreign exchange rates. of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Loans to financial advisors of which: Lombard loans of which: Credit cards Total ((11,,002299)) ((2288)) (2) (3) (32) (16) 26 32 9 23 (20) ((442277)) (19) (6) (224) (43) (134) (36) (12) (36) (59) ((227711)) (34) (14) (149) (13) (60) (18) (3) (12) 3322 ((669944)) 225544 ((11,,446688)) Stage 2 ((116600)) 1177 2 2 (4) (3) 20 15 9 0 (5) ((113344)) (17) (9) (83) (11) (14) (18) (7) 0 0 ((4477)) (8) (11) (17) (7) (4) (3) 0 0 1111 ((115544)) ((1199)) ((333333)) Stage 1 ((118811)) ((9900)) (3) (5) (29) (14) (39) (1) (1) (6) (15) 4455 (2) 3 34 (1) 11 0 7 0 0 ((8888)) (19) (4) (53) 0 (11) (12) 6 0 2211 ((111122)) ((1144)) ((330066)) MMooddeell cchhaannggeess44 As explained in Note 1a, the assessment of a significant increase in credit risk (SICR) considers a number of qualitative and quantitative factors to determine whether a stage transfer between stage 1 and stage 2 is required, although the primary assessment considers changes in PD based on rating analyses and economic outlook. Additionally, UBS takes into consideration counterparties that have moved to a credit watch list and those with payments that are at least 30 days past due. ECL stage 2 (“significant deterioration in credit risk”) allowances / provisions as of 31 December 2021 – classification by trigger USD million On-and off-balance sheet of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Financial intermediaries and hedge funds of which: Loans to financial advisors of which: Credit cards of which: Other 350 342 SSttaaggee 22 (220) (71) (43) (55) (30) (6) (3) (11) (1) of which: PD layer (158) (54) (38) (40) (19) (6) 0 0 (1) of which: watch list (22) 0 0 (15) (7) 0 0 0 0 of which: ≥30 days past due (39) (17) (4) 0 (4) 0 (3) (11) 0 Consolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) Development of ECL allowances and provisions USD million BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 NNeett mmoovveemmeenntt ffrroomm nneeww aanndd ddeerreeccooggnniizzeedd ttrraannssaaccttiioonnss11 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Securities financing transactions REIT of which: Securities financing transactions REIT of which: Loans to financial advisors of which: Lombard loans of which Financial intermediaries RReemmeeaassuurreemmeennttss wwiitthh ssttaaggee ttrraannssffeerrss22 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Loans to financial advisors of which: Lombard loans of which Commodity trade finance RReemmeeaassuurreemmeennttss wwiitthhoouutt ssttaaggee ttrraannssffeerrss33 of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Other of which: Loans to financial advisors of which: Lombard loans of which: Credit cards MMooddeell cchhaannggeess44 MMoovveemmeennttss wwiitthh pprrooffiitt oorr lloossss iimmppaacctt55 MMoovveemmeennttss wwiitthhoouutt pprrooffiitt oorr lloossss iimmppaacctt ((wwrriittee--ooffff,, FFXX aanndd ootthheerr))66 BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 USD million On-and off-balance sheet of which: Private clients with mortgages of which: Real estate financing of which: Large corporate clients of which: SME clients of which: Financial intermediaries and hedge funds of which: Loans to financial advisors of which: Credit cards of which: Other Total ((11,,002299)) ((2288)) (2) (3) (32) (16) 26 32 9 23 (20) ((442277)) (19) (6) (224) (43) (134) (36) (12) (36) (59) ((227711)) (34) (14) (149) (13) (60) (18) (3) (12) 3322 ((669944)) 225544 ((11,,446688)) Stage 1 ((118811)) ((9900)) (3) (5) (29) (14) (39) (1) (1) (6) (15) 4455 (2) 3 34 (1) 11 0 7 0 0 ((8888)) (19) (4) (53) 0 (11) (12) 6 0 2211 ((111122)) ((1144)) ((330066)) Stage 2 ((116600)) 1177 2 2 (4) (3) 20 15 9 0 (5) ((113344)) (17) (9) (83) (11) (14) (18) (7) 0 0 ((4477)) (8) (11) (17) (7) (4) (3) 0 0 1111 ((115544)) ((1199)) ((333333)) Stage 3 ((668888)) 4466 0 0 0 0 46 17 0 29 0 ((333388)) 0 0 (175) (31) (131) (19) (11) (36) (59) ((113366)) (7) 1 (79) (6) (44) (3) (9) (12) 00 ((442299)) 228877 ((882299)) SSttaaggee 22 (220) of which: PD layer of which: watch list (158) (22) (71) (43) (55) (30) (6) (3) (11) (1) (54) (38) (40) (19) (6) 0 0 (1) 0 0 (15) (7) 0 0 0 0 of which: ≥30 days past due (39) (17) (4) 0 (4) 0 (3) (11) 0 11 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantees and facilities) that were newly originated, purchased or renewed and from the final derecognition of loans or facilities on their maturity date or earlier. 22 Represents the remeasurement between 12-month and lifetime ECL due to stage transfers. 33 Represents the change in allowances and provisions related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value. 44 Represents the change in the allowances and provisions related to changes in models and methodologies. 55 Includes ECL movements from new and derecognized transactions, remeasurement changes, model and methodology changes. 66 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed uncollectible or forgiven and movements in foreign exchange rates. As explained in Note 1a, the assessment of a significant increase assessment considers changes in PD based on rating analyses and in credit risk (SICR) considers a number of qualitative and economic outlook. Additionally, UBS takes into consideration quantitative factors to determine whether a stage transfer counterparties that have moved to a credit watch list and those between stage 1 and stage 2 is required, although the primary with payments that are at least 30 days past due. ECL stage 2 (“significant deterioration in credit risk”) allowances / provisions as of 31 December 2021 – classification by trigger Note 20 Expected credit loss measurement (continued) d) Maximum exposure to credit risk The tables below provide the Group’s maximum exposure to credit risk for financial instruments subject to ECL requirements and the respective collateral and other credit enhancements mitigating credit risk for these classes of financial instruments. The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available, collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control” section of this report describes management’s view of credit risk and the related exposures, which can differ in certain respects from the requirements of IFRS. Maximum exposure to credit risk USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt oonn tthhee bbaallaannccee sshheeeett Cash and balances at central banks Loans and advances to banks4 Receivables from securities financing transactions Cash collateral receivables on derivative instruments5,6 Loans and advances to customers7 Other financial assets measured at amortized cost TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee –– ddeebbtt TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk rreefflleecctteedd oonn tthhee bbaallaannccee sshheeeett iinn ssccooppee ooff EECCLL Guarantees8 Loan commitments8 Forward starting transactions, reverse repurchase and securities borrowing agreements Committed unconditionally revocable credit lines TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk nnoott rreefflleecctteedd oonn tthhee bbaallaannccee sshheeeett,, iinn ssccooppee ooff EECCLL CCoollllaatteerraall11,,22 CCrreeddiitt eennhhaanncceemmeennttss11 3311..1122..2211 MMaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk CCaasshh ccoollllaatteerraall rreecceeiivveedd CCoollllaatteerraalliizzeedd bbyy sseeccuurriittiieess SSeeccuurreedd bbyy rreeaall eessttaattee OOtthheerr ccoollllaatteerraall33 NNeettttiinngg CCrreeddiitt ddeerriivvaattiivvee ccoonnttrraaccttss GGuuaarraanntteeeess EExxppoossuurree ttoo ccrreeddiitt rriisskk aafftteerr ccoollllaatteerraall aanndd ccrreeddiitt eennhhaanncceemmeennttss 119922..88 1155..55 7755..00 3300..55 339977..88 2266..22 773377..88 88..88 774466..66 2200..99 3399..44 11..44 4400..77 110022..55 00..00 3377..55 00..22 3377..77 3377..77 11..33 00..55 00..33 22..22 00..11 6688..00 112288..77 00..11 119966..99 119966..99 66..55 44..00 11..44 99..00 2200..99 119911..33 00..00 119911..33 119911..33 00..22 22..44 66..22 88..77 1188..44 1188..44 00..00 1188..44 00..00 00..33 66..99 2200..22 11..33 2288..44 2288..44 22..55 77..33 33..99 1133..77 00..00 00..33 31.12.20 Collateral1,2 Credit enhancements1 00..11 44..00 44..00 44..00 22..33 11..77 00..55 44..55 119922..88 1155..33 00..00 1122..11 1166..22 2244..66 226611..00 88..88 226699..88 88..11 2233..11 00..00 2200..99 5522..11 Exposure to credit risk after collateral and credit enhancements Maximum exposure to credit risk Cash collateral received Collateralized by securities Secured by real estate Other collateral3 Credit derivative contracts Guarantees 7.0 0.0 21.1 194.6 Netting 0.1 67.1 25.8 0.1 2266..00 118.2 0.2 118855..77 158.2 15.4 74.2 32.7 379.5 27.2 668877..33 USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt oonn tthhee bbaallaannccee sshheeeett Cash and balances at central banks Loans and advances to banks4 Receivables from securities financing transactions Cash collateral receivables on derivative instruments5,6 Loans and advances to customers7 Other financial assets measured at amortized cost TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee –– ddeebbtt TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk rreefflleecctteedd oonn tthhee bbaallaannccee sshheeeett iinn ssccooppee ooff EECCLL Guarantees8 Loan commitments8 Forward starting transactions, reverse repurchase and securities borrowing agreements Committed unconditionally revocable credit lines TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk nnoott rreefflleecctteedd oonn tthhee bbaallaannccee sshheeeett,, iinn ssccooppee ooff EECCLL 5533..00 11 Of which: USD 1,443 million for 31 December 2021 (31 December 2020: USD 1,983 million) relates to total credit-impaired financial assets measured at amortized cost and USD 130 million for 31 December 2021 (31 December 2020: USD 154 million) to total off-balance sheet financial instruments and credit lines for credit-impaired positions. 22 Collateral arrangements generally incorporate a range of collateral, including cash, securities, real estate and other collateral. UBS applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. 33 Includes but is not limited to life insurance contracts, inventory, mortgage loans, gold and other commodities. 44 Loans and advances to banks include amounts held with third-party banks on behalf of clients. The credit risk associated with these balances may be borne by those clients. 55 Included within Cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. Some of these margin balances reflect amounts transferred on behalf of clients who retain the associated credit risk. 66 The amount shown in the “Netting” column represents the netting potential not recognized on the balance sheet. Refer to Note 22 for more information. 77 In 2021, the collateral allocation was updated to reflect additional cash collateral and custody accounts that are also available as security for certain on-balance sheet lending. This resulted in an increase in loans secured by cash, with an offsetting reduction in loans secured by real estate and loans secured by securities. 88 The amount shown in the “Guarantees” column includes sub-participations. 158.2 15.3 0.0 11.6 14.8 25.5 222255..55 223333..77 7.0 25.3 119944..66 0.2 2.1 669955..66 17.0 41.2 118855..77 5.0 4.2 3300..11 1.7 6.8 2266..00 0.7 0.0 21.7 1.3 3300..11 44..44 2.5 2.4 0.0 20.7 3.2 10.3 3.2 40.1 119944..66 110011..66 2211..11 2211..11 1111..22 2222..77 88..33 44..44 88..55 00..88 00..00 44..99 88..33 4.4 00..00 6.2 00..00 0.4 0.1 2.7 0.0 00..44 350 351 343 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) e) Financial assets subject to credit risk by rating category The table below shows the credit quality and the maximum exposure to credit risk based on the Group’s internal credit rating system and year-end stage classification. Under IFRS 9, the credit risk rating reflects the Group’s assessment of the probability of default of individual counterparties, prior to substitutions. The amounts presented are gross of impairment allowances. › Refer to the “Risk management and control” section of this report for more details regarding the Group’s internal grading system Financial assets subject to credit risk by rating category USD million 3311..1122..2211 Rating category1 FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt CCaasshh aanndd bbaallaanncceess aatt cceennttrraall bbaannkkss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss of which: stage 1 of which: stage 2 of which: stage 3 RReecceeiivvaabblleess ffrroomm sseeccuurriittiieess ffiinnaanncciinngg ttrraannssaaccttiioonnss of which: stage 1 CCaasshh ccoollllaatteerraall rreecceeiivvaabblleess oonn ddeerriivvaattiivvee iinnssttrruummeennttss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss of which: stage 1 of which: stage 2 of which: stage 3 OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt of which: stage 1 of which: stage 2 of which: stage 3 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt OOnn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt FFVVOOCCII –– ddeebbtt iinnssttrruummeennttss TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss 00––11 22––33 44––55 66––88 99––1133 CCrreeddiitt-- iimmppaaiirreedd ((ddeeffaauulltteedd)) TToottaall ggrroossss ccaarrrryyiinngg aammoouunntt EECCLL aalllloowwaanncceess 119911,,001155 11,,880022 191,015 1,802 1122,,662233 00 0 779955 795 0 0 1177,,444400 00 00 0 0 449900 440077 11,,117711 488 407 12,623 1,146 2 24 0 0 0 0 0 0 11,,443399 1100,,448833 1111,,226677 3344,,338866 34,386 11,267 10,483 17,440 1,439 4477 55,,887788 47 2211,,442233 77,,446666 33,,664477 7,466 13,476 5,878 3,647 6699,,889922 55,,229955 223322,,223333 6677,,662200 1133,,447766 00 119922,,881177 0 192,817 11 1155,,448888 0 15,460 27 0 1 1 7755,,001144 00 0 75,014 00 3300,,551144 0 30,514 339988,,661111 22,,114488 5,295 231,153 65,084 62,796 16,362 0 380,690 0 1,080 2,536 7,096 5,061 0 0 0 0 0 339944 332211 1122,,556644 66,,007722 66,,770022 317 307 5,863 12,564 6,693 77 209 13 10 0 0 0 0 2233,,779933 9977,,884466 8855,,447722 227788,,110033 0 0 225511,,113333 2,148 226644 0 15,773 2,148 2266,,331188 0 25,745 309 0 264 264 773388,,776622 22,,441144 33,,999966 225555,,113300 44,,777711 228822,,887744 00 8855,,447722 7777 9977,,992233 00 2233,,779933 00 22,,441144 88,,884444 774477,,660066 00 0 ((88)) (7) (1) 0 ((22)) (2) 00 0 ((885500)) (126) (152) (572) ((110099)) (27) (7) (76) ((996699)) 00 ((996699)) NNeett ccaarrrryyiinngg aammoouunntt ((mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk)) 119922,,881177 192,817 1155,,448800 15,453 26 1 7755,,001122 75,012 3300,,551144 30,514 339977,,776611 380,564 15,620 1,577 2266,,220099 25,718 302 189 773377,,779944 88,,884444 774466,,663388 Off-balance sheet positions subject to expected credit loss by rating category USD million 3311..1122..2211 00––11 22––33 44––55 66––88 99––1133 TToottaall ooffff -- bbaallaannccee sshheeeett eexxppoossuurree ((mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk)) EECCLL pprroovviissiioonnss CCrreeddiitt-- iimmppaaiirreedd ((ddeeffaauulltteedd)) 77,,006644 44,,553355 27 0 1144,,118833 44,,445577 33,,775577 4,457 7,037 4,375 3,075 682 0 88,,229988 11,,000099 752 258 160 0 0 0 0 22,,779977 66,,550022 77,,665511 2,797 13,917 7,416 7,127 5,840 663 0 00 77,,551122 235 1,171 0 11,,338899 1133,,444444 266 0 00 2211,,224477 0 0 00 77,,225544 0 5555 1122,,224411 115500 0 0 150 4466 0 0 46 00 119966 99,,775522 1155,,559944 344 0 22,,443388 44,,110077 88,,662277 22,,663366 2,636 15,250 8,304 8,346 3,671 436 0 660022 568 34 0 44,,770099 323 1,406 0 0 0 1177 11,,008844 17 2,438 1,422 1,082 1 0 0 0 1100,,883366 22,,665533 0 0 1188,,003322 0 0 1100,,004499 0 11,,442222 6633 0 0 63 4488 0 0 48 111111 2200,,997722 19,695 1,127 150 3399,,447788 37,097 2,335 46 11,,444444 6611,,889944 4400,,777788 38,207 2,508 63 55,,661111 5,527 36 48 4466,,339900 ((4411)) (18) (8) (15) ((111144)) (72) (42) 0 00 ((115555)) ((3388)) (28) (10) 0 ((33)) (3) 0 0 ((4411)) Rating category1 OOffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss GGuuaarraanntteeeess of which: stage 1 of which: stage 2 of which: stage 3 IIrrrreevvooccaabbllee llooaann ccoommmmiittmmeennttss of which: stage 1 of which: stage 2 of which: stage 3 FFoorrwwaarrdd ssttaarrttiinngg rreevveerrssee rreeppuurrcchhaassee aanndd sseeccuurriittiieess bboorrrroowwiinngg aaggrreeeemmeennttss TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss CCrreeddiitt lliinneess CCoommmmiitttteedd uunnccoonnddiittiioonnaallllyy rreevvooccaabbllee ccrreeddiitt lliinneess of which: stage 1 of which: stage 2 of which: stage 3 IIrrrreevvooccaabbllee ccoommmmiitttteedd pprroolloonnggaattiioonn ooff eexxiissttiinngg llooaannss of which: stage 1 of which: stage 2 of which: stage 3 352 344 TToottaall ccrreeddiitt lliinneess 11 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories. Consolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) e) Financial assets subject to credit risk by rating category The table below shows the credit quality and the maximum default of individual counterparties, prior to substitutions. The exposure to credit risk based on the Group’s internal credit rating amounts presented are gross of impairment allowances. system and year-end stage classification. Under IFRS 9, the credit risk rating reflects the Group’s assessment of the probability of › Refer to the “Risk management and control” section of this report for more details regarding the Group’s internal grading system Financial assets subject to credit risk by rating category USD million 3311..1122..2211 Rating category1 FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt CCaasshh aanndd bbaallaanncceess aatt cceennttrraall bbaannkkss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss RReecceeiivvaabblleess ffrroomm sseeccuurriittiieess ffiinnaanncciinngg ttrraannssaaccttiioonnss CCaasshh ccoollllaatteerraall rreecceeiivvaabblleess oonn ddeerriivvaattiivvee iinnssttrruummeennttss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss of which: stage 1 of which: stage 2 of which: stage 3 of which: stage 1 of which: stage 1 of which: stage 2 of which: stage 3 of which: stage 1 of which: stage 2 of which: stage 3 OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt 00––11 22––33 44––55 66––88 99––1133 ((ddeeffaauulltteedd)) aammoouunntt aalllloowwaanncceess CCrreeddiitt-- TToottaall ggrroossss iimmppaaiirreedd ccaarrrryyiinngg 00 11 0 1 00 119922,,881177 0 192,817 1155,,448888 0 15,460 27 1 7755,,001144 0 75,014 00 3300,,551144 0 30,514 119911,,001155 11,,880022 191,015 1,802 440077 1122,,662233 11,,117711 407 12,623 1,146 0 0 0 0 00 0 24 0 00 0 779955 795 0 0 00 0 449900 488 2 0 3344,,338866 1111,,226677 1100,,448833 1177,,444400 11,,443399 34,386 11,267 10,483 17,440 1,439 77,,446666 1133,,447766 55,,887788 33,,664477 7,466 13,476 5,878 3,647 4477 47 55,,229955 223322,,223333 6677,,662200 6699,,889922 2211,,442233 22,,114488 339988,,661111 5,295 231,153 65,084 62,796 16,362 0 380,690 0 1,080 2,536 7,096 5,061 1122,,556644 66,,770022 12,564 6,693 0 0 0 0 10 0 0 332211 0 66,,007722 307 5,863 13 0 209 0 0 339944 317 77 0 0 15,773 2,148 226644 2,148 2266,,331188 0 25,745 0 264 309 264 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt 225511,,113333 227788,,110033 8855,,447722 9977,,884466 2233,,779933 22,,441144 773388,,776622 OOnn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt FFVVOOCCII –– ddeebbtt iinnssttrruummeennttss 33,,999966 44,,777711 00 7777 00 00 88,,884444 TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss 225555,,113300 228822,,887744 8855,,447722 9977,,992233 2233,,779933 22,,441144 774477,,660066 Off-balance sheet positions subject to expected credit loss by rating category USD million 3311..1122..2211 00––11 22––33 44––55 66––88 99––1133 ((ddeeffaauulltteedd)) ccrreeddiitt rriisskk)) EECCLL pprroovviissiioonnss TToottaall ooffff -- bbaallaannccee sshheeeett eexxppoossuurree ((mmaaxxiimmuumm eexxppoossuurree ttoo CCrreeddiitt-- iimmppaaiirreedd Rating category1 OOffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss IIrrrreevvooccaabbllee llooaann ccoommmmiittmmeennttss GGuuaarraanntteeeess of which: stage 1 of which: stage 2 of which: stage 3 of which: stage 1 of which: stage 2 of which: stage 3 CCrreeddiitt lliinneess of which: stage 1 of which: stage 2 of which: stage 3 of which: stage 1 of which: stage 2 of which: stage 3 TToottaall ccrreeddiitt lliinneess 352 FFoorrwwaarrdd ssttaarrttiinngg rreevveerrssee rreeppuurrcchhaassee aanndd sseeccuurriittiieess bboorrrroowwiinngg aaggrreeeemmeennttss TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss CCoommmmiitttteedd uunnccoonnddiittiioonnaallllyy rreevvooccaabbllee ccrreeddiitt lliinneess IIrrrreevvooccaabbllee ccoommmmiitttteedd pprroolloonnggaattiioonn ooff eexxiissttiinngg llooaannss 44,,445577 77,,006644 44,,553355 33,,775577 11,,000099 4,457 7,037 4,375 3,075 27 0 160 0 682 0 752 258 0 22,,779977 1144,,118833 77,,665511 88,,229988 66,,550022 2,797 13,917 7,416 7,127 5,840 266 235 1,171 663 0 00 0 5555 0 11,,338899 1133,,444444 0 00 77,,551122 77,,225544 2211,,224477 1122,,224411 22,,663366 1155,,559944 88,,662277 99,,775522 44,,110077 2,636 15,250 8,304 8,346 3,671 323 1,406 22,,443388 11,,442222 11,,008844 17 2,438 1,422 1,082 344 0 0 0 0 0 0 436 0 660022 568 34 0 0 1 0 22,,665533 1188,,003322 1100,,004499 1100,,883366 44,,770099 0 0 0 0 00 0 0 1177 0 0 115500 0 0 150 4466 0 0 46 00 119966 6633 0 0 63 4488 0 0 48 111111 11 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories. NNeett ccaarrrryyiinngg aammoouunntt ((mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk)) 119922,,881177 192,817 1155,,448800 15,453 26 1 7755,,001122 75,012 3300,,551144 30,514 339977,,776611 380,564 15,620 1,577 2266,,220099 25,718 302 189 773377,,779944 88,,884444 774466,,663388 ((4411)) (18) (8) (15) ((111144)) (72) (42) 0 00 ((115555)) ((3388)) (28) (10) 0 ((33)) (3) 0 0 ((4411)) EECCLL 00 0 ((88)) (7) (1) 0 ((22)) (2) 00 0 ((885500)) (126) (152) (572) ((110099)) (27) (7) (76) ((996699)) 00 ((996699)) 2200,,997722 19,695 1,127 150 3399,,447788 37,097 2,335 46 11,,444444 6611,,889944 4400,,777788 38,207 2,508 63 55,,661111 5,527 36 48 4466,,339900 Note 20 Expected credit loss measurement (continued) Financial assets subject to credit risk by rating category USD million 31.12.20 Rating category1 FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt CCaasshh aanndd bbaallaanncceess aatt cceennttrraall bbaannkkss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss of which: stage 1 of which: stage 2 of which: stage 3 RReecceeiivvaabblleess ffrroomm sseeccuurriittiieess ffiinnaanncciinngg ttrraannssaaccttiioonnss of which: stage 1 CCaasshh ccoollllaatteerraall rreecceeiivvaabblleess oonn ddeerriivvaattiivvee iinnssttrruummeennttss of which: stage 1 LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss of which: stage 1 of which: stage 2 of which: stage 3 OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt of which: stage 1 of which: stage 2 of which: stage 3 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt OOnn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt FFVVOOCCII –– ddeebbtt iinnssttrruummeennttss TToottaall oonn--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss 0–1 2–3 4–5 6–8 9–13 Credit- impaired (defaulted) Total gross carrying amount ECL allowances 00 0 11,,334444 1,277 67 0 1155,,336677 11,,998811 115566,,225500 1,981 156,250 554433 1122,,112299 543 12,074 55 0 1166,,000099 00 0 11,,118822 1,145 37 0 0 0 2222,,999988 1177,,999955 22,998 16,009 15,367 17,995 33,,224433 3,243 6699,,221177 00 0 226600 231 29 0 11,,884422 1,842 8888 77,,773333 88,,119966 1133,,447777 88 7,733 8,196 13,477 55,,881133 2211,,003388 6677,,227700 221144,,330077 5,813 212,970 63,000 59,447 15,860 5,178 4,269 0 0 448811 228800 389 269 91 11 0 0 2233,,770099 9911,,999933 0 0 1155,,440044 15,404 0 0 220099,,220044 1,338 0 44,,001188 4,015 3 0 226611,,992222 9,770 0 66,,558855 6,334 251 0 9988,,222233 115588,,223311 00 0 158,231 11 1155,,446600 0 15,269 189 0 1 1 00 7744,,221122 0 74,212 00 3322,,773377 0 32,737 338800,,558899 0 357,090 0 20,556 2,943 2277,,332277 0 26,410 357 0 560 560 668888,,555566 33,,550055 2,943 556600 22,,994433 00 0 ((1166)) (9) (5) (1) ((22)) (2) 00 0 ((11,,006600)) (142) (215) (703) ((113333)) (34) (9) (90) ((11,,221111)) 33,,221122 221122,,441177 55,,001144 226666,,993366 00 9911,,999933 3322 9988,,225555 00 2233,,770099 00 33,,550055 88,,225588 669966,,881155 00 ((11,,221111)) Off-balance sheet positions subject to expected credit loss by rating category USD million 31.12.20 Net carrying amount (maximum exposure to credit risk) 115588,,223311 158,231 1155,,444444 15,260 184 0 7744,,221100 74,210 3322,,773377 32,737 337799,,552288 356,948 20,341 2,240 2277,,119944 26,377 348 469 668877,,334455 88,,225588 669955,,660033 0–1 2–3 4–5 6–8 9–13 Total off - balance sheet exposure (maximum exposure to credit risk) ECL provisions Credit- impaired (defaulted) Rating category1 OOffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss GGuuaarraanntteeeess of which: stage 1 of which: stage 2 of which: stage 3 IIrrrreevvooccaabbllee llooaann ccoommmmiittmmeennttss of which: stage 1 of which: stage 2 of which: stage 3 FFoorrwwaarrdd ssttaarrttiinngg rreevveerrssee rreeppuurrcchhaassee aanndd sseeccuurriittiieess bboorrrroowwiinngg aaggrreeeemmeennttss TToottaall ooffff--bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss CCrreeddiitt lliinneess CCoommmmiitttteedd uunnccoonnddiittiioonnaallllyy rreevvooccaabbllee ccrreeddiitt lliinneess of which: stage 1 of which: stage 2 of which: stage 3 IIrrrreevvooccaabbllee ccoommmmiitttteedd pprroolloonnggaattiioonn ooff eexxiissttiinngg llooaannss of which: stage 1 of which: stage 2 of which: stage 3 44,,662233 33,,552222 404 0 1144,,551166 44,,229933 33,,448822 3,482 4,219 2,688 3,558 736 0 99,,330022 999911 739 252 834 0 0 0 0 33,,001188 55,,885500 88,,558833 3,018 13,589 6,873 8,739 4,676 563 1,174 0 00 66,,884400 927 1,711 0 00 1122,,110055 0 0 8822 66,,558833 0 115500 1199,,228899 0 33,,001155 1166,,661100 117700 0 0 170 110044 0 0 104 00 227733 88,,448888 1133,,550055 1111,,550011 55,,995588 557744 574 12,940 4,517 6,609 10,593 908 565 1,441 1,879 0 0 0 335577 663322 993311 355 630 930 1 2 1 0 0 0 1111,,885588 99,,111199 66,,888899 0 0 0 1144 11,,334499 14 1,349 1 0 0 0 1144,,885544 558888 110088 0 0 108 00 0 0 0 110099 TToottaall ccrreeddiitt lliinneess 11 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories. 1177,,008811 14,687 2,225 170 4411,,337722 36,894 4,374 104 33,,224477 6611,,770000 4400,,113344 35,233 4,792 108 33,,228822 3,277 5 0 4433,,441166 ((6633)) (14) (15) (34) ((114422)) (74) (68) 0 00 ((220055)) ((5500)) (29) (21) 0 ((22)) (2) 0 0 ((5522)) 353 345 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 20 Expected credit loss measurement (continued) f) Sensitivity information As outlined in Note 1a, ECL estimates involve significant uncertainties at the time they are made. ECL model The models applied to determine point-in-time PD and LGD rely on market and statistical data, which has been found to correlate well with historically observed defaults in sufficiently homogeneous segments. The risk sensitivities for each of the ECL reporting segments to such factors are summarized in Note 9. Forward-looking scenarios Depending on the scenario selection and related macro-economic assumptions for the risk factors, the components of the relevant weighted average ECL change. This is particularly relevant for interest rates, which can move in both directions under a given growth assumption (for example, low growth with high interest rates in a stagflation scenario, versus low growth and falling interest rates in a recession). Management generally looks for scenario narratives that reflect the key risk drivers of a given credit portfolio. As forecasting models are complex, due to the combination of multiple factors, simple what-if analyses involving a change of individual parameters do not necessarily provide realistic information on the exposure of segments to changes in the macroeconomy. Portfolio-specific analyses based on their key risk factors would also not be meaningful, as potential compensatory effects in other segments would be ignored. The table below indicates some sensitivities to ECLs if a key macroeconomic variable for the forecasting period is amended across all scenarios with all other factors remaining unchanged. Potential effect on stage 1 and stage 2 positions from changing key parameters as of 31 December 2021 USD million CChhaannggee iinn kkeeyy ppaarraammeetteerrss FFiixxeedd iinnccoommee:: GGoovveerrnnmmeenntt bboonnddss ((aabbssoolluuttee cchhaannggee)) –0.50% +0.50% +1.00% UUnneemmppllooyymmeenntt rraattee ((aabbssoolluuttee cchhaannggee)) –1.00% –0.50% +0.50% +1.00% RReeaall GGDDPP ggrroowwtthh ((rreellaattiivvee cchhaannggee)) –2.00% –1.00% +1.00% +2.00% HHoouussee PPrriiccee IInnddeexx ((rreellaattiivvee cchhaannggee)) –5.00% –2.50% +2.50% +5.00% EEqquuiittyy ((SS&&PP550000,, EEuurrooSSttooxxxx,, SSMMII)) ((rreellaattiivvee cchhaannggee)) –10.00% –5.00% +5.00% +10.00% BBaasseelliinnee UUppssiiddee MMiilldd ddoowwnnssiiddee SSeevveerree ddoowwnnssiiddee WWeeiigghhtteedd aavveerraaggee (1) 1 4 (2) (1) 1 3 4 2 (1) (2) 6 3 (2) (4) 2 1 (1) (2) 0 1 2 (2) (1) 1 2 2 1 0 0 4 2 (1) (3) 2 0 0 0 (29) 39 88 (30) (17) 21 47 8 4 (10) (14) 50 24 (26) (46) 5 2 (2) (4) (9) 11 23 (48) (27) 31 68 17 8 (8) (16) 73 34 (31) (31) 6 3 (3) (6) (4) 5 14 (13) (7) 8 18 10 5 (4) (7) 24 12 (11) (13) 5 2 (2) (3) 354 346 Consolidated financial statements | UBS Group AG consolidated financial statements f) Sensitivity information ECL model 9. As outlined in Note 1a, ECL estimates involve significant interest rates, which can move in both directions under a given uncertainties at the time they are made. growth assumption (for example, low growth with high interest rates in a stagflation scenario, versus low growth and falling interest rates in a recession). Management generally looks for scenario The models applied to determine point-in-time PD and LGD rely narratives that reflect the key risk drivers of a given credit portfolio. on market and statistical data, which has been found to As forecasting models are complex, due to the combination of correlate well with historically observed defaults in sufficiently homogeneous segments. The risk sensitivities for each of the ECL reporting segments to such factors are summarized in Note Forward-looking scenarios Depending on the scenario selection and related macro-economic assumptions for the risk factors, the components of the relevant weighted average ECL change. This is particularly relevant for multiple factors, simple what-if analyses involving a change of individual parameters do not necessarily provide realistic information on the exposure of segments to changes in the macroeconomy. Portfolio-specific analyses based on their key risk factors would also not be meaningful, as potential compensatory effects in other segments would be ignored. The table below indicates some sensitivities to ECLs if a key macroeconomic variable for the forecasting period is amended across all scenarios with all other factors remaining unchanged. Potential effect on stage 1 and stage 2 positions from changing key parameters as of 31 December 2021 BBaasseelliinnee UUppssiiddee MMiilldd ddoowwnnssiiddee SSeevveerree ddoowwnnssiiddee WWeeiigghhtteedd aavveerraaggee USD million CChhaannggee iinn kkeeyy ppaarraammeetteerrss FFiixxeedd iinnccoommee:: GGoovveerrnnmmeenntt bboonnddss ((aabbssoolluuttee cchhaannggee)) UUnneemmppllooyymmeenntt rraattee ((aabbssoolluuttee cchhaannggee)) RReeaall GGDDPP ggrroowwtthh ((rreellaattiivvee cchhaannggee)) HHoouussee PPrriiccee IInnddeexx ((rreellaattiivvee cchhaannggee)) EEqquuiittyy ((SS&&PP550000,, EEuurrooSSttooxxxx,, SSMMII)) ((rreellaattiivvee cchhaannggee)) –0.50% +0.50% +1.00% –1.00% –0.50% +0.50% +1.00% –2.00% –1.00% +1.00% +2.00% –5.00% –2.50% +2.50% +5.00% –10.00% –5.00% +5.00% +10.00% (1) 1 4 (2) (1) 1 3 4 2 (1) (2) 6 3 (2) (4) 2 1 (1) (2) (2) (1) 0 1 2 1 2 2 1 0 0 4 2 2 0 0 0 (1) (3) (29) 39 88 (30) (17) 21 47 8 4 (10) (14) 50 24 (26) (46) 5 2 (2) (4) (9) 11 23 (48) (27) 31 68 17 8 (8) (16) 73 34 (31) (31) 6 3 (3) (6) (4) 5 14 (13) (7) 8 18 10 5 (4) (7) 24 12 (11) (13) 5 2 (2) (3) Note 20 Expected credit loss measurement (continued) Note 20 Expected credit loss measurement (continued) coherent scenarios with Sensitivities can be more meaningfully assessed in the context of developed macroeconomic factors. The table on the previous page outlines favorable and unfavorable effects, based on reasonably possible alternative changes to the economic conditions for stage 1 and stage 2 positions. The ECL impact is calculated for material portfolios and disclosed for each scenario. consistently The forecasting horizon is limited to three years, with a model-based mean reversion of PD and LGD assumed thereafter. Changes to these timelines may have an effect on ECLs: depending on the cycle, a longer or shorter forecasting horizon will lead to different annualized lifetime PD and average LGD estimations. This is currently not deemed to be material for UBS, as a large proportion of loans, including mortgages in Switzerland, have maturities that are within the forecasting horizon. Scenario weights ECL is sensitive to changing scenario weights, in particular if narratives and parameters are selected that are not close to the baseline scenario, highlighting the non-linearity of credit losses. As shown in the table on the bottom of this page, the ECL for stage 1 and stage 2 positions would have been USD 387 (31 December 2020: USD 442 million) instead of million USD 503 million (31 December 2020: USD 639 million) if ECL had been determined solely on the baseline scenario. The weighted average ECL to 130% (31 December 2020: 145%) of the baseline value. The effects of weighting each of the four scenarios 100% are shown in the table below. therefore amounts Stage allocation and SICR The determination of what constitutes an SICR is based on management judgment, as explained in Note 1a. Changing the SICR trigger will have a direct effect on ECLs, as more or fewer positions would be subject to lifetime ECLs under any scenario. The relevance of the SICR trigger on overall ECL is demonstrated in the table below with the indication that the ECL allowances and provisions for stage 1 and stage 2 positions would have been USD 1,060 million if all non-impaired positions across the portfolio had been measured for lifetime ECLs irrespective of their actual SICR status. This amount compares to actual stage 1 and 2 allowances and provisions of USD 503 million as of 31 December 2021. Potential effect on stage 1 and stage 2 positions from changing scenario weights or moving to an ECL lifetime calculation as of 31 December 2021 Actual ECL allowances and provisions, including staging (as per Note 9) Pro forma ECL allowances and provisions, including staging and assuming application of 100% scenario weighting Pro forma ECL allowances and provisions, assuming all positions being subject to lifetime ECL WWeeiigghhtteedd aavveerraaggee 110000%% BBaasseelliinnee 110000%% UUppssiiddee 110000%% MMiilldd ddoowwnnssiiddee 110000%% SSeevveerree ddoowwnnssiiddee WWeeiigghhtteedd aavveerraaggee ((9955)) ((6622)) ((115500)) ((6655)) ((113300)) ((550033)) ((5533)) ((5500)) ((111166)) ((5566)) ((111122)) ((338877)) (52) (48) (107) (55) (108) ((337700)) (119) (101) (148) (71) (135) ((557744)) (207) (97) (244) (91) (166) ((880066)) ((227777)) ((111188)) ((225577)) ((111177)) ((229911)) ((11,,006600)) Scenarios USD million, except where indicated SSeeggmmeennttaattiioonn Private clients with mortgages Real estate financing Large corporate clients SME clients Other segments TToottaall Maturity profile The maturity profile is an important driver for changes in ECL due to transfers to stage 2 and from stage 2 to stage 1. The current maturity profile of most lending books is relatively short; hence a movement to stage 2 may have a moderate effect on ECLs. A significant portion of our lending to SMEs is documented under multi-purpose credit agreements, which allow for various forms of utilization but are unconditionally cancelable by UBS at any time. For drawings under such agreements with a fixed maturity, the respective term is applied for ECL calculations, or a maximum of 12 months in stage 1. For unused credit lines and all drawings that have no fixed maturity (e.g., current accounts), UBS generally applies a 12-month maturity from the reporting date, given the credit review policies, which require either continuous monitoring of key indicators and behavioral patterns for smaller positions or an annual formal review for any other limit. The ECLs for these products are sensitive to shortening or extending the maturity assumption. 354 355 347 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement a) Valuation principles All financial and non-financial assets and liabilities measured or disclosed at fair value are categorized into one of three fair value hierarchy levels in accordance with IFRS. The fair value hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. For disclosure purposes, the level in the hierarchy within which an instrument is classified in its entirety is based on the lowest level input that is significant to the position’s fair value measurement: – Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities; – Level 2 – valuation techniques for which all significant inputs are, or are based on, observable market data; or – Level 3 – valuation techniques for which significant inputs are not based on observable market data. b) Valuation governance UBS’s fair value measurement and model governance framework includes numerous controls and other procedural safeguards that are intended to maximize the quality of fair value measurements reported in the financial statements. New products and valuation techniques must be reviewed and approved by key stakeholders from the risk and finance control functions. Responsibility for the ongoing measurement of financial and non-financial instruments at fair value is with the business divisions. Fair values are determined using quoted prices in active markets for identical assets or liabilities, where available. Where the market for a financial instrument or non-financial asset or liability is not active, fair value is established using a valuation technique, including pricing models. Valuation adjustments may be made to allow for additional factors, including model, liquidity, credit and funding risks, which are not explicitly captured within the valuation technique, but which would nevertheless be considered by market participants when establishing a price. The limitations inherent in a particular valuation technique are considered in the determination of the classification of an asset or liability within the fair value hierarchy. Generally, the unit of account for a financial instrument is the individual instrument, and UBS applies valuation adjustments at an individual instrument level, consistent with that unit of account. However, if certain conditions are met, UBS may estimate the fair value of a portfolio of financial assets and liabilities with substantially similar and offsetting risk exposures on the basis of the net open risks. › Refer to Note 21d for more information Fair value estimates are validated by the risk and finance control functions, which are independent of the business divisions. Independent price verification is performed by Finance through benchmarking the business divisions’ fair value estimates with observable market prices and other independent sources. A governance framework and associated controls are in place in order to monitor the quality of third-party pricing sources where used. For instruments where valuation models are used to determine fair value, independent valuation and model control groups within Finance and Risk Control evaluate UBS’s models on a regular basis, including valuation and model input parameters, as well as pricing. As a result of the valuation controls employed, valuation adjustments may be made to the business divisions’ estimates of fair value to align with independent market data and the relevant accounting standard. › Refer to Note 21d for more information 356 348 Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement a) Valuation principles Note 21 Fair value measurement (continued) c) Fair value hierarchy The table below provides the fair value hierarchy classification of financial and non-financial assets and liabilities measured at fair value. The narrative that follows describes valuation techniques used in measuring their fair value of different product types (including significant valuation inputs and assumptions used), and the factors considered in determining their classification within the fair value hierarchy. Determination of fair values from quoted market prices or valuation techniques1 USD million FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss 3311..1122..2211 31.12.20 LLeevveell 11 LLeevveell 22 LLeevveell 33 TToottaall Level 1 Level 2 Level 3 Total Financial assets at fair value held for trading 111133,,669977 1144,,882255 22,,229999 113300,,882211 107,507 15,553 2,337 125,397 of which: Equity instruments Government bills / bonds Investment fund units Corporate and municipal bonds Loans Asset-backed securities Derivative financial instruments of which: Foreign exchange contracts Interest rate contracts Equity / index contracts Credit derivative contracts Commodity contracts Brokerage receivables 9977,,995588 77,,113355 77,,884433 770088 00 5533 11,,009900 11,,335511 11,,336644 77,,660044 33,,009999 331177 114499 9999,,119977 90,307 1,101 9,028 2,207 1100 7,374 1,794 2211 555566 789 8,356 11,,444433 112200 171 91,579 10 11,245 23 9,192 817 9,961 0 1,860 1,134 2,995 425 8 88,,449966 99,,222299 88,,886688 44,,554422 448899 181 236 552222 111166,,447799 11,,114400 111188,,114422 795 157,068 1,754 159,617 225555 5533,,004433 00 3322,,774477 00 2277,,886611 00 11,,117799 00 11,,559900 77 5533,,330055 449944 3333,,224411 338844 2288,,224455 11,,441144 223366 11,,660066 1166 319 68,424 0 50,353 0 33,990 0 2,008 0 2,211 5 68,749 537 50,890 853 34,842 350 2,358 6 2,217 00 2211,,883399 00 2211,,883399 0 24,659 0 24,659 Financial assets at fair value not held for trading2 2277,,227788 2288,,662222 44,,118800 6600,,008800 40,986 35,435 3,942 80,364 All financial and non-financial assets and liabilities measured or Fair values are determined using quoted prices in active disclosed at fair value are categorized into one of three fair value markets for identical assets or liabilities, where available. Where hierarchy levels in accordance with IFRS. The fair value hierarchy the market for a financial instrument or non-financial asset or is based on the transparency of inputs to the valuation of an asset liability is not active, fair value is established using a valuation or liability as of the measurement date. In certain cases, the inputs technique, including pricing models. Valuation adjustments may used to measure fair value may fall within different levels of the be made to allow for additional factors, including model, liquidity, fair value hierarchy. For disclosure purposes, the level in the credit and funding risks, which are not explicitly captured within hierarchy within which an instrument is classified in its entirety is the valuation technique, but which would nevertheless be based on the lowest level input that is significant to the position’s considered by market participants when establishing a price. The fair value measurement: limitations inherent in a particular valuation technique are – Level 1 – quoted prices (unadjusted) in active markets for considered in the determination of the classification of an asset or identical assets and liabilities; liability within the fair value hierarchy. Generally, the unit of – Level 2 – valuation techniques for which all significant inputs account for a financial instrument is the individual instrument, and are, or are based on, observable market data; or UBS applies valuation adjustments at an individual instrument – Level 3 – valuation techniques for which significant inputs are level, consistent with that unit of account. However, if certain not based on observable market data. conditions are met, UBS may estimate the fair value of a portfolio of financial assets and liabilities with substantially similar and offsetting risk exposures on the basis of the net open risks. › Refer to Note 21d for more information b) Valuation governance UBS’s fair value measurement and model governance framework Fair value estimates are validated by the risk and finance includes numerous controls and other procedural safeguards that control functions, which are independent of the business are intended to maximize the quality of fair value measurements divisions. Independent price verification is performed by Finance reported in the financial statements. New products and valuation through benchmarking the business divisions’ fair value estimates techniques must be reviewed and approved by key stakeholders with observable market prices and other independent sources. A from the risk and finance control functions. Responsibility for the governance framework and associated controls are in place in ongoing measurement of financial and non-financial instruments order to monitor the quality of third-party pricing sources where at fair value is with the business divisions. used. For instruments where valuation models are used to determine fair value, independent valuation and model control groups within Finance and Risk Control evaluate UBS’s models on a regular basis, including valuation and model input parameters, as well as pricing. As a result of the valuation controls employed, valuation adjustments may be made to the business divisions’ estimates of fair value to align with independent market data and the relevant accounting standard. › Refer to Note 21d for more information 101 290 16,957 88,,886600 19,704 3,593 0 7,699 55,,887744 0 6,629 55,,880044 11,,558855 0 278 11,,002288 86 776655 0 449955 2 20,731 372 17,619 0 23,297 862 8,561 122 6,751 0 1,527 1,527 831 105 631 544 418 408 447 0 10 66 2211,,330033 20,628 330066 1144,,336666 of which: Financial assets for unit-linked investment contracts Corporate and municipal bonds Government bills / bonds Loans Securities financing transactions Auction rate securities Investment fund units Equity instruments Other 2211,,111100 118877 112233 1133,,993377 33,,223366 44,,998822 55,,770044 00 557744 22 00 55,,662244 00 00 00 333388 8833 00 FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee oonn aa rreeccuurrrriinngg bbaassiiss Financial assets measured at fair value through other comprehensive income2 22,,770044 66,,114400 of which: Asset-backed securities Government bills / bonds Corporate and municipal bonds NNoonn--ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss Precious metals and other physical commodities NNoonn--ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa nnoonn--rreeccuurrrriinngg bbaassiiss Other non-financial assets3 00 22,,665588 4455 44,,884499 2277 11,,226655 55,,225588 00 00 00 00 889922 110000 11,,558855 111177 668811 449955 00 00 00 00 88,,884444 1,144 7,114 0 8,258 44,,884499 22,,668866 11,,331100 0 6,624 47 444 1,103 40 0 6,624 0 1,150 485 0 00 55,,225588 6,264 0 0 6,264 2266 2266 0 1 245 246 TToottaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee 114499,,445599 118877,,990055 77,,664455 334455,,001100 156,696 239,831 8,278 404,805 356 357 349 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Determination of fair values from quoted market prices or valuation techniques (continued)1 USD million FFiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss 3311..1122..2211 31.12.20 LLeevveell 11 LLeevveell 22 LLeevveell 33 TToottaall Level 1 Level 2 Level 3 Total Financial liabilities at fair value held for trading 2255,,441133 66,,117700 110055 3311,,668888 26,888 6,652 55 33,595 of which: Equity instruments Corporate and municipal bonds Government bills / bonds Investment fund units Derivative financial instruments of which: Foreign exchange contracts Interest rate contracts Equity / index contracts Credit derivative contracts Commodity contracts FFiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss Brokerage payables designated at fair value Debt issued designated at fair value2 Other financial liabilities designated at fair value2 of which: Financial liabilities related to unit-linked investment contracts Securities financing transactions Over-the-counter debt instruments 1188,,332288 3300 55,,888833 11,,117722 551133 44,,221199 882266 555555 8833 1188,,992244 44,,226666 1177 66,,770099 00 11,,773333 66 22,519 425 31 4,048 3,642 1,036 696 1,127 40 22,985 9 4,089 0 4,678 5 1,828 550099 111188,,555588 22,,224422 112211,,330099 746 156,884 3,471 161,102 225588 5533,,880000 00 2288,,339988 00 3333,,443388 00 11,,441122 00 11,,550033 2211 5544,,007788 227788 2288,,667755 11,,551111 3344,,994499 11,,775533 11,,556666 334411 6633 61 70,527 316 70,149 0 43,389 527 43,916 0 38,870 2,306 41,176 528 2,931 0 2,403 24 2,027 0 2,003 00 00 00 4444,,004455 00 4444,,004455 5599,,660066 1144,,119944 7733,,779999 2299,,225588 881166 3300,,007744 0 0 0 38,742 0 38,742 50,273 10,970 61,243 29,671 716 30,387 00 2211,,446666 00 66,,337755 00 11,,333344 00 2211,,446666 66,,337777 22 22,,112288 779944 0 20,975 0 7,317 0 1,363 0 20,975 0 7,317 697 2,060 TToottaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee 2255,,992222 11 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are not included in this table. The fair value of these derivatives was not material for the periods presented. 22 As of 31 December 2021, USD 17 billion (31 December 2020: USD 21 billion) of Financial assets at fair value not held for trading, USD 8 billion (31 December 2020: USD 8 billion) of Financial assets measured at fair value through other comprehensive income, USD 36 billion (31 December 2020: USD 16 billion) of Debt issued designated at fair value and USD 1 billion (31 December 2020: USD 1 billion) of Other financial liabilities designated at fair value are expected to be recovered or settled after 12 months. 33 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell. 15,212 325,069 27,635 282,222 225577,,663377 330000,,991166 1177,,335577 358 350 Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Note 21 Fair value measurement (continued) Determination of fair values from quoted market prices or valuation techniques (continued)1 Valuation techniques UBS uses widely recognized valuation techniques for determining the fair value of financial and non-financial instruments that are not actively traded and quoted. The most frequently applied valuation techniques include discounted value of expected cash flows, relative value and option pricing methodologies. Discounted value of expected cash flows is a valuation technique that measures fair value using estimated expected future cash flows from assets or liabilities and then discounts these cash flows using a discount rate or discount margin that reflects the credit and / or funding spreads required by the market for instruments with similar risk and liquidity profiles to produce a present value. When using such valuation techniques, expected future cash flows are estimated using an observed or implied market price for the future cash flows or by using industry- standard cash flow projection models. The discount factors within the calculation are generated using industry-standard yield curve modeling techniques and models. Relative value models measure fair value based on the market prices of equivalent or comparable assets or liabilities, making adjustments for differences between the characteristics of the observed instrument and the instrument being valued. Option pricing models incorporate assumptions regarding the behavior of future price movements of an underlying referenced asset or assets to generate a probability-weighted future expected payoff for the option. The resulting probability-weighted expected payoff is then discounted using discount factors industry-standard yield curve modeling generated from USD million FFiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss 3311..1122..2211 31.12.20 LLeevveell 11 LLeevveell 22 LLeevveell 33 TToottaall Level 1 Level 2 Level 3 Total Financial liabilities at fair value held for trading 2255,,441133 66,,117700 110055 3311,,668888 26,888 6,652 55 33,595 of which: Equity instruments Corporate and municipal bonds Government bills / bonds Investment fund units Derivative financial instruments of which: Foreign exchange contracts Interest rate contracts Equity / index contracts Credit derivative contracts Commodity contracts 1188,,332288 3300 55,,888833 11,,117722 551133 44,,221199 882266 555555 8833 1188,,992244 22,519 425 40 22,985 1177 00 66 44,,226666 66,,770099 11,,773333 31 4,048 3,642 1,036 696 1,127 9 4,089 0 4,678 5 1,828 550099 111188,,555588 22,,224422 112211,,330099 746 156,884 3,471 161,102 225588 5533,,880000 00 2288,,339988 00 3333,,443388 00 00 11,,441122 11,,550033 2211 5544,,007788 227788 2288,,667755 316 70,149 61 70,527 0 43,389 527 43,916 11,,551111 3344,,994499 0 38,870 2,306 41,176 334411 6633 11,,775533 11,,556666 0 2,403 0 2,003 528 2,931 24 2,027 FFiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss Brokerage payables designated at fair value 4444,,004455 00 4444,,004455 38,742 0 38,742 Debt issued designated at fair value2 5599,,660066 1144,,119944 7733,,779999 50,273 10,970 61,243 Other financial liabilities designated at fair value2 of which: Financial liabilities related to unit-linked investment contracts Securities financing transactions Over-the-counter debt instruments 2299,,225588 881166 3300,,007744 29,671 716 30,387 00 2211,,446666 00 2211,,446666 00 00 66,,337755 11,,333344 22 779944 66,,337777 22,,112288 0 20,975 0 7,317 0 1,363 0 20,975 0 7,317 697 2,060 00 00 00 0 0 0 TToottaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee 2255,,992222 225577,,663377 1177,,335577 330000,,991166 27,635 282,222 15,212 325,069 11 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are not included in this table. The fair value of these derivatives was not material for the periods presented. 22 As of 31 December 2021, USD 17 billion (31 December 2020: USD 21 billion) of Financial assets at fair value not held for trading, USD 8 billion (31 December 2020: USD 8 billion) of Financial assets measured at fair value through other comprehensive income, USD 36 billion (31 December 2020: USD 16 billion) of Debt issued designated at fair value and USD 1 billion (31 December 2020: USD 1 billion) of Other financial liabilities designated at fair value are expected to be recovered or settled after 12 months. 33 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell. techniques and models. The option pricing model may be implemented using a closed-form analytical formula or other mathematical techniques (e.g., binomial tree or Monte Carlo simulation). Where available, valuation techniques use market-observable assumptions and inputs. If such data is not available, inputs may be derived by reference to similar assets in active markets, from recent prices for comparable transactions or from other observable market data. In such cases, the inputs selected are based on historical experience and practice for similar or analogous instruments, derivation of input levels based on similar products with observable price levels, and knowledge of current market conditions and valuation approaches. For more complex instruments, fair values may be estimated using a combination of observed transaction prices, consensus pricing services and relevant quotes. Consideration is given to the nature of the quotes (e.g., indicative or firm) and the relationship of recently evidenced market activity to the prices provided by consensus pricing services. UBS also uses internally developed models, which are typically based on valuation methods and techniques industry. Assumptions and inputs used in valuation techniques include benchmark interest rate curves, credit and funding spreads used in estimating discount rates, bond and equity prices, equity index prices, foreign exchange rates, levels of market volatility and correlation. Refer to Note 21f for more information. The discount curves used by the Group incorporate the funding and credit characteristics of the instruments to which they are applied. standard within recognized as the Financial instruments excluding derivatives: valuation and classification in the fair value hierarchy Product Valuation and classification in the fair value hierarchy Government bills and bonds Valuation – Generally valued using prices obtained directly from the market. – Instruments not priced directly using active-market data are valued using discounted cash flow valuation techniques that incorporate market data for similar government instruments. Corporate and municipal bonds Fair value hierarchy – Generally traded in active markets with prices that can be obtained directly from these markets, resulting in classification as Level 1, while the remaining positions are classified as Level 2 and Level 3. Valuation – Generally valued using prices obtained directly from the market for the security, or similar securities, adjusted for seniority, maturity and liquidity. – When prices are not available, instruments are valued using discounted cash flow valuation techniques incorporating the credit spread of the issuer or similar issuers. – For convertible bonds without directly comparable prices, issuances may be priced using a convertible bond model. Fair value hierarchy – Generally classified as Level 1 or Level 2, depending on the depth of trading activity behind price sources. – Level 3 instruments have no suitable pricing information available. Traded loans and loans measured at fair value Valuation – Valued directly using market prices that reflect recent transactions or quoted dealer prices, where available. – Where no market price data is available, loans are valued by relative value benchmarking using pricing derived from debt instruments in comparable entities or different products in the same entity, or by using a credit default swap valuation technique, which requires inputs for credit spreads, credit recovery rates and interest rates. Recently originated commercial real estate loans are measured using a securitization approach based on rating agency guidelines. Fair value hierarchy – Instruments with suitably deep and liquid pricing information are classified as Level 2. – Positions requiring the use of valuation techniques, or for which the price sources have insufficient trading depth, are classified as Level 3. 358 359 351 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Product Valuation and classification in the fair value hierarchy Investment fund units Valuation – Predominantly exchange-traded, with readily available quoted prices in liquid markets. – Where market prices are not available, fair value may be measured using net asset values (NAVs). Fair value hierarchy – Listed units are classified as Level 1, provided there is sufficient trading activity to justify active-market classification, while other positions are classified as Level 2. – Positions for which NAVs are not available are classified as Level 3. Asset-backed securities (ABS) Valuation – For liquid securities, the valuation process will use trade and price data, updated for movements in market levels between the time of trading and the time of valuation. Less liquid instruments are measured using discounted expected cash flows incorporating price data for instruments or indices with similar risk profiles. Fair value hierarchy – Residential mortgage-backed securities, commercial mortgage-backed securities and other ABS are generally classified as Level 2. However, if significant inputs are unobservable, or if market or fundamental data is not available, they are classified as Level 3. Auction rate securities (ARS) Valuation – ARS are valued utilizing a discounted cash flow methodology. The model captures interest rate risk emanating from the note coupon, credit risk attributable to the underlying closed-end fund investments, liquidity risk as a function of the level of trading volume in these positions, and extension risk, as ARS are perpetual instruments that require an assumption regarding their maturity or issuer redemption date. Fair value hierarchy – Granular and liquid pricing information is generally not available for ARS. As a result, these securities are classified as Level 3. Equity instruments Valuation – Listed equity instruments are generally valued using prices obtained directly from the market. – Unlisted equity holdings, including private equity positions, are initially marked at their transaction price and are revalued when reliable evidence of price movement becomes available or when the position is deemed to be impaired. Financial assets for unit-linked investment contracts Securities financing transactions Brokerage receivables and payables Amounts due under unit-linked investment contracts Fair value hierarchy – The majority of equity securities are actively traded on public stock exchanges where quoted prices are readily and regularly available, resulting in Level 1 classification. Valuation – The majority of assets are listed on exchanges and fair values are determined using quoted prices. Fair value hierarchy – Most assets are classified as Level 1 if actively traded, or Level 2 if trading is not active. – Instruments for which prices are not readily available are classified as Level 3. Valuation – These instruments are valued using discounted expected cash flow techniques. The discount rate applied is based on funding curves that are relevant to the collateral eligibility terms. Fair value hierarchy – Collateral funding curves for these instruments are generally observable and, as a result, these positions are classified as Level 2. – Where the collateral terms are non-standard, the funding curve may be considered unobservable and these positions are classified as Level 3. Valuation – Fair value is determined based on the value of the underlying balances. Fair value hierarchy – Due to their on-demand nature, these receivables and payables are deemed as Level 2. Valuation – The fair values of investment contract liabilities are determined by reference to the fair value of the corresponding assets. Fair value hierarchy – The liabilities themselves are not actively traded, but are mainly referenced to instruments that are actively traded and are therefore classified as Level 2. 360 352 Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Note 21 Fair value measurement (continued) Product Valuation and classification in the fair value hierarchy Investment fund Valuation – Predominantly exchange-traded, with readily available quoted prices in liquid markets. units – Where market prices are not available, fair value may be measured using net asset values (NAVs). Fair value hierarchy – Listed units are classified as Level 1, provided there is sufficient trading activity to justify active-market classification, while other positions are classified as Level 2. – Positions for which NAVs are not available are classified as Level 3. Asset-backed securities (ABS) Valuation – For liquid securities, the valuation process will use trade and price data, updated for movements in market levels between the time of trading and the time of valuation. Less liquid instruments are measured using discounted expected cash flows incorporating price data for instruments or indices with similar risk profiles. Fair value hierarchy – Residential mortgage-backed securities, commercial mortgage-backed securities and other ABS are generally classified as Level 2. However, if significant inputs are unobservable, or if market or fundamental data is not available, they are classified as Level 3. Auction rate securities (ARS) Valuation – ARS are valued utilizing a discounted cash flow methodology. The model captures interest rate risk emanating from the note coupon, credit risk attributable to the underlying closed-end fund investments, liquidity risk as a function of the level of trading volume in these positions, and extension risk, as ARS are perpetual instruments that require an assumption regarding their maturity or issuer redemption date. Equity instruments Valuation – Listed equity instruments are generally valued using prices obtained directly from the market. – Unlisted equity holdings, including private equity positions, are initially marked at their transaction price and are revalued when reliable evidence of price movement becomes available or when the position is deemed to be impaired. Fair value hierarchy – The majority of equity securities are actively traded on public stock exchanges where quoted prices are readily and regularly available, resulting in Level 1 classification. Financial assets for Valuation – The majority of assets are listed on exchanges and fair values are determined using quoted prices. Fair value hierarchy – Most assets are classified as Level 1 if actively traded, or Level 2 if trading is not active. – Instruments for which prices are not readily available are classified as Level 3. Securities financing Valuation – These instruments are valued using discounted expected cash flow techniques. The discount rate applied is based on funding curves that are relevant to the collateral eligibility terms. unit-linked investment contracts transactions Brokerage receivables and payables unit-linked investment contracts Derivative instruments: valuation and classification in the fair value hierarchy The curves used for discounting expected cash flows in the valuation of collateralized derivatives reflect the funding terms associated with the relevant collateral arrangement for the instrument being valued. These collateral arrangements differ across counterparties with respect to the eligible currency and interest terms of the collateral. The majority of collateralized derivatives are measured using a discount curve based on funding rates derived from overnight interest in the cheapest eligible currency for the respective counterparty collateral agreement. Uncollateralized and partially collateralized derivatives are discounted using the alternative reference rate (the ARR) (or equivalent) curve for the currency of the instrument. As described in Note 21d, the fair value of uncollateralized and partially collateralized derivatives is then adjusted by credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments (FVAs), as applicable, to reflect an estimation of the effect of counterparty credit risk, UBS’s own credit risk, and funding costs and benefits. › Refer to Note 10 for more information about derivative instruments Derivative product Valuation and classification in the fair value hierarchy Fair value hierarchy – Granular and liquid pricing information is generally not available for ARS. As a result, these securities are classified as Level 3. Interest rate contracts Valuation – Interest rate swap contracts are valued by estimating future interest cash flows and discounting those cash flows using a rate that reflects the appropriate funding rate for the position being measured. The yield curves used to estimate future index levels and discount rates are generated using market-standard yield curve models using interest rates associated with current market activity. The key inputs to the models are interest rate swap rates, forward rate agreement rates, short-term interest rate futures prices, basis swap spreads and inflation swap rates. – Interest rate option contracts are valued using various market-standard option models, using inputs that include interest rate yield curves, inflation curves, volatilities and correlations. – When the maturity of an interest rate swap or option contract exceeds the term for which standard market quotes are observable for a significant input parameter, the contracts are valued by extrapolation from the last observable point using standard assumptions or by reference to another observable comparable input parameter to represent a suitable proxy for that portion of the term. Fair value hierarchy – Collateral funding curves for these instruments are generally observable and, as a result, these positions observable quotes. – Where the collateral terms are non-standard, the funding curve may be considered unobservable and these are classified as Level 2. positions are classified as Level 3. Valuation – Fair value is determined based on the value of the underlying balances. Fair value hierarchy – Due to their on-demand nature, these receivables and payables are deemed as Level 2. Credit derivative contracts Valuation Amounts due under Valuation – The fair values of investment contract liabilities are determined by reference to the fair value of the corresponding assets. Fair value hierarchy Fair value hierarchy – The liabilities themselves are not actively traded, but are mainly referenced to instruments that are actively traded and are therefore classified as Level 2. – Exotic options for which appropriate volatility or correlation input levels cannot be implied from observable market data are classified as Level 3. – Credit derivative contracts are valued using industry-standard models based primarily on market credit spreads, upfront pricing points and implied recovery rates. Where a derivative credit spread is not directly available, it may be derived from the price of the reference cash bond. – Asset-backed credit derivatives are valued using a valuation technique similar to that of the underlying security with an adjustment to reflect the funding differences between cash and synthetic form. – Single-entity and portfolio credit derivative contracts are classified as Level 2 when credit spreads and recovery rates are determined from actively traded observable market data. Where the underlying reference name(s) are not actively traded and the correlation cannot be directly mapped to actively traded tranche instruments, these contracts are classified as Level 3. – Asset-backed credit derivatives follow the characteristics of the underlying security and are therefore distributed across Level 2 and Level 3. Fair value hierarchy – The majority of interest rate swaps are classified as Level 2, as the standard market contracts that form the inputs for yield curve models are generally traded in active and observable markets. – Options are generally treated as Level 2, as the calibration process enables the model output to be validated to active-market levels. Models calibrated in this way are then used to revalue the portfolio of both standard options and more exotic products. – Interest rate swap or option contracts are classified as Level 3 when the terms exceed standard market- 360 361 353 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Derivative product Valuation and classification in the fair value hierarchy Foreign exchange contracts Valuation – Open spot foreign exchange (FX) contracts are valued using the FX spot rate observed in the market. – Forward FX contracts are valued using the FX spot rate adjusted for forward pricing points observed from standard market-based sources. – Over-the-counter (OTC) FX option contracts are valued using market-standard option valuation models. The models used for shorter-dated options (i.e., maturities of five years or less) tend to be different than those used for longer-dated options because the models needed for longer-dated OTC FX contracts require additional consideration of interest rate and FX rate interdependency. – The valuation for multi-dimensional FX options uses a multi-local volatility model, which is calibrated to the observed FX volatilities for all relevant FX pairs. Fair value hierarchy – The markets for FX spot and FX forward pricing points are both actively traded and observable and Equity / index contracts Valuation therefore such FX contracts are generally classified as Level 2. – A significant proportion of OTC FX option contracts are classified as Level 2 as inputs are derived mostly from standard market contracts traded in active and observable markets. – OTC FX option contracts classified as Level 3 include multi-dimensional FX options and long-dated FX exotic option contracts where there is no active market from which to derive volatility or correlation inputs. – Equity forward contracts have a single stock or index underlying and are valued using market-standard models. The key inputs to the models are stock prices, estimated dividend rates and equity funding rates (which are implied from prices of forward contracts observed in the market). Estimated cash flows are then discounted using market-standard discounted cash flow models using a rate that reflects the appropriate funding rate for that portion of the portfolio. When no market data is available for the instrument maturity, they are valued by extrapolation of available data, use of historical dividend data, or use of data for a related equity. – Equity option contracts are valued using market-standard models that estimate the equity forward level as described for equity forward contracts and incorporate inputs for stock volatility and for correlation between stocks within a basket. The probability-weighted expected option payoff generated is then discounted using market-standard discounted cash flow models applying a rate that reflects the appropriate funding rate for that portion of the portfolio. When volatility, forward or correlation inputs are not available, they are valued using extrapolation of available data, historical dividend, correlation or volatility data, or the equivalent data for a related equity. Commodity contracts Fair value hierarchy – As inputs are derived mostly from standard market contracts traded in active and observable markets, a significant proportion of equity forward contracts are classified as Level 2. – Equity option positions for which inputs are derived from standard market contracts traded in active and observable markets are also classified as Level 2. Level 3 positions are those for which volatility, forward or correlation inputs are not observable. Valuation – Commodity forward and swap contracts are measured using market-standard models that use market forward levels on standard instruments. – Commodity option contracts are measured using market-standard option models that estimate the commodity forward level as described for commodity forward and swap contracts, incorporating inputs for the volatility of the underlying index or commodity. For commodity options on baskets of commodities or bespoke commodity indices, the valuation technique also incorporates inputs for the correlation between different commodities or commodity indices. Fair value hierarchy – Individual commodity contracts are typically classified as Level 2, because active forward and volatility market data is available. 362 354 Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Derivative product Valuation and classification in the fair value hierarchy Foreign exchange Valuation – Open spot foreign exchange (FX) contracts are valued using the FX spot rate observed in the market. contracts – Forward FX contracts are valued using the FX spot rate adjusted for forward pricing points observed from standard market-based sources. – Over-the-counter (OTC) FX option contracts are valued using market-standard option valuation models. The models used for shorter-dated options (i.e., maturities of five years or less) tend to be different than those used for longer-dated options because the models needed for longer-dated OTC FX contracts require additional consideration of interest rate and FX rate interdependency. – The valuation for multi-dimensional FX options uses a multi-local volatility model, which is calibrated to the observed FX volatilities for all relevant FX pairs. Fair value hierarchy – The markets for FX spot and FX forward pricing points are both actively traded and observable and therefore such FX contracts are generally classified as Level 2. – A significant proportion of OTC FX option contracts are classified as Level 2 as inputs are derived mostly from standard market contracts traded in active and observable markets. – OTC FX option contracts classified as Level 3 include multi-dimensional FX options and long-dated FX exotic option contracts where there is no active market from which to derive volatility or correlation inputs. Equity / index Valuation – Equity forward contracts have a single stock or index underlying and are valued using market-standard contracts models. The key inputs to the models are stock prices, estimated dividend rates and equity funding rates (which are implied from prices of forward contracts observed in the market). Estimated cash flows are then discounted using market-standard discounted cash flow models using a rate that reflects the appropriate funding rate for that portion of the portfolio. When no market data is available for the instrument maturity, they are valued by extrapolation of available data, use of historical dividend data, or use of data for a related equity. – Equity option contracts are valued using market-standard models that estimate the equity forward level as described for equity forward contracts and incorporate inputs for stock volatility and for correlation between stocks within a basket. The probability-weighted expected option payoff generated is then discounted using market-standard discounted cash flow models applying a rate that reflects the appropriate funding rate for that portion of the portfolio. When volatility, forward or correlation inputs are not available, they are valued using extrapolation of available data, historical dividend, correlation or volatility data, or the equivalent data for a related equity. Commodity contracts Fair value hierarchy – As inputs are derived mostly from standard market contracts traded in active and observable markets, a significant proportion of equity forward contracts are classified as Level 2. – Equity option positions for which inputs are derived from standard market contracts traded in active and observable markets are also classified as Level 2. Level 3 positions are those for which volatility, forward or correlation inputs are not observable. Valuation – Commodity forward and swap contracts are measured using market-standard models that use market forward levels on standard instruments. – Commodity option contracts are measured using market-standard option models that estimate the commodity forward level as described for commodity forward and swap contracts, incorporating inputs for the volatility of the underlying index or commodity. For commodity options on baskets of commodities or bespoke commodity indices, the valuation technique also incorporates inputs for the correlation between different commodities or commodity indices. Fair value hierarchy – Individual commodity contracts are typically classified as Level 2, because active forward and volatility market data is available. Note 21 Fair value measurement (continued) d) Valuation adjustments and other items The output of a valuation technique is always an estimate of a fair value that cannot be measured with complete certainty. As a result, valuations are adjusted, where appropriate and when such factors would be considered by market participants in estimating fair value, to reflect close-out costs, credit exposure, model-driven valuation uncertainty, funding costs and benefits, trading restrictions and other factors. The table below summarizes the valuation adjustment reserves recognized on the balance sheet. Details about each category are provided further below. Valuation adjustment reserves on the balance sheet Life-to-date gain / (loss), USD million DDeeffeerrrreedd ddaayy--11 pprrooffiitt oorr lloossss rreesseerrvveess OOwwnn ccrreeddiitt aaddjjuussttmmeennttss oonn ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee CCVVAAss,, FFVVAAss,, DDVVAAss aanndd ootthheerr vvaalluuaattiioonn aaddjjuussttmmeennttss As of 3311..1122..2211 31.12.20 31.12.19 441188 ((331155)) ((11,,000044)) 269 (381) (959) 146 (88) (706) Deferred day-1 profit or loss reserves For new transactions where the valuation technique used to measure fair value requires significant inputs that are not based on observable market data, the financial instrument is initially recognized at the transaction price. The transaction price may differ from the fair value obtained using a valuation technique, where any such difference is deferred and not initially recognized in the income statement. Deferred day-1 profit or loss is generally released into Other net income from financial instruments measured at fair value through profit or loss when pricing of equivalent products or the underlying parameters becomes observable or when the transaction is closed out. The table below summarizes the changes in deferred day-1 profit or loss reserves during the respective period. Deferred day-1 profit or loss reserves USD million RReesseerrvvee bbaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr Profit / (loss) deferred on new transactions (Profit) / loss recognized in the income statement Foreign currency translation RReesseerrvvee bbaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr 22002211 226699 445599 ((330088)) ((22)) 441188 2020 146 362 (238) 0 269 2019 255 171 (278) (2) 146 Own credit Own credit risk is reflected in the valuation of UBS’s fair value option liabilities where this component is considered relevant for valuation purposes by UBS’s counterparties and other market participants. Changes in the fair value of financial liabilities designated at fair value through profit or loss related to own credit are recognized in Other comprehensive income directly within Retained earnings, with no reclassification to the income statement in future periods. This presentation does not create or increase an accounting mismatch in the income statement, as the Group does not hedge changes in own credit. Own credit is estimated using own credit adjustment (OCA) curves, which incorporate observable market data, including market-observed secondary prices for UBS’s debt, UBS’s credit default swap spreads and debt curves of peers. In the table below, the change in unrealized own credit consists of changes in fair value that are attributable to the change in UBS’s credit spreads, as well as the effect of changes in fair values attributable to factors other than credit spreads, such as redemptions, effects from time decay and changes in interest and other market rates. Realized own credit is recognized when an instrument with an associated unrealized OCA is repurchased prior to the contractual maturity date. Life-to-date amounts reflect the cumulative unrealized change since initial recognition. › Refer to Note 16 for more information about debt issued designated at fair value 362 363 355 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Own credit adjustments on financial liabilities designated at fair value USD million RReeccooggnniizzeedd dduurriinngg tthhee ppeerriioodd:: Realized gain / (loss) Unrealized gain / (loss) TToottaall ggaaiinn // ((lloossss)),, bbeeffoorree ttaaxx USD million RReeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett aass ooff tthhee eenndd ooff tthhee ppeerriioodd:: Unrealized life-to-date gain / (loss) Included in Other comprehensive income For the year ended 3311..1122..2211 31.12.20 31.12.19 ((1144)) 6600 4466 2 (295) (293) As of 8 (408) (400) 3311..1122..2211 31.12.20 31.12.19 ((331155)) (381) (88) Credit valuation adjustments In order to measure the fair value of OTC derivative instruments, including funded derivative instruments that are classified as Financial assets at fair value not held for trading, CVAs are needed to reflect the credit risk of the counterparty inherent in these instruments. This amount represents the estimated fair value of protection required to hedge the counterparty credit risk of such instruments. A CVA is determined for each counterparty, is considering all exposures with that counterparty, and dependent on the expected future value of exposures, default probabilities and recovery rates, applicable collateral or netting arrangements, break clauses, funding spreads, and other contractual factors. Funding valuation adjustments FVAs reflect the costs and benefits of funding associated with uncollateralized and partially collateralized derivative receivables and payables and are calculated as the valuation effect from moving the discounting of the uncollateralized derivative cash flows from the ARR to OCA using the CVA framework, including the probability of counterparty default. An FVA is also applied to collateralized derivative assets in cases where the collateral cannot be sold or repledged. Other valuation adjustments Instruments that are measured as part of a portfolio of combined long and short positions are valued at mid-market levels to ensure consistent valuation of the long- and short-component risks. A liquidity valuation adjustment is then made to the overall net long or short exposure to move the fair value to bid or offer as appropriate, reflecting current levels of market liquidity. The bid– offer spreads used in the calculation of this valuation adjustment are obtained from market transactions and other relevant sources and are updated periodically. Uncertainties associated with the use of model-based valuations are incorporated into the measurement of fair value through the use of model reserves. These reserves reflect the amounts that the Group estimates should be deducted from valuations produced directly by models incorporate uncertainties in the relevant modeling assumptions, in the model and market inputs used, or in the calibration of the model output to adjust for known model deficiencies. In arriving at these estimates, the Group considers a range of market practices, including how it believes market participants would assess these uncertainties. Model reserves are reassessed periodically in light of data from market transactions, consensus pricing services and other relevant sources. to Debit valuation adjustments A DVA is estimated to incorporate own credit in the valuation of derivatives where an FVA is not already recognized. The DVA calculation is effectively consistent with the CVA framework, being determined for each counterparty, considering all exposures with that counterparty and taking into account collateral netting agreements, expected future mark-to-market movements and UBS’s credit default spreads. Other items In the first half of 2021, UBS incurred a loss of USD 861 million as a result of closing out a significant portfolio of swaps with a US-based client of its prime brokerage business and the unwinding of related hedges, following the client’s default. This loss is presented within Other net income from financial instruments measured at fair value through profit or loss. Valuation adjustments on financial instruments Life-to-date gain / (loss), USD million CCrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss11 FFuunnddiinngg vvaalluuaattiioonn aaddjjuussttmmeennttss DDeebbiitt vvaalluuaattiioonn aaddjjuussttmmeennttss OOtthheerr vvaalluuaattiioonn aaddjjuussttmmeennttss of which: liquidity of which: model uncertainty 11 Amounts do not include reserves against defaulted counterparties. 364 356 As of 3311..1122..2211 31.12.20 ((4444)) ((4499)) 22 ((991133)) ((334411)) ((557711)) (66) (73) 0 (820) (340) (479) Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Own credit adjustments on financial liabilities designated at fair value Note 21 Fair value measurement (continued) e) Transfers between Level 1 and Level 2 Assets and liabilities transferred from Level 2 to Level 1 during 2021 were not material. Assets and liabilities transferred from Level 1 to Level 2 during 2021 were also not material. f) Level 3 instruments: valuation techniques and inputs The table below presents material Level 3 assets and liabilities, together with the valuation techniques used to measure fair value, the inputs used in a given valuation technique that are considered significant as of 31 December 2021 and unobservable, and a range of values for those unobservable inputs. The range of values represents the highest- and lowest-level inputs used in the valuation techniques. Therefore, the range does not reflect the level of uncertainty regarding a particular input or an assessment of the reasonableness of the Group’s estimates and assumptions, but the different underlying rather characteristics of the relevant assets and liabilities held by the Group. The ranges will therefore vary from period to period and parameter to parameter based on characteristics of the instruments held at each balance sheet date. Furthermore, the ranges of unobservable inputs may differ across other financial institutions, reflecting the diversity of the products in each firm’s inventory. Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities FFaaiirr vvaalluuee AAsssseettss LLiiaabbiilliittiieess VVaalluuaattiioonn tteecchhnniiqquuee((ss)) SSiiggnniiffiiccaanntt uunnoobbsseerrvvaabbllee iinnppuutt((ss))11 RRaannggee ooff iinnppuuttss 3311..1122..2211 31.12.20 llooww hhiigghh wweeiigghhtteedd aavveerraaggee22 low high weighted average2 unit1 3311..1122..2211 31.12.20 USD billion FFiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg aanndd FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg Corporate and municipal bonds 3311..1122..2211 31.12.20 00..99 00..00 0.0 1.2 moving the discounting of the uncollateralized derivative cash estimates, the Group considers a range of market practices, Auction rate securities 11..66 1.5 Investment fund units3 00..11 0.1 00..00 0.0 Traded loans, loans measured at fair value, loan commitments and guarantees 22..88 2.4 00..00 0.0 Relative value to market comparable Discounted expected cash flows Relative value to market comparable Discounted expected cash flows Market comparable and securitization model Discounted expected cash flows Relative value to market comparable Relative value to market comparable Bond price equivalent 1166 114433 9988 1 143 100 Discount margin 443344 443344 268 268 Loan price equivalent 00 110011 9999 0 101 99 Credit spread 117755 880000 443366 190 800 398 Credit spread 2288 11,,554444 224411 40 1,858 333 Credit spread 111155 119977 115533 100 188 140 Net asset value Price Funding spread 2244 117755 42 175 Volatility of interest rates 6655 8811 29 69 Credit spreads Bond price equivalent Equity dividend yields Volatility of equity stocks, equity and other indices Equity-to-FX correlation Equity-to-equity correlation 11 22 00 44 ((2299)) 558833 113366 1111 9988 7766 1 0 0 489 100 13 4 100 (34) 65 points basis points points basis points basis points basis points basis points basis points basis points points % % % 365 357 Equity instruments3 DDeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee44 OOtthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss 00..88 0.7 00..11 0.0 1144..22 11.0 00..88 0.7 Discounted expected cash flows Interest rate contracts 00..55 0.5 00..33 0.5 Option model Credit derivative contracts 00..22 0.3 00..33 0.5 Discounted expected cash flows Equity / index contracts 00..44 0.9 11..55 2.3 Option model % 11 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par (e.g., 100 points would be 100% of par). 22 Weighted averages are provided for most non-derivative financial instruments and were calculated by weighting inputs based on the fair values of the respective instruments. Weighted averages are not provided for inputs related to Other financial liabilities designated at fair value and Derivative financial instruments, as this would not be meaningful. 33 The range of inputs is not disclosed, as there is a dispersion of values given the diverse nature of the investments. 44 Debt issued designated at fair value primarily consists of UBS structured notes, which include variable maturity notes with various equity and foreign exchange underlying risks, rates-linked and credit- linked notes, all of which have embedded derivative parameters that are considered to be unobservable. The equivalent derivative instrument parameters are presented in the respective derivative financial instruments lines in this table. (16) ((2255)) 110000 100 USD million RReeccooggnniizzeedd dduurriinngg tthhee ppeerriioodd:: Realized gain / (loss) Unrealized gain / (loss) TToottaall ggaaiinn // ((lloossss)),, bbeeffoorree ttaaxx USD million RReeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett aass ooff tthhee eenndd ooff tthhee ppeerriioodd:: Unrealized life-to-date gain / (loss) Included in Other comprehensive income For the year ended 3311..1122..2211 31.12.20 31.12.19 ((1144)) 6600 4466 2 (295) (293) As of 8 (408) (400) 3311..1122..2211 31.12.20 31.12.19 ((331155)) (381) (88) Credit valuation adjustments Other valuation adjustments In order to measure the fair value of OTC derivative instruments, Instruments that are measured as part of a portfolio of combined including funded derivative instruments that are classified as long and short positions are valued at mid-market levels to ensure Financial assets at fair value not held for trading, CVAs are needed consistent valuation of the long- and short-component risks. A to reflect the credit risk of the counterparty inherent in these liquidity valuation adjustment is then made to the overall net long instruments. This amount represents the estimated fair value of or short exposure to move the fair value to bid or offer as protection required to hedge the counterparty credit risk of such appropriate, reflecting current levels of market liquidity. The bid– instruments. A CVA is determined for each counterparty, offer spreads used in the calculation of this valuation adjustment considering all exposures with that counterparty, and is are obtained from market transactions and other relevant sources dependent on the expected future value of exposures, default and are updated periodically. probabilities and recovery rates, applicable collateral or netting Uncertainties associated with the use of model-based arrangements, break clauses, funding spreads, and other valuations are incorporated into the measurement of fair value contractual factors. Funding valuation adjustments through the use of model reserves. These reserves reflect the amounts that the Group estimates should be deducted from valuations produced directly by models to incorporate FVAs reflect the costs and benefits of funding associated with uncertainties in the relevant modeling assumptions, in the model uncollateralized and partially collateralized derivative receivables and market inputs used, or in the calibration of the model output and payables and are calculated as the valuation effect from to adjust for known model deficiencies. In arriving at these flows from the ARR to OCA using the CVA framework, including including how it believes market participants would assess these the probability of counterparty default. An FVA is also applied to uncertainties. Model reserves are reassessed periodically in light collateralized derivative assets in cases where the collateral cannot of data from market transactions, consensus pricing services and be sold or repledged. other relevant sources. Debit valuation adjustments Other items A DVA is estimated to incorporate own credit in the valuation of In the first half of 2021, UBS incurred a loss of USD 861 million as derivatives where an FVA is not already recognized. The DVA a result of closing out a significant portfolio of swaps with a calculation is effectively consistent with the CVA framework, US-based client of its prime brokerage business and the being determined for each counterparty, considering all unwinding of related hedges, following the client’s default. This exposures with that counterparty and taking into account loss is presented within Other net income from financial collateral netting agreements, expected future mark-to-market instruments measured at fair value through profit or loss. movements and UBS’s credit default spreads. Valuation adjustments on financial instruments Life-to-date gain / (loss), USD million CCrreeddiitt vvaalluuaattiioonn aaddjjuussttmmeennttss11 FFuunnddiinngg vvaalluuaattiioonn aaddjjuussttmmeennttss DDeebbiitt vvaalluuaattiioonn aaddjjuussttmmeennttss OOtthheerr vvaalluuaattiioonn aaddjjuussttmmeennttss of which: liquidity of which: model uncertainty 364 11 Amounts do not include reserves against defaulted counterparties. As of 3311..1122..2211 31.12.20 ((4444)) ((4499)) 22 ((991133)) ((334411)) ((557711)) (66) (73) 0 (820) (340) (479) Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Significant unobservable inputs in Level 3 positions This section discusses the significant unobservable inputs used in the valuation of Level 3 instruments and assesses the potential effect that a change in each unobservable input in isolation may have on a fair value measurement. Relationships between observable and unobservable inputs have not been included in the summary below. Input Description Bond price equivalent Loan price equivalent Credit spread Discount margin Funding spread Volatility – Where market prices are not available for a bond, fair value is measured by comparison with observable pricing data from similar instruments. Factors considered when selecting comparable instruments include credit quality, maturity and industry of the issuer. Fair value may be measured either by a direct price comparison or by conversion of an instrument price into a yield (either as an outright yield or as a spread to the relevant benchmark rate). – For corporate and municipal bonds, the range represents the range of prices from reference issuances used in determining fair value. Bonds priced at 0 are distressed to the point that no recovery is expected, while prices significantly in excess of 100 or par relate to inflation-linked or structured issuances that pay a coupon in excess of the market benchmark as of the measurement date. – For credit derivatives, the bond price range represents the range of prices used for reference instruments, which are typically converted to an equivalent yield or credit spread as part of the valuation process. – Where market prices are not available for a traded loan, fair value is measured by comparison with observable pricing data for similar instruments. Factors considered when selecting comparable instruments include industry segment, collateral quality, maturity and issuer-specific covenants. Fair value may be measured either by a direct price comparison or by conversion of an instrument price into a yield. The range represents the range of prices derived from reference issuances of a similar credit quality used to measure fair value for loans classified as Level 3. Loans priced at 0 are distressed to the point that no recovery is expected, while a current price of 100 represents a loan that is expected to be repaid in full. – Valuation models for many credit derivatives require an input for the credit spread, which is a reflection of the credit quality of the associated referenced underlying. The credit spread of a particular security is quoted in relation to the yield on a benchmark security or reference rate, typically either US Treasury or ARR, and is generally expressed in terms of basis points. An increase / (decrease) in credit spread will increase / (decrease) the value of credit protection offered by credit default swaps and other credit derivative products. The income statement effect from such changes depends on the nature and direction of the positions held. Credit spreads may be negative where the asset is more creditworthy than the benchmark against which the spread is calculated. A wider credit spread represents decreasing creditworthiness. The range represents a diverse set of underlyings, with the lower end of the range representing credits of the highest quality and the upper end of the range representing greater levels of credit risk. – The discount margin (DM) spread represents the discount rates applied to present value cash flows of an asset to reflect the market return required for uncertainty in the estimated cash flows. DM spreads are a rate or rates applied on top of a floating index (e.g., Secured Overnight Financing Rate (SOFR)) to discount expected cash flows. Generally, a decrease / (increase) in the DM in isolation would result in a higher / (lower) fair value. – The high end of the range relates to securities that are priced low within the market relative to the expected cash flow schedule. This indicates that the market is pricing an increased risk of credit loss into the security that is greater than what is being captured by the expected cash flow generation process. The low ends of the ranges are typical of funding rates on better- quality instruments. – Structured financing transactions are valued using synthetic funding curves that best represent the assets that are pledged as collateral for the transactions. They are not representative of where UBS can fund itself on an unsecured basis, but provide an estimate of where UBS can source and deploy secured funding with counterparties for a given type of collateral. The funding spreads are expressed in terms of basis points, and if funding spreads widen, this increases the effect of discounting. – A small proportion of structured debt instruments and non-structured fixed-rate bonds within financial liabilities designated at fair value had an exposure to funding spreads that was longer in duration than the actively traded market. – Volatility measures the variability of future prices for a particular instrument and is generally expressed as a percentage, where a higher number reflects a more volatile instrument, for which future price movements are more likely to occur. Volatility is a key input into option models, where it is used to derive a probability-based distribution of future prices for the underlying instrument. The effect of volatility on individual positions within the portfolio is driven primarily by whether the option contract is a long or short position. In most cases, the fair value of an option increases as a result of an increase in volatility and is reduced by a decrease in volatility. Generally, volatility used in the measurement of fair value is derived from active-market option prices (referred to as implied volatility). A key feature of implied volatility is the volatility “smile” or “skew,” which represents the effect of pricing options of different option strikes at different implied volatility levels. – Volatilities of low interest rates tend to be much higher than volatilities of high interest rates. In addition, different currencies may have significantly different implied volatilities. 366 358 Consolidated financial statements | UBS Group AG consolidated financial statements Significant unobservable inputs in Level 3 positions This section discusses the significant unobservable inputs used in the valuation of Level 3 instruments and assesses the potential effect that a change in each unobservable input in isolation may have on a fair value measurement. Relationships between observable and unobservable inputs have not been included in the summary below. Input Description Bond price equivalent – Where market prices are not available for a bond, fair value is measured by comparison with observable pricing data from similar instruments. Factors considered when selecting comparable instruments include credit quality, maturity and industry of the issuer. Fair value may be measured either by a direct price comparison or by conversion of an instrument price into a yield (either as an outright yield or as a spread to the relevant benchmark rate). – For corporate and municipal bonds, the range represents the range of prices from reference issuances used in determining fair value. Bonds priced at 0 are distressed to the point that no recovery is expected, while prices significantly in excess of 100 or par relate to inflation-linked or structured issuances that pay a coupon in excess of the market benchmark as of the measurement date. – For credit derivatives, the bond price range represents the range of prices used for reference instruments, which are typically converted to an equivalent yield or credit spread as part of the valuation process. Loan price equivalent – Where market prices are not available for a traded loan, fair value is measured by comparison with observable pricing data for similar instruments. Factors considered when selecting comparable instruments include industry segment, collateral quality, maturity and issuer-specific covenants. Fair value may be measured either by a direct price comparison or by conversion of an instrument price into a yield. The range represents the range of prices derived from reference issuances of a similar credit quality used to measure fair value for loans classified as Level 3. Loans priced at 0 are distressed to the point that no recovery is expected, while a current price of 100 represents a loan that is expected to be repaid in full. Credit spread – Valuation models for many credit derivatives require an input for the credit spread, which is a reflection of the credit quality of the associated referenced underlying. The credit spread of a particular security is quoted in relation to the yield on a benchmark security or reference rate, typically either US Treasury or ARR, and is generally expressed in terms of basis points. An increase / (decrease) in credit spread will increase / (decrease) the value of credit protection offered by credit default swaps and other credit derivative products. The income statement effect from such changes depends on the nature and direction of the positions held. Credit spreads may be negative where the asset is more creditworthy than the benchmark against which the spread is calculated. A wider credit spread represents decreasing creditworthiness. The range represents a diverse set of underlyings, with the lower end of the range representing credits of the highest quality and the upper end of the range representing greater levels of credit risk. Discount margin – The discount margin (DM) spread represents the discount rates applied to present value cash flows of an asset to reflect the market return required for uncertainty in the estimated cash flows. DM spreads are a rate or rates applied on top of a floating index (e.g., Secured Overnight Financing Rate (SOFR)) to discount expected cash flows. Generally, a decrease / (increase) in the DM in isolation would result in a higher / (lower) fair value. – The high end of the range relates to securities that are priced low within the market relative to the expected cash flow schedule. This indicates that the market is pricing an increased risk of credit loss into the security that is greater than what is being captured by the expected cash flow generation process. The low ends of the ranges are typical of funding rates on better- quality instruments. Funding spread – Structured financing transactions are valued using synthetic funding curves that best represent the assets that are pledged as collateral for the transactions. They are not representative of where UBS can fund itself on an unsecured basis, but provide an estimate of where UBS can source and deploy secured funding with counterparties for a given type of collateral. The funding spreads are expressed in terms of basis points, and if funding spreads widen, this increases the effect of discounting. – A small proportion of structured debt instruments and non-structured fixed-rate bonds within financial liabilities designated at fair value had an exposure to funding spreads that was longer in duration than the actively traded market. Volatility – Volatility measures the variability of future prices for a particular instrument and is generally expressed as a percentage, where a higher number reflects a more volatile instrument, for which future price movements are more likely to occur. Volatility is a key input into option models, where it is used to derive a probability-based distribution of future prices for the underlying instrument. The effect of volatility on individual positions within the portfolio is driven primarily by whether the option contract is a long or short position. In most cases, the fair value of an option increases as a result of an increase in volatility and is reduced by a decrease in volatility. Generally, volatility used in the measurement of fair value is derived from active-market option prices (referred to as implied volatility). A key feature of implied volatility is the volatility “smile” or “skew,” which represents the effect of pricing options of different option strikes at different implied volatility levels. – Volatilities of low interest rates tend to be much higher than volatilities of high interest rates. In addition, different currencies may have significantly different implied volatilities. Note 21 Fair value measurement (continued) Note 21 Fair value measurement (continued) Input Correlation Equity dividend yields Description – Correlation measures the interrelationship between the movements of two variables. It is expressed as a percentage between –100% and +100%, where +100% represents perfectly correlated variables (meaning a movement of one variable is associated with a movement of the other variable in the same direction) and –100% implies that the variables are inversely correlated (meaning a movement of one variable is associated with a movement of the other variable in the opposite direction). The effect of correlation on the measurement of fair value depends on the specific terms of the instruments being valued, reflecting the range of different payoff features within such instruments. – Equity-to-FX correlation is important for equity options based on a currency other than the currency of the underlying stock. Equity-to-equity correlation is particularly important for complex options that incorporate, in some manner, different equities in the projected payoff. – The derivation of a forward price for an individual stock or index is important for measuring fair value for forward or swap contracts and for measuring fair value using option pricing models. The relationship between the current stock price and the forward price is based on a combination of expected future dividend levels and payment timings, and, to a lesser extent, the relevant funding rates applicable to the stock in question. Dividend yields are generally expressed as an annualized percentage of the share price, with the lowest limit of 0% representing a stock that is not expected to pay any dividend. The dividend yield and timing represent the most significant parameter in determining fair value for instruments that are sensitive to an equity forward price. g) Level 3 instruments: sensitivity to changes in unobservable input assumptions The table below summarizes those financial assets and liabilities classified as Level 3 for which a change in one or more of the unobservable inputs to reflect reasonably possible favorable and unfavorable alternative assumptions would change fair value significantly, and the estimated effect thereof. The table below does not represent the estimated effect of stress scenarios. Interdependencies between Level 1, 2 and 3 parameters have not been incorporated in the table. Furthermore, direct inter- relationships between the Level 3 parameters discussed below are not a significant element of the valuation uncertainty. Sensitivity data is estimated using a number of techniques, including the estimation of price dispersion among different market participants, variation in modeling approaches and reasonably possible changes to assumptions used within the fair value measurement process. The sensitivity ranges are not always symmetrical around the fair values, as the inputs used in valuations are not always precisely in the middle of the favorable and unfavorable range. Sensitivity data is determined at a product or parameter level and then aggregated assuming no diversification benefit. Diversification would incorporate estimated correlations across different sensitivity results and, as such, would result in an overall sensitivity that would be less than the sum of the individual component sensitivities. However, the Group believes that the diversification benefit is not significant to this analysis. Sensitivity of fair value measurements to changes in unobservable input assumptions1 USD million Traded loans, loans designated at fair value, loan commitments and guarantees Securities financing transactions Auction rate securities Asset-backed securities Equity instruments Interest rate derivative contracts, net Credit derivative contracts, net Foreign exchange derivative contracts, net Equity / index derivative contracts, net Other TToottaall 3311..1122..2211 31.12.20 FFaavvoorraabbllee cchhaannggeess 1199 4411 666622 2200 117733 2299 55 1199 336688 5500 779900 UUnnffaavvoorraabbllee cchhaannggeess ((1133)) Favorable changes 29 Unfavorable changes (28) ((5533)) ((6666))22 ((2200)) ((114466)) ((1199)) ((88)) ((1111)) ((333355)) ((7733)) ((774444)) 40 105 41 129 11 10 20 318 91 794 (52) (105) (41) (96) (16) (14) (15) (294) (107) (768) 11 Sensitivity of issued and over-the-counter debt instruments is reported with the equivalent derivative or securities financing instrument. 22 Includes refinements applied in estimating valuation uncertainty across various parameters and a change in assumptions regarding the underlying statistical distribution. 366 367 359 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) h) Level 3 instruments: movements during the period The table below presents additional information about material movements in Level 3 assets and liabilities measured at fair value on a recurring basis, excluding any related hedging activity. Assets and liabilities transferred into or out of Level 3 are presented as if those assets or liabilities had been transferred at the beginning of the year. Movements of Level 3 instruments Total gains / losses included in comprehensive income of which: related to Level 3 instruments held at the end of the reporting period Purchases Sales Issuances Settlements BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 Net gains / losses included in income1 Transfers into Level 3 Transfers out of Level 3 Foreign currency translation BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 11..88 ((00..11)) ((00..11)) 00..88 ((11..44)) 11..00 00..00 00..33 00..00 00..00 0.0 0.5 0.8 0.4 0.0 0.0 0.0 0.0 0.0 0.0 (0.1) 0.0 0.0 0.7 0.0 0.1 0.0 (0.5) (0.7) (0.3) 0.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11..33 00..33 00..44 00..00 00..00 00..77 ((00..55)) 00..11 ((00..22)) 00..11 0.3 0.6 0.4 0.0 0.2 0.1 0.0 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.1 0.0 0.0 (0.3) (0.2) 0.0 0.0 0.0 0.1 0.0 0.0 (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 44..00 00..00 00..11 00..88 ((00..99)) 00..00 00..00 00..11 00..00 00..00 1.2 1.5 0.5 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.1 0.4 (0.7) 0.0 (0.1) (0.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 22..00 11..33 11..22 00..00 00..00 11..22 ((00..99)) 00..44 ((00..66)) 00..11 0.1 1.3 0.5 0.1 0.3 1.0 0.0 0.0 0.3 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.8 0.1 0.0 (0.2) (0.6) (0.1) 0.0 0.2 0.1 0.1 0.0 (0.2) (0.2) (0.2) 0.0 0.0 0.0 0.0 0.0 22..33 0.0 0.8 1.1 0.4 11..88 0.5 0.9 0.3 0.0 33..99 0.9 1.5 0.5 1.0 33..55 0.5 2.3 0.5 0.1 USD billion FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg of which: Investment fund units Corporate and municipal bonds Loans Other DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss –– aasssseettss of which: Interest rate contracts Equity / index contracts Credit derivative contracts Other FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg of which: Loans Auction rate securities Equity instruments Other DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss –– lliiaabbiilliittiieess of which: Interest rate contracts Equity / index contracts Credit derivative contracts Other DDeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee 99..99 00..22 00..00 00..00 00..00 77..66 ((55..77)) 00..55 ((11..77)) 00..22 1111..00 OOtthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee 11 Net gains / losses included in comprehensive income are composed of Net interest income, Other net income from financial instruments measured at fair value through profit or loss and Other income. 22 Total Level 3 assets as of 31 December 2021 were USD 7.6 billion (31 December 2020: USD 8.3 billion). Total Level 3 liabilities as of 31 December 2021 were USD 17.4 billion (31 December 2020: USD 15.2 billion). ((00..55)) 00..11 00..00 00..00 00..00 00..00 00..77 00..00 00..33 00..11 00..88 368 360 Consolidated financial statements | UBS Group AG consolidated financial statements h) Level 3 instruments: movements during the period The table below presents additional information about material Assets and liabilities transferred into or out of Level 3 are movements in Level 3 assets and liabilities measured at fair value presented as if those assets or liabilities had been transferred at on a recurring basis, excluding any related hedging activity. the beginning of the year. Movements of Level 3 instruments Total gains / losses included in comprehensive income of which: related to Level 3 instruments BBaallaannccee Net gains / held at the aass ooff losses end of the 3311 DDeecceemmbbeerr included in reporting USD billion 22001199 income1 period Purchases Sales Issuances Settlements Transfers Transfers into Level 3 out of Foreign currency Level 3 translation BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg of which: Investment fund units Corporate and municipal bonds Loans Other DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss –– aasssseettss of which: Interest rate contracts Equity / index contracts Credit derivative contracts Other FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg of which: Loans Auction rate securities Equity instruments Other DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss –– lliiaabbiilliittiieess of which: Interest rate contracts Equity / index contracts Credit derivative contracts Other 11..88 ((00..11)) ((00..11)) 00..88 ((11..44)) 11..00 00..00 00..33 00..00 00..00 11..33 00..33 00..44 00..00 00..00 00..77 ((00..55)) 00..11 ((00..22)) 00..11 0.0 0.5 0.8 0.4 0.3 0.6 0.4 0.0 1.2 1.5 0.5 0.7 0.1 1.3 0.5 0.1 0.0 0.0 0.0 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.3 1.0 0.0 0.0 0.0 0.0 (0.1) 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.8 0.0 0.0 0.0 0.7 0.0 0.1 0.0 0.0 0.0 0.0 0.3 0.0 0.1 0.4 0.0 0.0 0.0 0.0 0.0 (0.5) (0.7) (0.3) 0.0 0.0 0.0 0.0 (0.7) 0.0 (0.1) (0.2) 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.3 0.8 0.1 0.0 0.0 0.0 0.0 0.0 0.0 (0.3) (0.2) 0.0 0.0 0.0 0.0 0.0 (0.2) (0.6) (0.1) 0.0 0.0 0.1 0.1 0.2 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.2 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 (0.2) (0.2) (0.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 22..00 11..33 11..22 00..00 00..00 11..22 ((00..99)) 00..44 ((00..66)) 00..11 44..00 00..00 00..11 00..88 ((00..99)) 00..00 00..00 00..11 00..00 00..00 22..33 0.0 0.8 1.1 0.4 11..88 0.5 0.9 0.3 0.0 33..99 0.9 1.5 0.5 1.0 33..55 0.5 2.3 0.5 0.1 DDeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee 99..99 00..22 00..00 00..00 00..00 77..66 ((55..77)) 00..55 ((11..77)) 00..22 1111..00 OOtthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee 11 Net gains / losses included in comprehensive income are composed of Net interest income, Other net income from financial instruments measured at fair value through profit or loss and Other income. 22 Total Level 3 assets as of 31 December 2021 were USD 7.6 billion (31 December 2020: USD 8.3 billion). Total Level 3 liabilities as of 31 December 2021 were USD 17.4 billion (31 December 2020: USD 15.2 billion). 00..88 00..11 00..11 00..00 00..00 00..33 ((00..55)) 00..00 00..00 00..00 00..77 Note 21 Fair value measurement (continued) Note 21 Fair value measurement (continued) Total gains / losses included in comprehensive income of which: related to Level 3 instruments held at the end of the reporting period BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 2200220022 Net gains / losses included in income1 22..33 00..00 ((00..11)) 0.0 0.8 1.1 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11..88 ((00..22)) ((00..11)) 0.5 0.9 0.3 0.0 0.1 (0.1) (0.1) 0.0 0.1 (0.1) (0.1) 0.0 33..99 00..11 00..11 0.9 1.5 0.5 1.0 0.0 0.1 0.1 0.0 0.0 0.1 0.1 (0.1) 33..55 00..22 00..00 0.5 2.3 0.5 0.1 (0.1) 0.3 (0.1) 0.1 (0.1) 0.1 (0.1) 0.0 1111..00 00..77 00..66 00..77 00..00 00..00 Purchases Sales Issuances Settlements Transfers into Level 3 Transfers out of Level 3 Foreign currency translation BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 2200221122 00..33 0.0 0.2 0.0 0.1 00..00 0.0 0.0 0.0 0.0 11..00 0.6 0.0 0.1 0.3 00..00 0.0 0.0 0.0 0.0 00..00 00..00 ((11..66)) 0.0 (0.4) (0.8) (0.4) 00..00 0.0 0.0 0.0 0.0 ((00..66)) (0.3) 0.0 (0.1) (0.2) 00..00 0.0 0.0 0.0 0.0 00..00 00..00 11..22 0.0 0.0 1.2 0.0 00..55 0.1 0.3 0.0 0.0 00..00 0.0 0.0 0.0 0.0 00..99 0.0 0.8 0.0 0.0 88..00 00..44 00..00 0.0 0.0 0.0 0.0 ((00..77)) (0.2) (0.4) (0.1) 0.0 00..00 0.0 0.0 0.0 0.0 ((11..88)) (0.1) (1.5) 0.0 (0.1) 00..33 0.0 0.0 0.0 0.3 00..11 0.0 0.0 0.0 0.0 00..11 0.0 0.0 0.0 0.0 00..00 0.0 0.0 0.0 0.0 ((00..33)) 0.0 (0.1) (0.2) 0.0 ((00..33)) (0.1) (0.2) 0.0 0.0 ((00..33)) (0.3) 0.0 0.0 0.0 ((00..55)) 0.0 (0.4) (0.1) 0.0 00..00 0.0 0.0 0.0 0.0 00..00 0.0 0.0 0.0 0.0 00..00 0.0 0.0 0.0 0.0 00..00 0.0 0.0 0.0 0.0 22..33 0.0 0.6 1.4 0.3 11..11 0.5 0.4 0.2 0.0 44..22 0.9 1.6 0.7 1.0 22..22 0.3 1.5 0.3 0.1 ((44..22)) 00..22 ((11..22)) ((00..22)) 1144..22 ((00..22)) 00..00 00..00 00..00 00..88 368 369 361 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) i) Maximum exposure to credit risk for financial instruments measured at fair value The tables below provide the Group’s maximum exposure to credit risk for financial instruments measured at fair value and the respective collateral and other credit enhancements mitigating credit risk for these classes of financial instruments. The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available, collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control” section of this report describes management’s view of credit risk and the related exposures, which can differ in certain respects from the requirements of IFRS. Maximum exposure to credit risk USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn tthhee bbaallaannccee sshheeeett11 Financial assets at fair value held for trading – debt instruments2,3 Derivative financial instruments4,5 Brokerage receivables Financial assets at fair value not held for trading – debt instruments6 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee Guarantees7 3311..1122..2211 CCoollllaatteerraall CCrreeddiitt eennhhaanncceemmeennttss MMaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk CCaasshh ccoollllaatteerraall rreecceeiivveedd CCoollllaatteerraall-- iizzeedd bbyy sseeccuurriittiieess SSeeccuurreedd bbyy rreeaall eessttaattee OOtthheerr ccoollllaatteerraall NNeettttiinngg CCrreeddiitt ddeerriivvaattiivvee ccoonnttrraaccttss GGuuaarraanntteeeess 2222..44 111188..11 2211..88 3377..00 119999..44 00..22 44..22 2211..66 1111..22 3377..11 00..00 110033..22 00..00 00..00 110033..22 00..00 00..00 00..22 EExxppoossuurree ttoo ccrreeddiitt rriisskk aafftteerr ccoollllaatteerraall aanndd ccrreeddiitt eennhhaanncceemmeennttss 2222..44 1100..77 00..22 2255..77 5599..11 00..00 31.12.20 Collateral Credit enhancements Exposure to credit risk after collateral and credit enhancements Maximum exposure to credit risk Cash collateral received Collateral- ized by securities Secured by real estate Other collateral Credit derivative contracts Guarantees Netting USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn tthhee bbaallaannccee sshheeeett11 Financial assets at fair value held for trading – debt instruments2,3 Derivative financial instruments4,5 Brokerage receivables Financial assets at fair value not held for trading – debt instruments6 45.0 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee 8855..11 Guarantees7 0.0 11 The maximum exposure to loss is generally equal to the carrying amount and subject to change over time with market movements. 22 These positions are generally managed under the market risk framework. For the purpose of this disclosure, collateral and credit enhancements were not considered. 33 Does not include investment fund units. 44 Includes USD 0 million (31 December 2020: USD 0 million) fair values of loan commitments and forward starting reverse repurchase agreements classified as derivatives. The full contractual committed amount of forward starting reverse repurchase agreements (generally highly collateralized) of USD 27.8 billion (31 December 2020: USD 21.9 billion) and derivative loan commitments (generally unsecured) of USD 8.2 billion, of which USD 0.8 billion has been sub-participated (31 December 2020: USD 9.4 billion, of which USD 0.8 billion had been sub-participated), is presented in Note 10 under notional amounts. 55 The amount shown in the “Netting” column represents the netting potential not recognized on the balance sheet. Refer to Note 22 for more information. 66 Financial assets at fair value not held for trading collateralized by securities consisted of structured loans and reverse repurchase and securities borrowing agreements. 77 The amount shown in the “Guarantees” column largely relates to sub-participations. 24.6 159.6 24.7 58.2 226677..11 0.5 24.6 15.2 0.3 6.0 24.4 13.2 4433..66 00..00 0.1 00..00 0.3 138.4 113388..44 00..00 00..00 00..00 370 362 credit risk for these classes of financial instruments. notional amounts. Both are capped at the maximum exposure to The maximum exposure to credit risk includes the carrying credit risk for which they serve as security. The “Risk management amounts of financial instruments recognized on the balance sheet and control” section of this report describes management’s view subject to credit risk and the notional amounts for off-balance of credit risk and the related exposures, which can differ in certain sheet arrangements. Where information is available, collateral is respects from the requirements of IFRS. TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee 00..00 00..00 00..00 110033..22 00..00 Maximum exposure to credit risk USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn tthhee bbaallaannccee sshheeeett11 Financial assets at fair value held for trading – debt instruments2,3 Derivative financial instruments4,5 Brokerage receivables Financial assets at fair value not held for trading – debt instruments6 Guarantees7 USD billion FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn tthhee bbaallaannccee sshheeeett11 Financial assets at fair value held for trading – debt instruments2,3 Derivative financial instruments4,5 Brokerage receivables Financial assets at fair value not held for trading – debt instruments6 Guarantees7 3311..1122..2211 CCoollllaatteerraall CCrreeddiitt eennhhaanncceemmeennttss MMaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk CCaasshh ccoollllaatteerraall rreecceeiivveedd CCoollllaatteerraall-- iizzeedd bbyy sseeccuurriittiieess SSeeccuurreedd bbyy rreeaall eessttaattee OOtthheerr CCrreeddiitt ddeerriivvaattiivvee ccoollllaatteerraall NNeettttiinngg ccoonnttrraaccttss GGuuaarraanntteeeess eennhhaanncceemmeennttss EExxppoossuurree ttoo ccrreeddiitt rriisskk aafftteerr ccoollllaatteerraall aanndd ccrreeddiitt 31.12.20 Collateral Credit enhancements Maximum exposure to credit risk Cash collateral received Collateral- ized by securities Secured by real estate Other Credit derivative collateral Netting contracts Guarantees enhancements Exposure to credit risk after collateral and credit 2222..44 111188..11 2211..88 3377..00 119999..44 00..22 24.6 159.6 24.7 58.2 226677..11 0.5 44..22 2211..66 1111..22 3377..11 6.0 24.4 13.2 4433..66 110033..22 138.4 00..00 0.1 2222..44 1100..77 00..22 2255..77 5599..11 00..00 24.6 15.2 0.3 45.0 8855..11 0.0 00..00 00..22 00..00 0.3 TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee 00..00 00..00 113388..44 00..00 11 The maximum exposure to loss is generally equal to the carrying amount and subject to change over time with market movements. 22 These positions are generally managed under the market risk framework. For the purpose of this disclosure, collateral and credit enhancements were not considered. 33 Does not include investment fund units. 44 Includes USD 0 million (31 December 2020: USD 0 million) fair values of loan commitments and forward starting reverse repurchase agreements classified as derivatives. The full contractual committed amount of forward starting reverse repurchase agreements (generally highly collateralized) of USD 27.8 billion (31 December 2020: USD 21.9 billion) and derivative loan commitments (generally unsecured) of USD 8.2 billion, of which USD 0.8 billion has been sub-participated (31 December 2020: USD 9.4 billion, of which USD 0.8 billion had been sub-participated), is presented in Note 10 under notional amounts. 55 The amount shown in the “Netting” column represents the netting potential not recognized on the balance sheet. Refer to Note 22 for more information. 66 Financial assets at fair value not held for trading collateralized by securities consisted of structured loans and reverse repurchase and securities borrowing agreements. 77 The amount shown in the “Guarantees” column largely relates to sub-participations. Consolidated financial statements | UBS Group AG consolidated financial statements Note 21 Fair value measurement (continued) Note 21 Fair value measurement (continued) i) Maximum exposure to credit risk for financial instruments measured at fair value j) Financial instruments not measured at fair value The tables below provide the Group’s maximum exposure to presented at fair value. For other collateral, such as real estate, a The table below provides the estimated fair values of financial instruments not measured at fair value. credit risk for financial instruments measured at fair value and the reasonable alternative value is used. Credit enhancements, such respective collateral and other credit enhancements mitigating as credit derivative contracts and guarantees, are included at their Financial instruments not measured at fair value CCaarrrryyiinngg aammoouunntt CCaarrrryyiinngg aammoouunntt aapppprrooxxiimmaatteess ffaaiirr vvaalluuee11 TToottaall 3311..1122..2211 FFaaiirr vvaalluuee Carrying amount 31.12.20 Fair value LLeevveell 11 LLeevveell 22 LLeevveell 33 TToottaall Total Carrying amount approximates fair value1 Level 1 Level 2 Level 3 Total 119922..88 1155..55 7755..00 3300..55 339977..88 2266..22 1133..11 55..55 3311..88 554422..00 119922..77 1144..88 7711..66 3300..55 116633..11 00..11 00..00 00..00 00..00 00..00 00..00 00..77 00..00 00..00 119922..88 1155..55 158.2 15.4 11..33 22..11 7755..00 74.2 00..00 4433..88 00..00 119900..11 3300..55 339966..99 32.7 379.5 158.1 14.7 64.9 32.7 172.0 0.1 0.0 0.0 0.0 0.0 0.0 0.6 0.0 0.1 158.2 15.4 7.6 1.7 74.2 0.0 34.2 0.0 174.6 32.7 380.8 44..11 99..33 1100..77 22..44 2266..55 27.2 5.3 9.4 10.9 2.3 28.0 99..11 00..00 44..00 00..00 1133..11 11.0 8.5 0.0 2.6 0.0 11.0 44..11 3311..88 553355..44 00..00 00..00 00..00 11..55 00..00 66..66 00..00 00..00 00..00 55..55 6.3 3311..88 554422..00 37.3 524.6 6.0 37.3 519.4 0.0 0.0 0.0 0.3 0.0 5.3 0.0 0.0 0.0 6.3 37.3 524.7 USD billion AAsssseettss22 Cash and balances at central banks Loans and advances to banks Receivables from securities financing transactions Cash collateral receivables on derivative instruments Loans and advances to customers Other financial assets measured at amortized cost LLiiaabbiilliittiieess22 Amounts due to banks Payables from securities financing transactions Cash collateral payables on derivative instruments Customer deposits 1155..88 113399..22 Debt issued measured at amortized cost Other financial liabilities measured at amortized cost3 00..00 11 Includes certain financial instruments where the carrying amount is a reasonable approximation of the fair value due to the instruments’ short-term nature (instruments that are receivable or payable on demand, or with a remaining maturity (excluding the effects of callable features) of three months or less). 22 As of 31 December 2021, USD 0 billion (31 December 2020: USD 0 billion) of Cash and balances at central banks, USD 0 billion (31 December 2020: USD 0 billion) of Loans and advances to banks, USD 1 billion (31 December 2020: USD 1 billion) of Receivables from securities financing transactions, USD 175 billion (31 December 2020: USD 163 billion) of Loans and advances to customers, USD 19 billion (31 December 2020: USD 20 billion) of Other financial assets measured at amortized cost, USD 1 billion (31 December 2020: USD 0 billion) of Amounts due to banks, USD 3 billion (31 December 2020: USD 2 billion) of Customer deposits, USD 84 billion (31 December 2020: USD 82 billion) of Debt issued measured at amortized cost and USD 3 billion (31 December 2020: USD 3 billion) of Other financial liabilities measured at amortized cost were expected to be recovered or settled after 12 months. 33 Excludes lease liabilities. 112255..33 114411..11 139.2 125.5 141.9 16.4 55..44 55..44 00..00 00..00 00..00 0.1 00..00 5.8 55..44 0.0 0.0 0.0 5.8 0.0 5.7 The fair values included in the table above have been calculated for disclosure purposes only. The valuation techniques and assumptions described below relate only to the fair value of UBS’s financial instruments not measured at fair value. Other institutions may use different methods and assumptions for their fair value estimations, and therefore such fair value disclosures cannot necessarily be compared from one financial institution to another. The following principles were applied when determining fair value estimates for financial instruments not measured at fair value: – For financial instruments with remaining maturities greater than three months, the fair value was determined from quoted market prices, if available. – Where quoted market prices were not available, the fair values were estimated by discounting contractual cash flows using current market interest rates or appropriate yield curves for instruments with similar credit risk and maturity. These estimates generally include adjustments for counterparty credit risk or UBS’s own credit. – For short-term financial instruments with remaining maturities of three months or less, the carrying amount, which is net of credit loss allowances, is generally considered a reasonable estimate of fair value. 370 371 363 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 22 Offsetting financial assets and financial liabilities UBS enters into netting agreements with counterparties to manage the credit risks associated primarily with repurchase and reverse repurchase transactions, securities borrowing and lending, over-the-counter derivatives, and exchange-traded derivatives. These netting agreements and similar arrangements generally enable the counterparties to set off liabilities against available assets received in the ordinary course of business and / or in the event that the counterparties to the transaction are unable to fulfill their contractual obligations. The tables on this page and the next page provide a summary of financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements, as well as financial collateral received or pledged to mitigate credit exposures for these financial instruments. The Group engages in a variety of counterparty credit risk mitigation strategies in addition to netting and collateral arrangements. Therefore the net amounts presented in the tables on this page and the next page do not purport to represent their actual credit risk exposure. Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements AAsssseettss ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss Netting recognized on the balance sheet Netting potential not recognized on the balance sheet3 Gross assets before netting Netting with gross liabilities2 NNeett aasssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett AAsssseettss aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall Financial liabilities Collateral received AAsssseettss nnoott ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss44 AAsssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett TToottaall aasssseettss TToottaall aasssseettss aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall TToottaall aasssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett 67.7 116.0 29.4 93.1 93.1 330066..22 70.3 156.9 31.9 85.6 85.6 334444..88 (13.8) (3.6) 5533..99 111122..44 (2.9) (88.9) (51.0) (18.5) 00..00 55..00 0.0 2299..44 (15.2) (3.3) 1111..00 (87.6) 55..55 (1.1) (4.4) 00..00 (87.6) ((110055..00)) 55..55 220011..22 (1.1) ((110088..11)) (4.4) ((7777..22)) 00..00 1155..99 (13.4) (5.0) 5577..00 115511..99 (1.7) (117.2) (55.3) (27.2) 00..00 77..55 0.0 3311..99 (19.6) (1.5) 1100..88 (79.1) 66..55 (0.8) (5.8) 00..00 (79.1) ((9977..55)) 66..55 224477..33 (0.8) ((113399..33)) (5.8) ((8899..88)) 00..00 1188..33 2211..11 55..77 11..11 5544..66 00..33 8822..66 1177..33 77..77 00..88 7733..99 00..22 9999..77 2211..11 1100..77 1122..11 5544..66 00..33 9988..55 1177..33 1155..22 1111..66 7733..99 00..22 111177..99 7755..00 111188..11 3300..55 6600..11 55..88 228833..77 7744..22 115599..66 3322..77 8800..44 66..77 334466..99 As of 31.12.21, USD billion Receivables from securities financing transactions Derivative financial instruments Cash collateral receivables on derivative instruments1 Financial assets at fair value not held for trading of which: reverse repurchase agreements TToottaall aasssseettss As of 31.12.20, USD billion Receivables from securities financing transactions Derivative financial instruments Cash collateral receivables on derivative instruments1 Financial assets at fair value not held for trading of which: reverse repurchase agreements TToottaall aasssseettss 11 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis. 22 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding directly to the amounts presented in the “Netting with gross assets” column in the liabilities table presented on the following page. Netting in this column for reverse repurchase agreements presented within the lines “Receivables from securities financing transactions” and “Financial assets at fair value not held for trading” taken together corresponds to the amounts presented for repurchase agreements in the “Payables from securities financing transactions” and “Other financial liabilities designated at fair value” lines in the liabilities table presented on the following page. 33 For the purpose of this disclosure, the amounts of financial instruments and cash collateral presented have been capped so as not to exceed the net amount of financial assets presented on the balance sheet; i.e., over-collateralization, where it exists, is not reflected in the table. 44 Includes assets not subject to enforceable netting arrangements and other out-of-scope items. 372 364 Consolidated financial statements | UBS Group AG consolidated financial statements UBS enters into netting agreements with counterparties to The tables on this page and the next page provide a summary manage the credit risks associated primarily with repurchase and of financial assets and financial liabilities subject to offsetting, reverse repurchase transactions, securities borrowing and lending, enforceable master netting arrangements and similar agreements, over-the-counter derivatives, and exchange-traded derivatives. as well as financial collateral received or pledged to mitigate credit These netting agreements and similar arrangements generally exposures for these financial instruments. enable the counterparties to set off liabilities against available The Group engages in a variety of counterparty credit risk assets received in the ordinary course of business and / or in the mitigation strategies in addition to netting and collateral event that the counterparties to the transaction are unable to arrangements. Therefore the net amounts presented in the tables fulfill their contractual obligations. on this page and the next page do not purport to represent their actual credit risk exposure. Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements AAsssseettss ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss Netting recognized on the balance sheet the balance sheet3 Netting potential not recognized on ssuubbjjeecctt ttoo nneettttiinngg Gross assets Netting with before netting gross liabilities2 Financial liabilities Collateral received NNeett aasssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett AAsssseettss nnoott aarrrraannggeemmeennttss44 AAsssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett AAsssseettss aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall TToottaall aasssseettss TToottaall aasssseettss aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall TToottaall aasssseettss rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett 67.7 116.0 29.4 93.1 93.1 330066..22 70.3 156.9 31.9 85.6 85.6 334444..88 (13.8) (3.6) 5533..99 111122..44 (2.9) (88.9) (51.0) (18.5) 00..00 55..00 0.0 2299..44 (15.2) (3.3) 1111..00 (87.6) 55..55 (1.1) (4.4) 00..00 (87.6) ((110055..00)) 55..55 (1.1) (4.4) 220011..22 ((110088..11)) ((7777..22)) 00..00 1155..99 (13.4) (5.0) 5577..00 115511..99 (1.7) (117.2) (55.3) (27.2) 00..00 77..55 0.0 3311..99 (19.6) (1.5) 1100..88 (79.1) 66..55 (0.8) (5.8) 00..00 (79.1) ((9977..55)) 66..55 (0.8) (5.8) 224477..33 ((113399..33)) ((8899..88)) 00..00 1188..33 2211..11 55..77 11..11 5544..66 00..33 8822..66 1177..33 77..77 00..88 7733..99 00..22 9999..77 2211..11 1100..77 1122..11 5544..66 00..33 9988..55 1177..33 1155..22 1111..66 7733..99 00..22 111177..99 7755..00 111188..11 3300..55 6600..11 55..88 228833..77 7744..22 115599..66 3322..77 8800..44 66..77 334466..99 As of 31.12.21, USD billion Receivables from securities financing transactions Derivative financial instruments Cash collateral receivables on derivative instruments1 Financial assets at fair value not held for trading of which: reverse repurchase agreements TToottaall aasssseettss As of 31.12.20, USD billion Receivables from securities financing transactions Derivative financial instruments Cash collateral receivables on derivative instruments1 Financial assets at fair value not held for trading of which: reverse repurchase agreements TToottaall aasssseettss 11 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis. 22 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding directly to the amounts presented in the “Netting with gross assets” column in the liabilities table presented on the following page. Netting in this column for reverse repurchase agreements presented within the lines “Receivables from securities financing transactions” and “Financial assets at fair value not held for trading” taken together corresponds to the amounts presented for repurchase agreements in the “Payables from securities financing transactions” and “Other financial liabilities designated at fair value” lines in the liabilities table presented on the following page. 33 For the purpose of this disclosure, the amounts of financial instruments and cash collateral presented have been capped so as not to exceed the net amount of financial assets presented on the balance sheet; i.e., over-collateralization, where it exists, is not reflected in the table. 44 Includes assets not subject to enforceable netting arrangements and other out-of-scope items. Note 22 Offsetting financial assets and financial liabilities Note 22 Offsetting financial assets and financial liabilities (continued) Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements LLiiaabbiilliittiieess ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss Netting recognized on the balance sheet Netting potential not recognized on the balance sheet3 NNeett lliiaabbiilliittiieess rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett LLiiaabbiilliittiieess aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall Financial assets Collateral pledged Netting with gross assets2 Gross liabilities before netting 16.9 118.4 (12.8) (3.6) 44..11 111144..99 (1.8) (88.9) (2.3) (18.1) 30.4 0.0 3300..44 (13.1) (3.3) 94.8 94.6 226600..66 (88.6) (88.6) ((110055..00)) 66..22 66..00 115555..66 (2.2) (2.2) ((110066..00)) (3.8) (3.8) ((2277..55)) 18.2 157.1 (13.3) (5.0) 44..99 115522..11 (1.6) (117.2) (3.3) (23.9) 35.6 0.0 3355..66 (19.6) (2.1) 87.0 86.2 229977..88 (79.2) (79.2) ((9977..55)) 77..88 77..00 220000..33 (0.8) (0.8) ((113399..22)) (6.3) (6.3) ((3355..55)) 00..00 77..99 1144..00 00..22 00..00 2222..11 00..00 1100..99 1133..99 00..77 00..00 2255..66 LLiiaabbiilliittiieess nnoott ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss44 LLiiaabbiilliittiieess rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett TToottaall lliiaabbiilliittiieess TToottaall lliiaabbiilliittiieess aafftteerr ccoonnssiiddeerraattiioonn ooff nneettttiinngg ppootteennttiiaall TToottaall lliiaabbiilliittiieess rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett 11..44 66..44 11..44 2233..99 00..44 3333..11 11..44 99..00 11..77 2222..66 00..33 3344..88 11..44 1144..33 1155..44 2244..11 00..44 5555..22 11..44 1199..99 1155..77 2233..33 00..33 6600..44 55..55 112211..33 3311..88 3300..11 66..44 118888..77 66..33 116611..11 3377..33 3300..44 77..33 223355..11 As of 31.12.21, USD billion Payables from securities financing transactions Derivative financial instruments Cash collateral payables on derivative instruments1 Other financial liabilities designated at fair value of which: repurchase agreements TToottaall lliiaabbiilliittiieess As of 31.12.20, USD billion Payables from securities financing transactions Derivative financial instruments Cash collateral payables on derivative instruments1 Other financial liabilities designated at fair value of which: repurchase agreements TToottaall lliiaabbiilliittiieess 11 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis. 22 The logic of the table results in amounts presented in the “Netting with gross assets” column corresponding to the amounts presented in the “Netting with gross liabilities” column in the assets table presented on the previous page. Netting in this column for repurchase agreements presented within the lines “Payables from securities financing transactions” and “Other financial liabilities designated at fair value” taken together corresponds to the amounts presented for reverse repurchase agreements in the “Receivables from securities financing transactions” and “Financial assets at fair value not held for trading” lines in the assets table presented on the previous page. 33 For the purpose of this disclosure, the amounts of financial instruments and cash collateral presented have been capped so as not to exceed the net amount of financial liabilities presented on the balance sheet; i.e., over-collateralization, where it exists, is not reflected in the table. 44 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items. 372 373 365 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 23 Restricted and transferred financial assets This Note provides information about restricted financial assets (Note 23a), transfers of financial assets (Note 23b and 23c) and financial assets that are received as collateral with the right to resell or repledge these assets (Note 23d). a) Restricted financial assets Restricted financial assets consist of assets pledged as collateral against an existing liability or contingent liability and other assets that are otherwise explicitly restricted such that they cannot be used to secure funding. borrowed. Pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances of USD 10,843 million as of 31 December 2021 (31 December 2020: USD 12,456 million). Financial assets are mainly pledged as collateral in securities lending transactions, in repurchase transactions, against loans from Swiss mortgage institutions and in connection with the issuance of covered bonds. The Group generally enters into repurchase and securities lending arrangements under standard market agreements. For securities lending, the cash received as collateral may be more or less than the fair value of the securities loaned, depending on the nature of the transaction. For repurchase agreements, the fair value of the collateral sold under an agreement to repurchase is generally in excess of the cash Other restricted financial assets include assets protected under client asset segregation rules, assets held by the Group’s insurance entities to back related liabilities to the policy holders, assets held in certain jurisdictions to comply with explicit minimum local asset maintenance requirements. The carrying amount of the liabilities associated with these other restricted financial assets is generally equal to the carrying amount of the assets, with the exception of assets held to comply with local asset maintenance requirements, for which the associated liabilities are greater. Restricted financial assets USD million FFiinnaanncciiaall aasssseettss pplleeddggeedd aass ccoollllaatteerraall Financial assets at fair value held for trading Loans and advances to customers Financial assets at fair value not held for trading Debt securities classified as Other financial assets measured at amortized cost Financial assets measured at fair value through other comprehensive income TToottaall ffiinnaanncciiaall aasssseettss pplleeddggeedd aass ccoollllaatteerraall22 3311..1122..2211 ooff wwhhiicchh:: aasssseettss pplleeddggeedd aass ccoollllaatteerraall tthhaatt mmaayy bbee ssoolldd oorr rreepplleeddggeedd bbyy ccoouunntteerrppaarrttiieess RReessttrriicctteedd ffiinnaanncciiaall aasssseettss 31.12.20 of which: assets pledged as collateral that may be sold or repledged by counterparties ooff wwhhiicchh:: mmoorrttggaaggee llooaannss11 Restricted financial assets 6633,,772255 1188,,116600 996611 4433,,339977 996611 1166,,333300 64,367 20,361 2,140 47,098 2,140 22,,223344 11,,887700 2,506 2,506 00 8855,,007799 00 149 89,523 149 of which: mortgage loans1 18,191 OOtthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss Loans and advances to banks Financial assets at fair value held for trading Cash collateral receivables on derivative instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Other TToottaall ootthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss TToottaall ffiinnaanncciiaall aasssseettss pplleeddggeedd aanndd ootthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss 11 All related to mortgage loans that serve as collateral for existing liabilities toward Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately USD 2.7 billion as of 31 December 2021 (31 December 2020: approximately USD 2.7 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements. 22 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2021: USD 4.4 billion; 31 December 2020: USD 1.3 billion). 3,730 741 3,765 756 23,243 33,,440088 339922 44,,774477 11,,223377 2222,,776655 0 110 32,345 121,868 889944 9977 3333,,554400 111188,,661199 374 366 Consolidated financial statements | UBS Group AG consolidated financial statements Note 23 Restricted and transferred financial assets Note 23 Restricted and transferred financial assets (continued) This Note provides information about restricted financial assets (Note 23a), transfers of financial assets (Note 23b and 23c) and financial assets that are received as collateral with the right to resell or repledge these assets (Note 23d). a) Restricted financial assets Restricted financial assets consist of assets pledged as collateral borrowed. Pledged mortgage loans serve as collateral for existing against an existing liability or contingent liability and other assets liabilities against Swiss central mortgage institutions and for that are otherwise explicitly restricted such that they cannot be existing covered bond issuances of USD 10,843 million as of used to secure funding. 31 December 2021 (31 December 2020: USD 12,456 million). Financial assets are mainly pledged as collateral in securities Other restricted financial assets include assets protected under lending transactions, in repurchase transactions, against loans client asset segregation rules, assets held by the Group’s from Swiss mortgage institutions and in connection with the insurance entities to back related liabilities to the policy holders, issuance of covered bonds. The Group generally enters into assets held in certain jurisdictions to comply with explicit minimum repurchase and securities lending arrangements under standard local asset maintenance requirements. The carrying amount of the market agreements. For securities lending, the cash received as liabilities associated with these other restricted financial assets is collateral may be more or less than the fair value of the securities generally equal to the carrying amount of the assets, with the loaned, depending on the nature of the transaction. For exception of assets held to comply with local asset maintenance In addition to restrictions on financial assets, UBS Group AG and its subsidiaries are, in certain cases, subject to regulatory requirements that affect the transfer of dividends and capital within the Group, as well as intercompany lending. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis, such as the Federal Reserve Board’s Comprehensive Capital Analysis and Review process, which may limit the relevant subsidiaries’ ability to make distributions of capital based on the results of those tests. Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of subsidiaries. Non-regulated subsidiaries are generally not subject to such requirements and transfer restrictions. However, restrictions can also be the result of different legal, regulatory, contractual, entity- or country-specific arrangements and / or requirements. › Refer to the “Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups” section of this report for financial information about significant regulated subsidiaries of the Group b) Transferred financial assets that are not derecognized in their entirety The table below presents information for financial assets that have been transferred but are subject to continued recognition in full, as well as recognized liabilities associated with those transferred assets. repurchase agreements, the fair value of the collateral sold under requirements, for which the associated liabilities are greater. Transferred financial assets subject to continued recognition in full an agreement to repurchase is generally in excess of the cash USD million 3311..1122..2211 31.12.20 3311..1122..2211 ooff wwhhiicchh:: aasssseettss pplleeddggeedd aass ccoollllaatteerraall tthhaatt mmaayy bbee ssoolldd oorr 31.12.20 of which: assets pledged as collateral that may be sold or RReessttrriicctteedd rreepplleeddggeedd bbyy ffiinnaanncciiaall aasssseettss ccoouunntteerrppaarrttiieess Restricted repledged by llooaannss11 financial assets counterparties 6633,,772255 1188,,116600 996611 4433,,339977 996611 64,367 20,361 2,140 47,098 2,140 22,,223344 11,,887700 2,506 2,506 00 149 ooff wwhhiicchh:: mmoorrttggaaggee 1166,,333300 of which: mortgage loans1 18,191 Restricted financial assets USD million FFiinnaanncciiaall aasssseettss pplleeddggeedd aass ccoollllaatteerraall Financial assets at fair value held for trading Loans and advances to customers Financial assets at fair value not held for trading Debt securities classified as Other financial assets measured at amortized Financial assets measured at fair value through other comprehensive TToottaall ffiinnaanncciiaall aasssseettss pplleeddggeedd aass ccoollllaatteerraall22 OOtthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss Loans and advances to banks Financial assets at fair value held for trading Cash collateral receivables on derivative instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive cost income income Other TToottaall ootthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss TToottaall ffiinnaanncciiaall aasssseettss pplleeddggeedd aanndd ootthheerr rreessttrriicctteedd ffiinnaanncciiaall aasssseettss 00 8855,,007799 33,,440088 339922 44,,774477 11,,223377 2222,,776655 889944 9977 3333,,554400 111188,,661199 149 89,523 3,730 741 3,765 756 23,243 0 110 32,345 121,868 11 All related to mortgage loans that serve as collateral for existing liabilities toward Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately USD 2.7 billion as of 31 December 2021 (31 December 2020: approximately USD 2.7 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements. 22 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2021: USD 4.4 billion; 31 December 2020: USD 1.3 billion). Financial assets at fair value held for trading that may be sold or repledged by counterparties relating to securities lending and repurchase agreements in exchange for cash received relating to securities lending agreements in exchange for securities received relating to other financial asset transfers Financial assets at fair value not held for trading that may be sold or repledged by counterparties Debt securities classified as Other financial assets measured at amortized cost that may be sold or repledged by counterparties Financial assets measured at fair value through other comprehensive income that may be sold or repledged by counterparties TToottaall ffiinnaanncciiaall aasssseettss ttrraannssffeerrrreedd Transactions in which financial assets are transferred, but continue to be recognized in their entirety on UBS’s balance sheet include securities lending and repurchase agreements, as well as other financial asset transfers. Repurchase and securities lending arrangements are, for the most part, conducted under standard market agreements and are undertaken with counterparties subject to UBS’s normal credit risk control processes. › Refer to Note 1a item 2e for more information about repurchase and securities lending agreements As of 31 December 2021, approximately 41% of the transferred financial assets were assets held for trading transferred in exchange for cash, in which case the associated recognized liability represents the amount to be repaid to counterparties. For securities lending and repurchase agreements, a haircut of between 0% and 15% is generally applied to the transferred assets, which results in associated liabilities having a carrying amount below the carrying amount of the transferred assets. The counterparties to the associated liabilities presented in the table above have full recourse to UBS. CCaarrrryyiinngg aammoouunntt ooff ttrraannssffeerrrreedd aasssseettss 4433,,339977 1177,,997700 2244,,114466 11,,228811 996611 11,,887700 00 4466,,222277 CCaarrrryyiinngg aammoouunntt ooff aassssoocciiaatteedd lliiaabbiilliittiieess rreeccooggnniizzeedd oonn bbaallaannccee sshheeeett 1177,,668877 1177,,668877 Carrying amount of transferred assets 47,098 19,177 27,595 326 Carrying amount of associated liabilities recognized on balance sheet 18,874 18,874 889988 11,,772255 00 2200,,331111 2,140 2,506 149 51,893 1,378 1,963 148 22,363 In securities lending arrangements entered into in exchange for the receipt of other securities as collateral, neither the securities received nor the obligation to return them are recognized on UBS’s balance sheet, as the risks and rewards of ownership are not transferred to UBS. In cases where such financial assets received are subsequently sold or repledged in another transaction, this is not considered to be a transfer of financial assets. Other financial asset transfers primarily include securities transferred to collateralize derivative transactions, for which the carrying amount of associated liabilities is not provided in the table above, because those replacement values are managed on a portfolio basis across counterparties and product types, and therefore there is no direct relationship between the specific collateral pledged and the associated liability. Transferred financial assets to derecognition in full but remain on the balance sheet to the extent of the Group’s continuing involvement were not material as of 31 December 2021 and as of 31 December 2020. that are not subject 374 375 367 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 23 Restricted and transferred financial assets (continued) c) Transferred financial assets that are derecognized in their entirety with continuing involvement Continuing involvement in a transferred and fully derecognized financial asset may result from contractual provisions in the particular transfer agreement or from a separate agreement, with the counterparty or a third party, entered into in connection with the transfer. The fair value and carrying amount of UBS’s continuing involvement from transferred positions as of 31 December 2021 and 31 December 2020 was not material. Life-to-date losses reported in prior periods primarily relate to legacy positions in securitization vehicles which have been fully marked down, with no remaining exposure to loss. d) Off-balance sheet assets received The table below presents assets received from third parties that can be sold or repledged and that are not recognized on the balance sheet, but that are held as collateral, including amounts that have been sold or repledged. Off-balance sheet assets received USD million Fair value of assets received that can be sold or repledged received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative and other transactions1 received in unsecured borrowings Thereof sold or repledged2 in connection with financing activities to satisfy commitments under short sale transactions in connection with derivative and other transactions1 3311..1122..2211 449977,,882288 448833,,442266 1144,,440022 336677,,444400 331199,,117766 3311,,668888 1166,,557755 31.12.20 500,689 487,904 12,785 367,258 315,603 33,595 18,059 11 Includes securities received as initial margin from its clients that UBS is required to remit to central counterparties, brokers and deposit banks through its exchange-traded derivative clearing and execution services. 22 Does not include off-balance sheet securities (31 December 2021: USD 12.7 billion; 31 December 2020: USD 18.9 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes for which there are no associated liabilities or contingent liabilities. 376 368 Consolidated financial statements | UBS Group AG consolidated financial statements c) Transferred financial assets that are derecognized in their entirety with continuing involvement Continuing involvement in a transferred and fully derecognized The fair value and carrying amount of UBS’s continuing financial asset may result from contractual provisions in the involvement from transferred positions as of 31 December 2021 particular transfer agreement or from a separate agreement, with and 31 December 2020 was not material. Life-to-date losses the counterparty or a third party, entered into in connection with reported in prior periods primarily relate to legacy positions in the transfer. securitization vehicles which have been fully marked down, with no remaining exposure to loss. d) Off-balance sheet assets received The table below presents assets received from third parties that can be sold or repledged and that are not recognized on the balance sheet, but that are held as collateral, including amounts that have been sold or repledged. Off-balance sheet assets received USD million Fair value of assets received that can be sold or repledged received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative and other transactions1 received in unsecured borrowings Thereof sold or repledged2 in connection with financing activities to satisfy commitments under short sale transactions in connection with derivative and other transactions1 3311..1122..2211 449977,,882288 448833,,442266 1144,,440022 336677,,444400 331199,,117766 3311,,668888 1166,,557755 31.12.20 500,689 487,904 12,785 367,258 315,603 33,595 18,059 11 Includes securities received as initial margin from its clients that UBS is required to remit to central counterparties, brokers and deposit banks through its exchange-traded derivative clearing and execution services. 22 Does not include off-balance sheet securities (31 December 2021: USD 12.7 billion; 31 December 2020: USD 18.9 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes for which there are no associated liabilities or contingent liabilities. Note 23 Restricted and transferred financial assets (continued) Note 24 Maturity analysis of financial liabilities The residual contractual maturities for non-derivative and non- trading financial liabilities as of 31 December 2021 are based on the earliest date on which UBS could be contractually required to pay. The total amounts that contractually mature in each time band are also shown for 31 December 2020. Derivative positions and trading liabilities, predominantly made up of short sale transactions, are assigned to the Due within 1 month column, as this provides a conservative reflection of the nature of these trading activities. The residual contractual maturities may extend over significantly longer periods. Maturity analysis of financial liabilities USD billion FFiinnaanncciiaall lliiaabbiilliittiieess rreeccooggnniizzeedd oonn bbaallaannccee sshheeeett11 Amounts due to banks Payables from securities financing transactions Cash collateral payables on derivative instruments Customer deposits Debt issued measured at amortized cost2 Other financial liabilities measured at amortized cost of which: lease liabilities TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Financial liabilities at fair value held for trading3,4 Derivative financial instruments3,5 Brokerage payables designated at fair value Debt issued designated at fair value6 Other financial liabilities designated at fair value TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss TToottaall GGuuaarraanntteeeess,, ccoommmmiittmmeennttss aanndd ffoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss Loan commitments7 Guarantees Forward starting transactions, reverse repurchase and securities borrowing agreements7 TToottaall USD billion FFiinnaanncciiaall lliiaabbiilliittiieess rreeccooggnniizzeedd oonn bbaallaannccee sshheeeett11 Amounts due to banks Payables from securities financing transactions Cash collateral payables on derivative instruments Customer deposits Debt issued measured at amortized cost2 Other financial liabilities measured at amortized cost of which: lease liabilities TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Financial liabilities at fair value held for trading3,4 Derivative financial instruments3,5 Brokerage payables designated at fair value Debt issued designated at fair value6 Other financial liabilities designated at fair value TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss TToottaall DDuuee wwiitthhiinn 11 mmoonntthh DDuuee bbeettwweeeenn 11 aanndd 33 mmoonntthhss DDuuee bbeettwweeeenn 33 aanndd 1122 mmoonntthhss DDuuee bbeettwweeeenn 11 aanndd 55 yyeeaarrss DDuuee aafftteerr 55 yyeeaarrss 3311..1122..2211 6.7 3.8 31.8 530.1 4.0 4.5 0.1 580.9 31.7 121.3 44.0 13.8 28.1 239.0 881199..88 38.3 21.2 1.4 6600..99 2.4 0.3 5.2 12.7 0.1 0.1 20.8 11.5 0.4 11.9 3322..77 0.5 00..55 3.5 1.6 3.3 41.1 0.5 0.5 49.9 13.5 0.5 14.0 6633..99 0.7 0.0 00..77 0.6 0.0 3.2 53.5 1.8 1.8 59.2 24.5 0.4 24.9 8844..11 0.0 0.4 37.6 1.6 1.6 39.5 18.5 1.1 19.6 5599..11 00..00 00..00 Due within 1 month Due between 1 and 3 months Due between 3 and 12 months Due between 1 and 5 years Due after 5 years 31.12.20 6.1 5.6 37.3 512.8 9.0 4.5 0.1 575.3 33.6 161.1 38.7 21.9 27.9 283.2 885588..55 2.4 0.4 6.6 8.3 0.1 0.1 17.9 16.8 0.6 17.4 3355..33 2.1 0.3 3.5 41.9 0.5 0.5 48.2 7.1 0.6 7.7 5566..00 0.5 0.0 1.8 53.7 2.0 2.0 58.0 9.2 0.7 9.9 6677..99 0.0 0.0 0.2 35.6 1.8 1.8 37.7 9.5 1.1 10.6 4488..33 TToottaall 13.1 5.7 31.8 542.3 148.9 8.4 4.0 750.2 31.7 121.3 44.0 81.9 30.5 309.4 11,,005599..66 39.5 21.2 1.4 6622..11 Total 11.1 6.3 37.3 524.9 148.5 8.9 4.5 737.1 33.6 161.1 38.7 64.5 30.9 328.8 11,,006655..99 GGuuaarraanntteeeess,, ccoommmmiittmmeennttss aanndd ffoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss Loan commitments7 Guarantees Forward starting transactions, reverse repurchase and securities borrowing agreements7 3.2 3.2 6622..22 6611..33 TToottaall 11 Except for financial liabilities at fair value held for trading and derivative financial instruments (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal payments. 22 The time-bucket Due after 5 years includes perpetual loss-absorbing additional tier 1 capital instruments. 33 Carrying amount is fair value. Management believes that this best represents the cash flows that would have to be paid if these positions had to be settled or closed out. 44 Contractual maturities of financial liabilities at fair value held for trading are: USD 30.8 billion due within 1 month (31 December 2020: USD 32.6 billion), USD 0.9 billion due between 1 month and 1 year (31 December 2020: USD 1.0 billion) and USD 0 billion due between 1 and 5 years (31 December 2020: USD 0 billion). 55 Includes USD 34 million (31 December 2020: USD 32 million) related to fair values of derivative loan commitments and forward starting reverse repurchase agreements classified as derivatives, presented within “Due within 1 month." The full contractual committed amount of USD 36.0 billion (31 December 2020: USD 31.3 billion) is presented in Note 10 under notional amounts. 66 Future interest payments on variable-rate liabilities are determined by reference to the applicable interest rate prevailing as of the reporting date. Future principal payments that are variable are determined by reference to the conditions existing at the relevant reporting date. 77 Excludes derivative loan commitments and forward starting reverse repurchase agreements measured at fair value (see footnote 5). 40.5 17.5 41.4 17.5 00..44 00..55 00..00 00..00 0.5 0.0 0.4 376 377 369 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 25 Interest rate benchmark reform Background A market-wide reform of major interest rate benchmarks is being undertaken globally, with the Financial Conduct Authority (the FCA) announcing in March 2021 that the publication of London Interbank Offered Rates (LIBORs) would cease after 31 December 2021 for all non-US dollar LIBORs, as well as for one-week and two-month USD LIBOR. Publication of the remaining USD LIBOR tenors will cease immediately after 30 June 2023. The majority of UBS’s IBOR exposure was linked to CHF LIBOR and USD LIBOR. The alternative reference rate (the ARR) for CHF LIBOR is the Swiss Average Rate Overnight (SARON). The ARR for USD LIBOR is the Secured Overnight Financing Rate (SOFR); in addition, there are recommended ARRs for GBP LIBOR, JPY LIBOR and EUR LIBOR. The Euro Interbank Offered Rate (EURIBOR) was reformed in 2019, with the reform consisting of a change in the underlying calculation method. Consequently, contracts linked to EURIBOR are not considered throughout the rest of this Note. On 25 January 2021, the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol, which amend the International Swaps and Derivatives Association (ISDA) standard definitions for interest rate derivatives to incorporate fallbacks for derivatives linked to certain IBORs, came into effect. From that date, all newly cleared and non-cleared derivatives between adhering parties that reference ISDA standard definitions now include these fallbacks. UBS adhered to the protocol in November 2020. UBS’s focus throughout 2021 was on transitioning existing contracts via bi-lateral and multi-lateral agreements, by leveraging industry solutions (e.g., the use of fallback provisions) and through third-party actions (those by clearing houses, agents, etc.). UBS has established a framework to address the transition of contracts that do not contain adequate fallback provisions. line with regulatory guidance, UBS has Furthermore, implemented a framework to limit new contracts referencing IBORs. in Governance over the transition to alternative benchmark rates UBS established a global cross-divisional, cross-functional governance structure and change program to address the scale and complexity of the transition. This global program is sponsored by the Group CFO and led by senior representatives from the business divisions and UBS’s control and support functions. The program includes governance and execution structures within each business division, together with cross-divisional teams from each control and support function. During 2021, progress was overseen centrally via a monthly operating committee and a monthly steering committee, as well as quarterly updates to the joint Audit and Risk Committees. A dedicated Group-wide forum, with an increased US regional focus, will oversee progress of the remaining USD LIBOR transition. Risks A core part of UBS’s change program is the identification, management and monitoring of the risks associated with IBOR reform and transition. These risks include, but are not limited to, the following: – economic risks to UBS and its clients, through the repricing of existing contracts, reduced transparency and / or liquidity of pricing information, market uncertainty or disruption; – accounting risks, where the transition affects the accounting treatment, including hedge accounting and consequential income statement volatility; – valuation risks arising from the variation between benchmarks that will cease and ARRs, affecting the risk profile of financial instruments; – operational risks arising from changes to UBS’s front-to-back processes and systems to accommodate the transition, e.g., data sourcing and processing and bulk migration of contracts; and – legal and conduct risks relating to UBS’s engagement with clients and market counterparties around new benchmark products and amendments required for existing contracts referencing benchmarks that will cease. Overall, the effort required to transition is affected by multiple factors, including whether negotiations need to take place with multiple stakeholders (as is the case for syndicated loans or certain listed securities), market readiness – such as liquidity in ARR- equivalent products – and a client’s technical readiness to handle ARR market conventions. UBS remains confident that it has the transparency, oversight and operational preparedness to progress with the IBOR transition consistent with market timelines, given the significant progress made as of 31 December 2021. UBS did not have and does not expect changes to its risk management approach and strategy as a result of interest rate benchmark reform. 378 370 Consolidated financial statements | UBS Group AG consolidated financial statements Note 25 Interest rate benchmark reform Note 25 Interest rate benchmark reform (continued) Background each business division, together with cross-divisional teams from Transition progress A market-wide reform of major interest rate benchmarks is being each control and support function. During 2021, progress was undertaken globally, with the Financial Conduct Authority (the overseen centrally via a monthly operating committee and a FCA) announcing in March 2021 that the publication of London monthly steering committee, as well as quarterly updates to the Interbank Offered Rates (LIBORs) would cease after 31 December joint Audit and Risk Committees. A dedicated Group-wide forum, 2021 for all non-US dollar LIBORs, as well as for one-week and with an increased US regional focus, will oversee progress of the two-month USD LIBOR. Publication of the remaining USD LIBOR remaining USD LIBOR transition. tenors will cease immediately after 30 June 2023. The majority of UBS’s IBOR exposure was linked to CHF LIBOR Risks and USD LIBOR. The alternative reference rate (the ARR) for CHF A core part of UBS’s change program is the identification, LIBOR is the Swiss Average Rate Overnight (SARON). The ARR for management and monitoring of the risks associated with IBOR USD LIBOR is the Secured Overnight Financing Rate (SOFR); in reform and transition. These risks include, but are not limited to, addition, there are recommended ARRs for GBP LIBOR, JPY LIBOR the following: and EUR LIBOR. – economic risks to UBS and its clients, through the repricing of The Euro Interbank Offered Rate (EURIBOR) was reformed in existing contracts, reduced transparency and / or liquidity of 2019, with the reform consisting of a change in the underlying pricing information, market uncertainty or disruption; calculation method. Consequently, contracts linked to EURIBOR – accounting risks, where the transition affects the accounting are not considered throughout the rest of this Note. treatment, including hedge accounting and consequential On 25 January 2021, the IBOR Fallbacks Supplement and IBOR income statement volatility; Fallbacks Protocol, which amend the International Swaps and – valuation risks arising from the variation between benchmarks Derivatives Association (ISDA) standard definitions for interest rate that will cease and ARRs, affecting the risk profile of financial derivatives to incorporate fallbacks for derivatives linked to certain instruments; IBORs, came into effect. From that date, all newly cleared and – operational risks arising from changes to UBS’s front-to-back non-cleared derivatives between adhering parties that reference processes and systems to accommodate the transition, e.g., ISDA standard definitions now include these fallbacks. UBS data sourcing and processing and bulk migration of contracts; adhered to the protocol in November 2020. and UBS’s focus throughout 2021 was on transitioning existing – legal and conduct risks relating to UBS’s engagement with contracts via bi-lateral and multi-lateral agreements, by leveraging clients and market counterparties around new benchmark industry solutions (e.g., the use of fallback provisions) and products and amendments required for existing contracts through third-party actions (those by clearing houses, agents, referencing benchmarks that will cease. etc.). UBS has established a framework to address the transition of contracts that do not contain adequate fallback provisions. Overall, the effort required to transition is affected by multiple Furthermore, in line with regulatory guidance, UBS has factors, including whether negotiations need to take place with implemented a framework to limit new contracts referencing multiple stakeholders (as is the case for syndicated loans or certain IBORs. listed securities), market readiness – such as liquidity in ARR- equivalent products – and a client’s technical readiness to handle Governance over the transition to alternative benchmark rates ARR market conventions. UBS remains confident that it has the UBS established a global cross-divisional, cross-functional transparency, oversight and operational preparedness to progress governance structure and change program to address the scale with the IBOR transition consistent with market timelines, given the and complexity of the transition. This global program is sponsored significant progress made as of 31 December 2021. UBS did not by the Group CFO and led by senior representatives from the have and does not expect changes to its risk management approach business divisions and UBS’s control and support functions. The and strategy as a result of interest rate benchmark reform. program includes governance and execution structures within Non-derivative instruments UBS’s significant non-derivative exposures subject to IBOR reform primarily related to brokerage receivable and payable balances, corporate and private loans, and mortgages, linked to CHF and USD LIBORs. During 2020, UBS transitioned most of its CHF LIBOR-linked deposits to SARON. In that same year, UBS launched SARON-based mortgages and corporate loans based on all major ARRs in the Swiss market, as well as SOFR-based mortgages in the US market. Throughout 2021, UBS transitioned substantially all of its private and corporate loans linked to non-USD IBORs, with the remaining CHF LIBOR-linked contracts planned to transition on their first roll date in 2022. In addition, as of 31 December 2021 UBS had completed the transition of IBOR-linked non-derivative financial assets and liabilities related to brokerage accounts, except for balances originated in the US, which transitioned to SOFR in January 2022. In March 2021, following the FCA announcement regarding the cessation timelines for IBORs, UBS initiated a centralized communication initiative for private mortgages linked to CHF LIBOR, with the objective of transitioning these exposures, either through the activation of existing fallbacks or the amendment of contractual terms where such fallbacks do not exist. During 2021, mortgages that were linked to CHF LIBOR were reduced to USD 21 billion as of 31 December 2021, with these remaining mortgages automatically transitioning to SARON from their next coupon roll date. The transition of US securities-based lending to SOFR, amounting to USD 37 billion as of 31 December 2021, was for the most part completed in January 2022, with US mortgages linked to USD LIBOR planned to transition to SOFR in 2022–2023. As of 31 December 2021, UBS had approximately USD 3 billion equivalent of Japanese yen- and US dollar-denominated publicly issued benchmark bonds that, per current contractual terms, if not called on their respective call dates, would reset based directly on JPY LIBOR and USD LIBOR. These bonds have robust IBOR fallback language and the confirmation of interest rate calculation mechanics will be communicated as market standards formalize and in advance of any rate resets. In addition, several US dollar- and Swiss franc-denominated benchmark bonds publicly issued by UBS reference rates indirectly derived from IBORs, if they are not called on their respective call dates. UBS aims to transition those bonds in advance of their reset dates, with the transition of Swiss franc-denominated benchmark bonds completed in January 2022. These debt instruments have not been included in the table on the following page, given their current fixed-rate coupon. As of 31 December 2021, UBS had approximately USD 5 billion of irrevocable commitments that may be drawn down in different currencies with IBOR-linked interest rates and that expire after the relevant benchmark cessation dates; approximately USD 3 billion of these contracts had transitioned for all IBORs, except USD LIBOR, and USD 2 billion of these commitments retained a non-USD IBOR interest rate as of 31 December 2021 with transition dependent upon the actions of other parties. To the extent non-USD IBOR-linked amounts are requested under these contracts, UBS will seek to renegotiate current terms or rely on legislative solutions. Derivative instruments UBS holds derivatives for trading and hedging purposes, including those designated in hedge accounting relationships. A significant number of interest rate and cross-currency swaps have floating legs that reference various benchmarks that are subject to IBOR reform. The majority of derivatives are transacted with clearing houses, in particular LCH, with the transition of these non-USD IBOR- linked derivatives substantially completed in December 2021. UBS had also completed the transition of all non-USD IBOR-linked exchange-traded derivatives (ETDs) through participation in activities organized by respective exchanges by 31 December 2021. For derivatives not transacted with clearing houses or exchanges, UBS and a significant proportion of UBS’s counterparties have adhered to the ISDA IBOR Fallbacks Protocol, which builds in agreed fallbacks. The majority of these contracts had transitioned as of 31 December 2021, with a small number of contracts transitioned in January 2022, to ensure an orderly transition when converting high volumes of transactions at the time of cessation. 378 379 371 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 25 Interest rate benchmark reform (continued) Financial instruments yet to transition to alternative benchmarks The amounts included in the table below relate to financial instrument contracts across UBS’s business divisions where UBS has material exposures subject to IBOR reform that have not yet transitioned to ARRs, and that: – contractually reference an interest rate benchmark that will transition to an alternative benchmark; and – have a contractual maturity date (including open-ended contracts) after the agreed cessation dates. Contracts where penalty terms reference IBORs, or where exposure to an IBOR is not the primary purpose of the contract, have not been included, as these contracts do not have a material impact on the transition process. In line with information provided to management and external parties monitoring UBS’s transition progress, the table below includes the following financial metrics for instruments external to the Group that are subject to interest rate benchmark reform: – gross carrying value / exposure for non-derivative financial instruments; and – total trade count for derivative financial instruments. The exposures included in the table below represent the maximum IBOR exposure, without regard for early termination rights, with the actual exposure being dependent upon client preferences and investment decisions. As of 31 December 2021, UBS had made significant progress in transitioning LIBOR exposures to ARRs. The remaining non-USD LIBOR-linked exposures included in the table below primarily relate to derivatives that successfully transitioned in January 2022 and CHF LIBOR mortgages that will automatically transition to SARON on their first roll date in 2022. CCaarrrryyiinngg vvaalluuee ooff nnoonn--ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss Total non-derivative financial assets Total non-derivative financial liabilities TTrraaddee ccoouunntt ooff ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss Total derivative financial instruments 3311..1122..2211 LLIIBBOORR bbeenncchhmmaarrkk rraatteess MMeeaassuurree USD million USD million CCHHFF UUSSDD 2211,,66116622 227744 6655,,22334433 11,,99885544 GGBBPP 445544 3344 EEUURR11 11 5555 JJPPYY 00 00 Trade count 88229966 4400,,55000077 11883366 33,,77444466 11884466 OOffff--bbaallaannccee sshheeeett eexxppoossuurreess Total irrevocable loan commitments 00 11 Relates primarily to EUR LIBOR positions. 22 Relates primarily to CHF LIBOR mortgages, which will automatically transition to SARON on their first roll date in 2022. 33 Includes USD LIBOR securities-based lending and brokerage accounts, amounting to USD 37 billion, and USD 5 billion respectively, which for the most part transitioned to SOFR in January 2022, as well as USD 1 billion of loans related to revolving multi-currency credit lines, where IBOR transition efforts are complete, except for USD LIBOR. The remainder primarily relates to US mortgages and corporate lending. 44 Relates to floating-rate notes that per their contractual terms can reset to rates linked to LIBOR, with transition dependent upon the actions of respective issuers. 55 Relates to contracts that transitioned in January 2022. 66 Includes predominantly bilateral derivatives, which transitioned in January 2022, and an insignificant amount of cleared derivatives, where the respective clearing houses’ organized transition happened in January 2022. 77 Includes approximately 5,000 cross-currency derivatives, of which approximately 500 have both a non-USD LIBOR leg and a USD LIBOR leg, where the non-USD leg transitioned in January 2022 before the next fixing date. The remainder represents cross-currency swaps with an ARR leg and a USD IBOR leg. 88 Includes loan commitments that can be drawn in different currencies at the client‘s discretion, of which approximately USD 3 billion have only USD LIBOR exposure remaining and approximately USD 2 billion retain a non-USD LIBOR interest rate as of 31 December 2021, with transition dependent upon the actions of other parties. The remainder represents loan commitments that can be drawn in US dollars only and will transition in 2022–2023. USD million 1111,,88663388 00 00 00 380 372 Consolidated financial statements | UBS Group AG consolidated financial statements Note 25 Interest rate benchmark reform (continued) Note 26 Hedge accounting Financial instruments yet to transition to alternative benchmarks to the Group that are subject to interest rate benchmark reform: The amounts included in the table below relate to financial – gross carrying value / exposure for non-derivative financial instrument contracts across UBS’s business divisions where UBS instruments; and has material exposures subject to IBOR reform that have not yet – total trade count for derivative financial instruments. transitioned to ARRs, and that: The exposures included in the table below represent the – contractually reference an interest rate benchmark that will maximum IBOR exposure, without regard for early termination transition to an alternative benchmark; and rights, with the actual exposure being dependent upon client – have a contractual maturity date (including open-ended preferences and investment decisions. contracts) after the agreed cessation dates. As of 31 December 2021, UBS had made significant progress Contracts where penalty terms reference IBORs, or where in transitioning LIBOR exposures to ARRs. The remaining non-USD exposure to an IBOR is not the primary purpose of the contract, LIBOR-linked exposures included in the table below primarily have not been included, as these contracts do not have a material relate to derivatives that successfully transitioned in January 2022 impact on the transition process. and CHF LIBOR mortgages that will automatically transition to In line with information provided to management and external SARON on their first roll date in 2022. parties monitoring UBS’s transition progress, the table below includes the following financial metrics for instruments external CCaarrrryyiinngg vvaalluuee ooff nnoonn--ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss Total non-derivative financial assets Total non-derivative financial liabilities TTrraaddee ccoouunntt ooff ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss Total derivative financial instruments OOffff--bbaallaannccee sshheeeett eexxppoossuurreess Total irrevocable loan commitments 3311..1122..2211 LLIIBBOORR bbeenncchhmmaarrkk rraatteess MMeeaassuurree USD million USD million CCHHFF UUSSDD 2211,,66116622 227744 6655,,22334433 11,,99885544 GGBBPP 445544 3344 EEUURR11 11 5555 JJPPYY 00 00 Trade count 88229966 4400,,55000077 11883366 33,,77444466 11884466 11 Relates primarily to EUR LIBOR positions. 22 Relates primarily to CHF LIBOR mortgages, which will automatically transition to SARON on their first roll date in 2022. 33 Includes USD LIBOR securities-based lending and brokerage accounts, amounting to USD 37 billion, and USD 5 billion respectively, which for the most part transitioned to SOFR in January 2022, as well as USD 1 billion of loans related to revolving multi-currency credit lines, where IBOR transition efforts are complete, except for USD LIBOR. The remainder primarily relates to US mortgages and corporate lending. 44 Relates to floating-rate notes that per their contractual terms can reset to rates linked to LIBOR, with transition dependent upon the actions of respective issuers. 55 Relates to contracts that transitioned in January 2022. 66 Includes predominantly bilateral derivatives, which transitioned in January 2022, and an insignificant amount of cleared derivatives, where the respective clearing houses’ organized transition happened in January 2022. 77 Includes approximately 5,000 cross-currency derivatives, of which approximately 500 have both a non-USD LIBOR leg and a USD LIBOR leg, where the non-USD leg transitioned in January 2022 before the next fixing date. The remainder represents cross-currency swaps with an ARR leg and a USD IBOR leg. 88 Includes loan commitments that can be drawn in different currencies at the client‘s discretion, of which approximately USD 3 billion have only USD LIBOR exposure remaining and approximately USD 2 billion retain a non-USD LIBOR interest rate as of 31 December 2021, with transition dependent upon the actions of other parties. The remainder represents loan commitments that can be drawn in US dollars only and will transition in 2022–2023. Derivatives designated in hedge accounting relationships The Group applies hedge accounting to interest rate risk and foreign exchange risk, including structural foreign exchange risk related to net investments in foreign operations. › Refer to “Market risk” in the “Risk management and control” section of this report for more information about how risks arise and how they are managed by the Group Hedging instruments and hedged risk Interest rate swaps are designated in fair value hedges or cash flow hedges of interest rate risk arising solely from changes in benchmark interest rates. Fair value changes arising from such risk are usually the largest component of the overall change in the fair value of the hedged position in transaction currency. Cross-currency swaps are designated as fair value hedges of foreign exchange risk. Foreign exchange forwards and foreign exchange swaps are mainly designated as hedges of structural foreign exchange risk related to net investments in foreign operations. In both cases the hedged risk arises solely from changes in spot foreign exchange rate. The notional of the designated hedging instruments matches the notional of the hedged items, except when the interest rate swaps are re-designated in cash flow hedges, in which case the hedge ratio designated is determined based on the swap sensitivity. USD million 00 1111,,88663388 00 00 00 Hedged items and hedge designation Fair value hedges of interest rate risk related to debt instruments and loan assets Fair value hedges of interest rate risk related to debt instruments and loan assets involve swapping fixed cash flows associated with the debt issued, debt securities held and, from 2021 onward, loan assets (principally long-term fixed-rate mortgage loans in Swiss francs formerly designated within “Fair value hedges of portfolio interest rate risk related to loans designated under IAS 39”) to floating cash flows by entering into interest rate swaps that either receive fixed and pay floating cash flows or that pay fixed and receive floating cash flows. Designations have been made in US dollars, euros, Swiss francs, Australian dollars, Japanese yen and Singapore dollars. For new hedging instruments and hedged risk designations entered into in 2021 in these currencies (with the exception of euro), the benchmark rate was the relevant alternative reference rate (ARR). Following the interbank offered rate (IBOR) transition for swaps with LCH (formerly the London Clearing House) in December 2021, the benchmark hedge rate for Swiss franc and Japanese yen designations was changed from an IBOR rate to the relevant ARR with the hedge relationship continuing in accordance with Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). Fair value hedges of portfolio interest rate risk related to loans designated under IAS 39 Prior to December 2021, the Group hedged an open portfolio of long-term fixed-rate mortgage loans in Swiss francs using interest rate swaps that paid a fixed rate of interest and received a floating rate of interest. Both the hedged portfolio and the hedging instruments were adjusted on a monthly basis to reflect changes in size and the maturity profile of the hedged portfolio. Each month the hedge relationship was discontinued and a new one designated. Changes in the portfolio were driven by new loans being originated or loans being repaid. Cash flow hedges of forecast transactions The Group hedges forecast cash flows on non-trading financial assets and liabilities that bear interest at variable rates or are expected to be refinanced or reinvested in the future, due to movements in future market rates. The amounts and timing of future cash flows, representing both principal and interest flows, are projected on the basis of contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying the non-trading interest rate risk of the Group, which is hedged with interest rate swaps, the maximum maturity of which is 10 years. Cash flow forecasts and risk exposures are monitored and adjusted on an ongoing basis, and consequently additional hedging instruments are traded and designated, or are terminated resulting in a hedge discontinuance. Hedge designations have been made in the following currencies: US dollars, euros, Swiss francs, pounds sterling and Hong Kong dollars. The cash flow hedges in US dollars, Swiss francs and pounds sterling were discontinued and replaced with new ARR designations in December 2021. › Refer to Note 1b for more information Fair value hedges of foreign exchange risk related to issued debt instruments Debt instruments denominated in currencies other than the US dollar are designated in fair value hedges of spot foreign exchange risk, in addition to and separate from the fair value hedges of interest rate risk. Cross-currency swaps economically convert debt denominated in currencies other than the US dollar to US dollars. This hedge accounting program started on 1 January 2020, with the adoption of the hedge accounting requirements of IFRS 9, Financial Instruments, by UBS. › Refer to Note 1b for more information Hedges of net investments in foreign operations The Group applies hedge accounting for certain net investments in foreign operations, which include subsidiaries, branches and associates. Upon maturity of hedging instruments, typically two months, the hedge relationship is terminated and new designations are made to reflect any changes in the net investments in foreign operations. 380 381 373 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 26 Hedge accounting (continued) Economic relationship between hedged item and hedging instrument For hedges designated under IFRS 9, the economic relationship between the hedged item and the hedging instrument is determined based on a qualitative analysis of their critical terms. In cases where hedge designation takes place after origination of the hedging instrument, a quantitative analysis of the possible behavior of the hedging derivative and the hedged item during their respective terms is also performed. Prior to December 2021, for the fair value hedge of portfolio interest rate risk related to loans designated under IAS 39, hedge effectiveness was assessed by comparing changes in the fair value of the hedged portfolio of loans attributable to changes in the designated benchmark interest rate with the changes in the fair value of the interest rate swaps. Sources of hedge ineffectiveness In hedges of interest rate risk, hedge ineffectiveness can arise from mismatches of critical terms and / or the use of different curves to discount the hedged item and instrument, or from entering into a hedge relationship after the trade date of the hedging derivative. All hedges: designated hedging instruments and hedge ineffectiveness USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges FFoorreeiiggnn eexxcchhaannggee rriisskk Fair value hedges2 Hedges of net investments in foreign operations USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges FFoorreeiiggnn eexxcchhaannggee rriisskk Fair value hedges2 Hedges of net investments in foreign operations In hedges of net In hedges of foreign exchange risk related to debt issued, hedge ineffectiveness can arise due to the discounting of the hedging instruments and undesignated risk components and lack of such discounting and risk components in the hedged items. foreign operations, investments ineffectiveness is unlikely unless the hedged net assets fall below the designated hedged amount. The exceptions are hedges where the hedging currency is not the same as the currency of the foreign operation, where the currency basis may cause ineffectiveness. in Hedge ineffectiveness from financial instruments measured at fair value through profit or loss is recognized in Other net income. Derivatives not designated in hedge accounting relationships Non-hedge accounted derivatives are mandatorily held for trading with all fair value movements taken to Other net income from financial instruments measured at fair value through profit or loss, even when held as an economic hedge or to facilitate client clearing. The one exception relates to forward points on certain short- and long-duration foreign exchange contracts acting as economic hedges, which are reported in Net interest income. As of or for the year ended 3311..1122..2211 CCaarrrryyiinngg aammoouunntt NNoottiioonnaall aammoouunntt DDeerriivvaattiivvee ffiinnaanncciiaall aasssseettss DDeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess CChhaannggeess iinn ffaaiirr vvaalluuee ooff hheeddggiinngg iinnssttrruummeennttss11 CChhaannggeess iinn ffaaiirr vvaalluuee ooff hheeddggeedd iitteemmss11 HHeeddggee iinneeffffeeccttiivveenneessss rreeccooggnniizzeedd iinn tthhee iinnccoommee ssttaatteemmeenntt 8899,,552255 7799,,557733 2277,,887755 1133,,993399 00 1122 8877 2233 77 11 226611 110055 ((11,,660044)) ((11,,118855)) ((22,,113399)) 449977 11,,660022 999900 22,,118811 ((449977)) ((22)) ((119966)) 4422 00 As of or for the year ended 31.12.20 Carrying amount Notional amount Derivative financial assets Derivative financial liabilities Changes in fair value of hedging instruments1 Changes in fair value of hedged items1 Hedge ineffectiveness recognized in the income statement 80,759 72,732 21,555 13,775 18 449 3 12 7 194 1,231 2,213 (1,247) (2,012) (1,735) (937) 1,715 936 (16) 201 (20) (2) 11 Amounts used as the basis for recognizing hedge ineffectiveness for the period. 22 The foreign currency basis spread of cross-currency swaps designated as hedging derivatives is excluded from the hedge accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity. 382 374 Consolidated financial statements | UBS Group AG consolidated financial statements Note 26 Hedge accounting (continued) Note 26 Hedge accounting (continued) Economic relationship between hedged item and hedging hedge ineffectiveness can arise due to the discounting of the USD million In hedges of foreign exchange risk related to debt issued, Fair value hedges: designated hedged items behavior of the hedging derivative and the hedged item during foreign operation, where the currency basis may cause Carrying amount of designated debt securities DDeebbtt iissssuueedd mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt Carrying amount of designated debt issued of which: accumulated amount of fair value hedge adjustment OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt –– ddeebbtt sseeccuurriittiieess of which: accumulated amount of fair value hedge adjustment LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss11 Carrying amount of designated loans of which: accumulated amount of fair value hedge adjustment 2 of which: accumulated amount of fair value hedge adjustment subject to amortization attributable to the portion of the portfolio that ceased to be part of hedge accounting 2 3311..1122..2211 31.12.20 IInntteerreesstt rraattee rriisskk FFXX rriisskk Interest rate risk FX risk 7744,,770000 2277,,887755 70,429 21,555 447788 22,,667777 ((77)) 1133,,883355 ((110099)) 33 2,401 3,242 (38) 10,374 100 111 11 Prior to 31 December 2021, these amounts were designated in fair value hedges of portfolio interest rate risk under IAS 39. 22 As of 31 December 2021, the amount was presented within Loans and advances to customers, whereas prior to 1 January 2021 amounts were presented within either Other financial assets measured at amortized cost or Other financial liabilities measured at amortized cost. Fair value hedges: profile of the timing of the nominal amount of the hedging instrument USD billion Interest rate swaps Cross-currency swaps USD billion Interest rate swaps1 3311..1122..2211 DDuuee wwiitthhiinn 11 mmoonntthh 00 11 DDuuee bbeettwweeeenn 11 aanndd 33 mmoonntthhss 88 DDuuee bbeettwweeeenn 33 aanndd 1122 mmoonntthhss 1100 DDuuee bbeettwweeeenn 11 aanndd 55 yyeeaarrss 4499 11 66 1133 31.12.20 Due within 1 month 0 Due between 1 and 3 months 4 Due between 3 and 12 months 9 Due between 1 and 5 years 46 Cross-currency swaps 11 In accordance with IFRS 7 requirements, the fair value hedges of portfolio interest rate risk related to loans and advances to customers designated under IAS 39 are not included. 16 4 0 0 Cash flow hedge reserve on a pre-tax basis USD million Amounts related to hedge relationships for which hedge accounting continues to be applied Amounts related to hedge relationships for which hedge accounting is no longer applied TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee rreeccooggnniizzeedd ddiirreeccttllyy iinn eeqquuiittyy rreellaatteedd ttoo ccaasshh ffllooww hheeddggeess,, oonn aa pprree--ttaaxx bbaassiiss Foreign currency translation reserve on a pre-tax basis USD million Amounts related to hedge relationships for which hedge accounting continues to be applied Amounts related to hedge relationships for which hedge accounting is no longer applied TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee rreeccooggnniizzeedd ddiirreeccttllyy iinn eeqquuiittyy rreellaatteedd ttoo hheeddggiinngg iinnssttrruummeennttss ddeessiiggnnaatteedd aass nneett iinnvveessttmmeenntt hheeddggeess,, oonn aa pprree--ttaaxx bbaassiiss DDuuee aafftteerr 55 yyeeaarrss 2222 66 Due after 5 years 12 2 TToottaall 9900 2288 Total 70 22 3311..1122..2211 31.12.20 2266 774433 776699 2,560 296 2,856 3311..1122..2211 31.12.20 ((4455)) 226622 221177 (559) 268 (291) 383 375 instrument hedging instruments and undesignated risk components and lack For hedges designated under IFRS 9, the economic relationship of such discounting and risk components in the hedged items. between the hedged item and the hedging instrument is In hedges of net investments in foreign operations, determined based on a qualitative analysis of their critical terms. ineffectiveness is unlikely unless the hedged net assets fall below In cases where hedge designation takes place after origination of the designated hedged amount. The exceptions are hedges where the hedging instrument, a quantitative analysis of the possible the hedging currency is not the same as the currency of the their respective terms is also performed. ineffectiveness. Prior to December 2021, for the fair value hedge of portfolio Hedge ineffectiveness from financial instruments measured at interest rate risk related to loans designated under IAS 39, hedge fair value through profit or loss is recognized in Other net income. effectiveness was assessed by comparing changes in the fair value of the hedged portfolio of loans attributable to changes in the Derivatives not designated in hedge accounting relationships designated benchmark interest rate with the changes in the fair Non-hedge accounted derivatives are mandatorily held for trading value of the interest rate swaps. Sources of hedge ineffectiveness with all fair value movements taken to Other net income from financial instruments measured at fair value through profit or loss, even when held as an economic hedge or to facilitate client In hedges of interest rate risk, hedge ineffectiveness can arise clearing. The one exception relates to forward points on certain from mismatches of critical terms and / or the use of different short- and long-duration foreign exchange contracts acting as curves to discount the hedged item and instrument, or from economic hedges, which are reported in Net interest income. entering into a hedge relationship after the trade date of the hedging derivative. All hedges: designated hedging instruments and hedge ineffectiveness As of or for the year ended 3311..1122..2211 CCaarrrryyiinngg aammoouunntt DDeerriivvaattiivvee DDeerriivvaattiivvee ffaaiirr vvaalluuee ooff ffaaiirr vvaalluuee ooff iinneeffffeeccttiivveenneessss NNoottiioonnaall aammoouunntt ffiinnaanncciiaall aasssseettss ffiinnaanncciiaall lliiaabbiilliittiieess hheeddggiinngg iinnssttrruummeennttss11 hheeddggeedd rreeccooggnniizzeedd iinn tthhee iitteemmss11 iinnccoommee ssttaatteemmeenntt CChhaannggeess iinn CChhaannggeess iinn HHeeddggee 8899,,552255 7799,,557733 2277,,887755 1133,,993399 00 1122 8877 2233 ((11,,660044)) ((11,,118855)) ((22,,113399)) 449977 11,,660022 999900 22,,118811 ((449977)) As of or for the year ended 31.12.20 Carrying amount Derivative Derivative fair value of fair value of ineffectiveness Notional amount financial assets financial liabilities hedging instruments1 hedged recognized in the items1 income statement Changes in Changes in Hedge 80,759 72,732 21,555 13,775 18 449 3 1,231 2,213 (1,247) (2,012) (1,735) (937) 1,715 936 ((22)) ((119966)) 4422 00 (16) 201 (20) (2) 77 11 226611 110055 12 7 194 Hedges of net investments in foreign operations 11 Amounts used as the basis for recognizing hedge ineffectiveness for the period. 22 The foreign currency basis spread of cross-currency swaps designated as hedging derivatives is excluded from the hedge accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity. USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges FFoorreeiiggnn eexxcchhaannggee rriisskk Fair value hedges2 Hedges of net investments in foreign operations USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges FFoorreeiiggnn eexxcchhaannggee rriisskk Fair value hedges2 382 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Apart from EURIBOR hedges, UBS applied the relief to all its fair value hedges of interest rate risk and to those cash flow hedge relationships where the hedged risk is LIBOR or EONIA. The following table provides details on the notional amount and carrying amount of the hedging instruments in those hedge relationships maturing after 31 December 2021, or 30 June 2023 for USD LIBOR hedges, which are the cessation dates of the applicable interest rate benchmarks. Hedges of net investments in foreign operations are not affected by the amendments. › Refer to Note 1a item 2j for more information about the relief provided by the amendments to IFRS 9, IAS 39 and IFRS 7 related to interest rate benchmark reform › Refer to Note 25 Interest rate benchmark reform for more information about the transition progress 3311..1122..2211 31.12.20 CCaarrrryyiinngg aammoouunntt DDeerriivvaattiivvee ffiinnaanncciiaall aasssseettss DDeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess Carrying amount Derivative financial assets Derivative financial liabilities Notional amount 00 00 00 00 37,146 11,179 1 0 (12) 0 NNoottiioonnaall aammoouunntt 2233,,336677 1100,,880033 Note 26 Hedge accounting (continued) Interest rate benchmark reform The Group continues to apply the relief provided by Interest Rate Benchmark Reform (amendments to IFRS 9, IAS 39 and IFRS 7), published by the IASB in September 2019. The interest rate benchmarks subject to interest rate benchmark reforms to which the Group’s hedge relationships were exposed were USD LIBOR, CHF LIBOR, GBP LIBOR, AUD LIBOR, JPY LIBOR, HKD LIBOR, SGD LIBOR and EONIA. Interest rate swaps designated in hedge relationships referencing GBP, CHF and JPY LIBOR transitioned to ARRs in December 2021 when LCH transitioned its contracts. For other currencies, IBOR quotations remain available, but all new designations will reference ARR. As such, ARR designations in these currencies will replace IBOR designations as IBOR contracts mature. The Group’s hedge relationships are also exposed to the Euro Inter-bank Offered Rate (EURIBOR), which is expected to continue to exist as a benchmark rate for the foreseeable future. Thus, the Group does not consider its hedges involving the EURIBOR benchmark interest rate to be directly affected by interest rate benchmark reform. Hedging instruments referencing LIBOR USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges 384 376 Consolidated financial statements | UBS Group AG consolidated financial statements Note 26 Hedge accounting (continued) Interest rate benchmark reform Note 27 Post-employment benefit plans a) Defined benefit plans The Group continues to apply the relief provided by Interest Rate Apart from EURIBOR hedges, UBS applied the relief to all its Benchmark Reform (amendments to IFRS 9, IAS 39 and IFRS 7), fair value hedges of interest rate risk and to those cash flow hedge published by the IASB in September 2019. relationships where the hedged risk is LIBOR or EONIA. The The interest rate benchmarks subject to interest rate following table provides details on the notional amount and benchmark reforms to which the Group’s hedge relationships carrying amount of the hedging instruments in those hedge were exposed were USD LIBOR, CHF LIBOR, GBP LIBOR, AUD relationships maturing after 31 December 2021, or 30 June 2023 LIBOR, JPY LIBOR, HKD LIBOR, SGD LIBOR and EONIA. Interest rate for USD LIBOR hedges, which are the cessation dates of the swaps designated in hedge relationships referencing GBP, CHF applicable interest rate benchmarks. and JPY LIBOR transitioned to ARRs in December 2021 when LCH Hedges of net investments in foreign operations are not transitioned its contracts. For other currencies, IBOR quotations affected by the amendments. remain available, but all new designations will reference ARR. As such, ARR designations in these currencies will replace IBOR › Refer to Note 1a item 2j for more information about the relief provided by the amendments to IFRS 9, IAS 39 and IFRS 7 related to interest rate benchmark reform › Refer to Note 25 Interest rate benchmark reform for more information about the transition progress designations as IBOR contracts mature. The Group’s hedge relationships are also exposed to the Euro Inter-bank Offered Rate (EURIBOR), which is expected to continue to exist as a benchmark rate for the foreseeable future. Thus, the Group does not consider its hedges involving the EURIBOR benchmark interest rate to be directly affected by interest rate benchmark reform. Hedging instruments referencing LIBOR USD million IInntteerreesstt rraattee rriisskk Fair value hedges Cash flow hedges 3311..1122..2211 31.12.20 CCaarrrryyiinngg aammoouunntt DDeerriivvaattiivvee ffiinnaanncciiaall aasssseettss DDeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess Carrying amount Derivative financial assets Derivative financial liabilities Notional amount 00 00 00 00 37,146 11,179 1 0 (12) 0 NNoottiioonnaall aammoouunntt 2233,,336677 1100,,880033 UBS has established defined benefit plans for its employees in various jurisdictions in accordance with local regulations and practices. The major plans are located in Switzerland, the UK, the US and Germany. The level of benefits depends on the specific plan rules. Swiss pension plan The Swiss pension plan covers employees of UBS AG in Switzerland and employees of companies in Switzerland having close economic or financial ties with UBS AG, and exceeds the minimum benefit requirements under Swiss pension law. The Swiss plan offers retirement, disability and survivor benefits and is governed by a Pension Foundation Board. The responsibilities of this board are defined by Swiss pension law and the plan rules. Savings contributions to the Swiss plan are paid by both employer and employee. Depending on the age of the employee, UBS pays a savings contribution that ranges between 6.5% and 27.5% of contributory base salary and between 2.8% and 9% of contributory variable compensation. UBS also pays risk contributions that are used to fund disability and survivor benefits. Employees can choose the level of savings contributions paid by them, which vary between 2.5% and 13.5% of contributory base salary and between 0% and 9% of contributory variable compensation, depending on age and choice of savings contribution category. The plan offers to members at the normal retirement age of 65 a choice between a lifetime pension and a partial or full lump sum payment. Participants can choose to draw early retirement benefits starting from the age of 58, but can also continue employment and remain active members of the plan until the age of 70. Employees have the opportunity to make additional purchases of benefits to fund early retirement benefits. The pension amount payable to a participant is calculated by applying a conversion rate to the accumulated balance of the participant’s retirement savings account at the retirement date. The balance is based on credited vested benefits transferred from previous employers, purchases of benefits, and the employee and employer contributions that have been made to the participant’s retirement savings account, as well as the interest accrued. The annual interest rate credited to participants is determined by the Pension Foundation Board at the end of each year. Although the Swiss plan is based on a defined contribution promise under Swiss pension law, it is accounted for as a defined benefit plan under IFRS, primarily because of the obligation to accrue interest on the participants’ retirement savings accounts and the payment of lifetime pension benefits. An actuarial valuation in accordance with Swiss pension law is performed regularly. Should an underfunded situation on this basis occur, the Pension Foundation Board is required to take the necessary measures to ensure that full funding can be expected to be restored within a maximum period of 10 years. If a Swiss plan were to become significantly underfunded on a Swiss law basis, additional employer and employee pension contributions could be required. In this situation, the risk is shared between employer and employees, and the employer is not legally obliged to cover more than 50% of the additional contributions required. As of 31 December 2021, the Swiss plan had a technical funding ratio in accordance with Swiss pension law of 134.8% (31 December 2020: 132.6%). The investment strategy of the Swiss plan complies with Swiss pension law, including the rules and regulations relating to diversification of plan assets, and is derived from the risk budget defined by the Pension Foundation Board on the basis of regularly performed asset and liability management analyses. The Pension Foundation Board strives for a medium- and long-term balance between assets and liabilities. As of 31 December 2021, the Swiss plan was in a surplus situation on an IFRS measurement basis, as the fair value of the plan’s assets exceeded the defined benefit obligation (DBO) by USD 6,577 million (31 December 2020: a surplus of USD 4,862 million). However, a surplus is only recognized on the balance sheet to the extent that it does not exceed the estimated future economic benefit, which equals the difference between the present value of the estimated future net service cost and the present value of the estimated future employer contributions. As of both 31 December 2021 and 31 December 2020, the estimated future economic benefit was zero and hence no net defined benefit asset was recognized on the balance sheet. Changes to the Swiss pension plan in 2019 The Pension Foundation Board and UBS agreed to implement measures that took effect from the start of 2019 to support the long-term financial stability of the Swiss pension fund. The measures, among other things, lowered the conversion rate and increased the normal retirement age from 64 to 65. Pensions already in payment on 1 January 2019 were not affected. To mitigate the effects for active participants, UBS committed to pay an extraordinary contribution of up to CHF 720 million (USD 790 million at the closing exchange rate on 31 December 2021) in three installments in 2020, 2021 and 2022. Two installments of USD 235 million and USD 254 million paid in 2020 and 2021 reduced OCI with no effect on the income statement. The third installment, CHF 193 million (USD 212 million at the closing exchange rate on 31 December 2021), will be paid in the first quarter of 2022. The regular employer contributions to be made to the Swiss plan in 2022 are estimated at USD 491 million. 384 385 377 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) UK pension plan The UK plan is a career-average revalued earnings scheme, and benefits increase automatically based on UK price inflation. The normal retirement age for participants in the UK plan is 60. The plan provides guaranteed lifetime pension benefits to participants upon retirement. The UK plan has been closed to new entrants for more than 20 years and, since 2013, participants are no longer accruing benefits for current or future service. Instead, employees participate in the UK defined contribution plan. The governance responsibility for the UK plan lies jointly with the Pension Trustee Board and UBS. The employer contributions to the pension fund reflect agreed-upon deficit funding contributions, which are determined on the basis of the most recent actuarial valuation using assumptions agreed by the Pension Trustee Board and UBS. In the event of underfunding, UBS and the Pension Trustee Board must agree on a deficit recovery plan within statutory deadlines. In 2021, UBS made no deficit funding contributions to the UK plan. In 2020, UBS made deficit funding contributions of USD 46 million. The plan assets are invested in a diversified portfolio of financial assets, which include a longevity swap with an external insurance company. This swap enables the UK pension plan to hedge the risk between expected and actual longevity, which should mitigate volatility in the net defined benefit asset / liability. As of 31 December 2021, the longevity swap had a negative value of USD 3 million (31 December 2020: zero). In 2019, UBS and the Pension Trustee Board entered into an arrangement whereby a collateral pool was established to provide security for the pension fund. The value of the collateral pool as of 31 December 2021 was USD 337 million (31 December 2020: USD 347 million) and includes corporate bonds, government- related debt instruments and other financial assets. The arrangement provides the Pension Trustee Board dedicated access to a pool of assets in the event of UBS’s insolvency or not paying a required deficit funding contribution. The employer contributions to be made to the UK defined benefit plan in 2022 are estimated at USD 5 million, subject to regular funding reviews during the year. US pension plans There are two distinct major defined benefit plans in the US, with a normal retirement age of 65. Both plans were closed to new entrants more than 20 years ago. Since they closed, new employees have participated in a defined contribution plan. One of the defined benefit plans is a contribution-based plan in which each participant accrues a percentage of salary in a retirement savings account. The retirement savings account is credited annually with interest based on a rate that is linked to the average yield on one-year US government bonds. For the other defined benefit plan, retirement benefits accrue based on the career-average earnings of each individual plan participant. Former employees with vested benefits have the option to take a lump sum payment or a lifetime annuity. As required under applicable pension laws, both plans have fiduciaries who, together with UBS, are responsible for the governance of the plans. The plan assets of both plans are invested in diversified portfolios of financial assets. Each plan’s fiduciaries are responsible for the investment decisions with respect to the plan assets. The employer contributions to be made to the US defined benefit plans in 2022 are estimated at USD 10 million. German pension plans There are two defined benefit plans in Germany, which are both unfunded. The normal retirement age is 65 and benefits are paid directly by UBS. In the larger of the two plans each participant accrues a percentage of salary in a retirement savings account. The accumulated account balance of the participant is credited on an annual basis with guaranteed interest at a rate of 5%. The plan has been closed to new entrants and all participants younger than the age of 55 no longer accrue benefits. In the other plan, amounts are accrued annually based on employee elections related to variable compensation. For this plan, the accumulated account balance is credited on an annual basis with a guaranteed interest rate of 6% for amounts accrued before 2010, of 4% for amounts accrued from 2010 to 2017 and of 0.9% for amounts accrued after 2017. Both plans are subject to German pension law, whereby the responsibility to pay pension benefits when they are due resides entirely with UBS. A portion of the pension payments is directly increased in line with price inflation. In June 2021, UBS implemented a new funded pension plan with interest credited to participants equal to actual investment returns with a guaranteed minimum of 0%. The plan was implemented retrospectively for new hires since June 2018 and for all eligible active participants younger than 55 from July 2021. Each participant accrues a percentage of salary in a retirement savings account. The employer contributions to be made to the German defined benefit plans in 2022 are estimated at USD 12 million. Financial information by plan The tables on the following pages provide an analysis of the movement in the net asset / liability recognized on the balance sheet for defined benefit plans, as well as an analysis of amounts recognized in net profit and in Other comprehensive income. 386 378 Consolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Note 27 Post-employment benefit plans (continued) UK pension plan the average yield on one-year US government bonds. For the Defined benefit plans USD million Defined benefit obligation at the beginning of the year Current service cost Interest expense Plan participant contributions Remeasurements of which: actuarial (gains) / losses due to changes in demographic assumptions of which: actuarial (gains) / losses due to changes in financial assumptions of which: experience (gains) / losses 1 Past service cost related to plan amendments Curtailments Benefit payments Other movements Foreign currency translation DDeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn aatt tthhee eenndd ooff tthhee yyeeaarr of which: amounts owed to active members of which: amounts owed to deferred members of which: amounts owed to retirees of which: funded plans of which: unfunded plans Fair value of plan assets at the beginning of the year Return on plan assets excluding interest income Interest income Employer contributions Plan participant contributions Benefit payments Administration expenses, taxes and premiums paid Other movements Foreign currency translation FFaaiirr vvaalluuee ooff ppllaann aasssseettss aatt tthhee eenndd ooff tthhee yyeeaarr SSuurrpplluuss // ((ddeeffiicciitt)) Asset ceiling effect at the beginning of the year Interest expense on asset ceiling effect Asset ceiling effect excluding interest expense and foreign currency translation on asset ceiling effect Foreign currency translation AAsssseett cceeiilliinngg eeffffeecctt aatt tthhee eenndd ooff tthhee yyeeaarr NNeett ddeeffiinneedd bbeenneeffiitt aasssseett // ((lliiaabbiilliittyy)) ooff mmaajjoorr ppllaannss NNeett ddeeffiinneedd bbeenneeffiitt aasssseett // ((lliiaabbiilliittyy)) ooff rreemmaaiinniinngg ppllaannss TToottaall nneett ddeeffiinneedd bbeenneeffiitt aasssseett // ((lliiaabbiilliittyy)) The UK plan is a career-average revalued earnings scheme, and other defined benefit plan, retirement benefits accrue based on benefits increase automatically based on UK price inflation. The the career-average earnings of each individual plan participant. normal retirement age for participants in the UK plan is 60. The Former employees with vested benefits have the option to take a plan provides guaranteed lifetime pension benefits to participants lump sum payment or a lifetime annuity. upon retirement. The UK plan has been closed to new entrants As required under applicable pension laws, both plans have for more than 20 years and, since 2013, participants are no longer fiduciaries who, together with UBS, are responsible for the accruing benefits for current or future service. Instead, employees governance of the plans. participate in the UK defined contribution plan. The plan assets of both plans are invested in diversified The governance responsibility for the UK plan lies jointly with portfolios of financial assets. Each plan’s fiduciaries are the Pension Trustee Board and UBS. The employer contributions responsible for the investment decisions with respect to the plan to the pension fund reflect agreed-upon deficit funding assets. contributions, which are determined on the basis of the most The employer contributions to be made to the US defined recent actuarial valuation using assumptions agreed by the benefit plans in 2022 are estimated at USD 10 million. Pension Trustee Board and UBS. In the event of underfunding, UBS and the Pension Trustee Board must agree on a deficit German pension plans recovery plan within statutory deadlines. In 2021, UBS made no There are two defined benefit plans in Germany, which are both deficit funding contributions to the UK plan. In 2020, UBS made unfunded. The normal retirement age is 65 and benefits are paid deficit funding contributions of USD 46 million. directly by UBS. In the larger of the two plans each participant The plan assets are invested in a diversified portfolio of accrues a percentage of salary in a retirement savings account. financial assets, which include a longevity swap with an external The accumulated account balance of the participant is credited on insurance company. This swap enables the UK pension plan to an annual basis with guaranteed interest at a rate of 5%. The plan hedge the risk between expected and actual longevity, which has been closed to new entrants and all participants younger than should mitigate volatility in the net defined benefit asset / liability. the age of 55 no longer accrue benefits. In the other plan, As of 31 December 2021, the longevity swap had a negative value amounts are accrued annually based on employee elections of USD 3 million (31 December 2020: zero). related to variable compensation. For this plan, the accumulated In 2019, UBS and the Pension Trustee Board entered into an account balance is credited on an annual basis with a guaranteed arrangement whereby a collateral pool was established to provide interest rate of 6% for amounts accrued before 2010, of 4% for security for the pension fund. The value of the collateral pool as amounts accrued from 2010 to 2017 and of 0.9% for amounts of 31 December 2021 was USD 337 million (31 December 2020: accrued after 2017. Both plans are subject to German pension USD 347 million) and includes corporate bonds, government- law, whereby the responsibility to pay pension benefits when they related debt instruments and other financial assets. The are due resides entirely with UBS. A portion of the pension arrangement provides the Pension Trustee Board dedicated access payments is directly increased in line with price inflation. to a pool of assets in the event of UBS’s insolvency or not paying In June 2021, UBS implemented a new funded pension plan a required deficit funding contribution. with interest credited to participants equal to actual investment The employer contributions to be made to the UK defined returns with a guaranteed minimum of 0%. The plan was benefit plan in 2022 are estimated at USD 5 million, subject to implemented retrospectively for new hires since June 2018 and regular funding reviews during the year. for all eligible active participants younger than 55 from July 2021. Each participant accrues a percentage of salary in a retirement US pension plans savings account. There are two distinct major defined benefit plans in the US, with The employer contributions to be made to the German defined a normal retirement age of 65. Both plans were closed to new benefit plans in 2022 are estimated at USD 12 million. entrants more than 20 years ago. Since they closed, new employees have participated in a defined contribution plan. Financial information by plan One of the defined benefit plans is a contribution-based plan The tables on the following pages provide an analysis of the in which each participant accrues a percentage of salary in a movement in the net asset / liability recognized on the balance retirement savings account. The retirement savings account is sheet for defined benefit plans, as well as an analysis of amounts credited annually with interest based on a rate that is linked to recognized in net profit and in Other comprehensive income. of which: Net defined benefit asset of which: Net defined benefit liability 2 Swiss pension plan 2020 24,496 447 72 259 1,279 22002211 2277,,772288 449944 5588 226666 883377 UK pension plan 22002211 44,,116622 00 5588 00 7711 2020 3,654 0 73 0 449 US and German pension plans 22002211 11,,990055 66 3300 00 ((6622)) 2020 1,820 6 45 0 105 Total 22002211 3333,,779955 550000 114477 226666 884466 2020 29,970 453 190 259 1,832 00 (164) 5511 ((667788)) 983 460 11,,446644 0 00 0 ((8800)) (1,153) ((11,,009977)) (4) 00 2,333 ((880099)) 2277,,339988 27,728 1144,,333333 13,765 0 1133,,006655 13,963 2277,,339988 27,728 0 28,219 1,818 84 729 259 (1,153) (13) 0 2,647 32,590 4,862 3,724 12 00 3322,,559900 22,,332222 7744 776633 226666 ((11,,009977)) ((1133)) 00 ((993300)) 3333,,997755 66,,557777 44,,886622 1155 1144 ((33)) 5599 00 00 ((114488)) 00 ((3388)) 44,,110055 115500 (14) 505 (42) 3 0 (148) 0 132 4,162 159 11,,559933 1,879 22,,336622 2,124 44,,110055 4,162 0 3,658 388 73 46 0 (148) 0 0 132 4,149 (13) 0 0 00 44,,114499 227777 5588 00 00 ((114488)) 00 00 ((3399)) 44,,229977 119922 00 00 44 ((7788)) 1122 44 00 ((111122)) 11 ((3333)) 11,,774400 222222 666699 884499 (34) 134 5 0 0 (108) 0 37 1,905 245 743 917 11,,222222 1,319 586 1,299 118 38 17 0 (108) (4) 0 0 1,360 (545) 0 0 551188 11,,336600 4400 2266 1166 00 ((111122)) ((44)) 11 00 11,,332299 ((441111)) 00 00 6699 (212) ((775599)) 1,621 423 11,,553355 3 44 0 ((8800)) (1,409) ((11,,335577)) (4) 11 2,501 ((888800)) 3333,,224422 33,795 1144,,770055 14,169 22,,226622 2,622 1166,,227766 17,004 3322,,772244 33,209 586 33,176 2,324 196 792 259 (1,409) (17) 0 2,779 38,100 4,304 3,724 12 551188 3388,,110000 22,,663399 115599 777799 226666 ((11,,335577)) ((1177)) 11 ((996699)) 3399,,660011 66,,335588 44,,886622 1155 11,,882211 ((112211)) 66,,557777 00 814 313 4,862 0 00 00 00 119922 0 0 0 (13) 00 00 00 ((441111)) 0 0 0 (545) 11,,882211 ((112211)) 66,,557777 ((221199)) ((111122)) ((333311)) 814 313 4,862 (558) (123) (680) 42 (722) 11 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation and reflect the effects of differences between the previous actuarial assumptions and what has actually occurred. 22 Refer to Note 19c. 330022 ((663333)) 386 387 379 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) IInnccoommee ssttaatteemmeenntt –– eexxppeennsseess rreellaatteedd ttoo ddeeffiinneedd bbeenneeffiitt ppllaannss11 USD million For the year ended Current service cost Interest expense related to defined benefit obligation Interest income related to plan assets Interest expense on asset ceiling effect Administration expenses, taxes and premiums paid Past service cost related to plan amendments Curtailments NNeett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt ffoorr mmaajjoorr ppllaannss NNeett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt ffoorr rreemmaaiinniinngg ppllaannss22 TToottaall nneett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt 11 Refer to Note 6. 22 Includes differences between actual and estimated performance award accruals. OOtthheerr ccoommpprreehheennssiivvee iinnccoommee –– ggaaiinnss // ((lloosssseess)) oonn ddeeffiinneedd bbeenneeffiitt ppllaannss Swiss pension plan 3311..1122..2211 31.12.20 447 449944 UK pension plan 3311..1122..2211 31.12.20 0 00 US and German pension plans 3311..1122..2211 31.12.20 6 66 Total 3311..1122..2211 31.12.20 453 550000 5588 ((7744)) 1155 1133 00 ((8800)) 442266 72 (84) 12 13 0 0 459 5588 ((5588)) 73 (73) 00 00 00 00 00 0 0 3 0 3 3300 ((2266)) 00 44 44 00 1188 45 (38) 0 4 0 0 18 114477 ((115599)) 1155 1177 44 ((8800)) 444444 2255 447700 190 (196) 12 17 3 0 479 23 502 USD million For the year ended Remeasurement of defined benefit obligation of which: change in discount rate assumption of which: change in rate of salary increase assumption of which: change in rate of pension increase assumption of which: change in rate of interest credit on retirement savings assumption of which: change in life expectancy of which: change in other actuarial assumptions of which: experience gains / (losses) 1 Return on plan assets excluding interest income Asset ceiling effect excluding interest expense and foreign currency translation TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee ffoorr mmaajjoorr ppllaannss Swiss pension plan 3311..1122..2211 31.12.20 (1,279) ((883377)) 887700 ((33)) 00 ((119933)) 00 ((4477)) (777) (230) 0 26 261 (99) ((11,,446644)) (460) 22,,332222 1,818 ((11,,882211)) ((333366)) (814) (276) UK pension plan 3311..1122..2211 31.12.20 (449) ((7711)) 331199 (504) 00 ((331166)) 00 99 ((2233)) ((5599)) 227777 00 220077 0 (1) 0 22 (8) 42 388 0 (61) US and German pension plans 3311..1122..2211 31.12.20 (105) 6622 Total 3311..1122..2211 31.12.20 (1,832) ((884466)) 7777 00 ((11)) ((11)) ((33)) 22 ((1122)) 4400 00 110033 (141) 11,,226677 (1,421) 0 1 24 50 (34) (5) 118 0 14 ((33)) (230) ((331188)) ((119944)) 55 ((6688)) ((11,,553355)) 0 50 333 (142) (423) 22,,663399 2,324 ((11,,882211)) ((2277)) (814) (323) TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee ffoorr rreemmaaiinniinngg ppllaannss TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee22 (327) 11 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation and reflect the effects of differences between the previous actuarial assumptions and what has actually occurred. 22 Refer to the “Statement of comprehensive income.” (4) 3300 22 The table below provides information about the duration of the DBO and the timing for expected benefit payments. DDuurraattiioonn ooff tthhee ddeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn ((iinn yyeeaarrss)) MMaattuurriittyy aannaallyyssiiss ooff bbeenneeffiittss eexxppeecctteedd ttoo bbee ppaaiidd USD million Benefits expected to be paid within 12 months Benefits expected to be paid between 1 and 3 years Benefits expected to be paid between 3 and 6 years Benefits expected to be paid between 6 and 11 years Benefits expected to be paid between 11 and 16 years Benefits expected to be paid in more than 16 years 11 The duration of the defined benefit obligation represents a weighted average across US and German plans. Swiss pension plan 3311..1122..2211 31.12.20 UK pension plan US and German pension plans1 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 1155..11 15.7 1188..88 19.0 99..55 10.2 11,,331122 22,,663366 33,,882244 66,,222200 55,,557722 1,293 2,630 3,839 6,166 5,646 111100 224488 441188 774433 775511 114 232 406 744 758 1188,,009922 18,884 33,,002288 3,206 112233 223377 333388 449955 339922 551199 122 235 346 532 413 541 388 380 Note 27 Post-employment benefit plans (continued) Note 27 Post-employment benefit plans (continued) Actuarial assumptions The actuarial assumptions used for the defined benefit plans are based on the economic conditions prevailing in the jurisdiction in which they are offered. Changes in the defined benefit obligation are most sensitive to changes in the discount rate. The discount rate is based on the yield of high-quality corporate bonds quoted in an active market in the currency of the respective plan. A decrease in the discount curve increases the DBO. UBS regularly reviews the actuarial assumptions used in calculating the DBO to determine their continuing relevance. › Refer to Note 1a item 5 for a description of the accounting policy for defined benefit plans The tables below show the significant actuarial assumptions used in calculating the DBO at the end of the year. Significant actuarial assumptions In % Discount rate Rate of salary increase Rate of pension increase Rate of interest credit on retirement savings 11 Represents weighted average assumptions across US and German plans. Mortality tables and life expectancies for major plans CCoouunnttrryy Switzerland UK USA Germany CCoouunnttrryy Switzerland UK USA Germany MMoorrttaalliittyy ttaabbllee BVG 2020 G with CMI 2019 projections S3PA with CMI 2020 projections1 Pri-2012 with MP-2021 projection scale2 Dr. K. Heubeck 2018 G MMoorrttaalliittyy ttaabbllee BVG 2020 G with CMI 2019 projections S3PA with CMI 2020 projections1 Pri-2012 with MP-2021 projection scale2 Dr. K. Heubeck 2018 G Swiss pension plan 3311..1122..2211 31.12.20 UK pension plan US and German pension plans1 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 00..3344 22..0011 00..0000 11..0044 0.10 2.00 0.00 0.60 11..8822 00..0000 33..3322 00..0000 1.42 0.00 2.89 0.00 22..1100 22..3355 11..8800 11..1188 1.62 2.25 1.70 1.12 Life expectancy at age 65 for a male member currently aged 65 aged 45 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 2211..77 2233..44 2211..99 2200..55 21.7 23.4 21.8 20.8 2233..33 2244..55 2233..33 2233..22 23.2 24.6 23.2 23.6 Life expectancy at age 65 for a female member currently aged 65 aged 45 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 2233..44 2244..99 2233..33 2233..99 23.4 24.9 23.2 24.3 2255..00 2266..33 2244..77 2266..11 24.9 26.3 24.5 26.5 US and German pension 11 In 2020, S3PA with CMI 2019 projections was used. 22 In 2020, Pri-2012 with MP-2020 projection scale was used. Consolidated financial statements | UBS Group AG consolidated financial statements IInnccoommee ssttaatteemmeenntt –– eexxppeennsseess rreellaatteedd ttoo ddeeffiinneedd bbeenneeffiitt ppllaannss11 USD million For the year ended Current service cost Interest expense related to defined benefit obligation Interest income related to plan assets Interest expense on asset ceiling effect Administration expenses, taxes and premiums paid Past service cost related to plan amendments Curtailments NNeett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt ffoorr mmaajjoorr ppllaannss NNeett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt ffoorr rreemmaaiinniinngg ppllaannss22 TToottaall nneett ppeerriiooddiicc eexxppeennsseess rreeccooggnniizzeedd iinn nneett pprrooffiitt 11 Refer to Note 6. 22 Includes differences between actual and estimated performance award accruals. OOtthheerr ccoommpprreehheennssiivvee iinnccoommee –– ggaaiinnss // ((lloosssseess)) oonn ddeeffiinneedd bbeenneeffiitt ppllaannss Swiss pension plan UK pension plan US and German pension plans Total 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 449944 5588 ((7744)) 1155 1133 00 ((8800)) 442266 447 72 (84) 12 13 0 0 459 00 5588 ((5588)) 00 00 00 00 00 0 73 (73) 0 0 3 0 3 66 3300 ((2266)) 00 44 44 00 6 45 (38) 0 4 0 0 1188 18 ((115599)) (196) 550000 114477 1155 1177 44 ((8800)) 444444 2255 447700 453 190 12 17 3 0 479 23 502 USD million For the year ended Remeasurement of defined benefit obligation of which: change in discount rate assumption of which: change in rate of salary increase assumption of which: change in rate of pension increase assumption of which: change in life expectancy of which: change in other actuarial assumptions of which: experience gains / (losses) 1 Return on plan assets excluding interest income of which: change in rate of interest credit on retirement savings assumption Asset ceiling effect excluding interest expense and foreign currency translation TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee ffoorr mmaajjoorr ppllaannss TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee ffoorr rreemmaaiinniinngg ppllaannss TToottaall ggaaiinnss // ((lloosssseess)) rreeccooggnniizzeedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee22 Swiss pension plan UK pension plan US and German pension plans Total 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 ((883377)) (1,279) 887700 ((33)) 00 ((119933)) 00 ((4477)) (777) (230) 0 26 261 (99) ((11,,446644)) (460) 22,,332222 1,818 ((11,,882211)) ((333366)) (814) (276) ((7711)) 331199 00 ((331166)) 00 99 ((2233)) ((5599)) 227777 00 220077 (449) (504) 0 (1) 0 22 (8) 42 388 0 (61) 6622 7777 00 ((11)) ((11)) ((33)) 22 ((1122)) 4400 00 110033 0 1 24 50 (34) (5) 118 0 14 (105) (141) ((884466)) (1,832) 11,,226677 (1,421) ((33)) (230) ((331188)) ((119944)) 55 ((6688)) ((11,,553355)) ((11,,882211)) ((2277)) 3300 22 0 50 333 (142) (423) (814) (323) (4) (327) 22,,663399 2,324 11 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation and reflect the effects of differences between the previous actuarial assumptions and what has actually occurred. 22 Refer to the “Statement of comprehensive income.” The table below provides information about the duration of the DBO and the timing for expected benefit payments. DDuurraattiioonn ooff tthhee ddeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn ((iinn yyeeaarrss)) MMaattuurriittyy aannaallyyssiiss ooff bbeenneeffiittss eexxppeecctteedd ttoo bbee ppaaiidd USD million Benefits expected to be paid within 12 months Benefits expected to be paid between 1 and 3 years Benefits expected to be paid between 3 and 6 years Benefits expected to be paid between 6 and 11 years Benefits expected to be paid between 11 and 16 years Benefits expected to be paid in more than 16 years 11 The duration of the defined benefit obligation represents a weighted average across US and German plans. Swiss pension plan UK pension plan plans1 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 1155..11 15.7 1188..88 19.0 99..55 10.2 11,,331122 22,,663366 33,,882244 66,,222200 55,,557722 1,293 2,630 3,839 6,166 5,646 111100 224488 441188 774433 775511 114 232 406 744 758 1188,,009922 18,884 33,,002288 3,206 112233 223377 333388 449955 339922 551199 122 235 346 532 413 541 388 389 381 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Sensitivity analysis of significant actuarial assumptions The table below presents a sensitivity analysis for each significant actuarial assumption, showing how the DBO would have been affected by changes in the relevant actuarial assumption that were reasonably possible at the balance sheet date. Unforeseen circumstances may arise, which could result in variations that are outside the range of alternatives deemed reasonably possible. Caution should be used in extrapolating the sensitivities below on the DBO, as the sensitivities may not be linear. Sensitivity analysis of significant actuarial assumptions1 Increase / (decrease) in defined benefit obligation USD million DDiissccoouunntt rraattee Increase by 50 basis points Decrease by 50 basis points RRaattee ooff ssaallaarryy iinnccrreeaassee Increase by 50 basis points Decrease by 50 basis points RRaattee ooff ppeennssiioonn iinnccrreeaassee Increase by 50 basis points Decrease by 50 basis points RRaattee ooff iinntteerreesstt ccrreeddiitt oonn rreettiirreemmeenntt ssaavviinnggss Increase by 50 basis points Decrease by 50 basis points LLiiffee eexxppeeccttaannccyy Swiss pension plan 3311..1122..2211 31.12.20 UK pension plan US and German pension plans 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 ((11,,669955)) 11,,993333 110099 ((110044)) 11,,333333 ––33 222244 ((222244))55 (1,793) 2,048 117 (111) 1,413 –3 236 (188) ((336611)) 441111 ––22 ––22 333344 ((330066)) ––44 ––44 (370) 423 –2 –2 358 (316) –4 –4 ((7788)) 8844 00 00 66 ((66)) 88 ((77)) (91) 99 1 (1) 8 (7) 9 (8) Increase in longevity by one additional year 991155 1,061 118844 182 5566 60 11 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. 22 As the plan is closed for future service, a change in assumption is not applicable. 33 As the assumed rate of pension increase was 0% as of 31 December 2021 and as of 31 December 2020, a downward change in assumption is not applicable. 44 As the UK plan does not provide interest credits on retirement savings, a change in assumption is not applicable. 55 As of 31 December 2021, 19% of retirement savings were subject to a legal minimum rate of 1.00%. 390 382 Consolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Note 27 Post-employment benefit plans (continued) Sensitivity analysis of significant actuarial assumptions circumstances may arise, which could result in variations that are The table below presents a sensitivity analysis for each significant outside the range of alternatives deemed reasonably possible. actuarial assumption, showing how the DBO would have been Caution should be used in extrapolating the sensitivities below on Fair value of plan assets The tables below provide information about the composition and fair value of plan assets of the Swiss, UK, US and German pension plans. affected by changes in the relevant actuarial assumption that the DBO, as the sensitivities may not be linear. Composition and fair value of plan assets were reasonably possible at the balance sheet date. Unforeseen Sensitivity analysis of significant actuarial assumptions1 Increase / (decrease) in defined benefit obligation Swiss pension plan UK pension plan US and German pension plans 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 ((11,,669955)) 11,,993333 110099 ((110044)) 11,,333333 ––33 222244 ((222244))55 (1,793) 2,048 117 (111) 1,413 –3 236 (188) ((336611)) 441111 333344 ((330066)) ––22 ––22 ––44 ––44 (370) 423 358 (316) –2 –2 –4 –4 ((7788)) 8844 00 00 66 ((66)) 88 ((77)) (91) 99 1 (1) 8 (7) 9 (8) USD million DDiissccoouunntt rraattee Increase by 50 basis points Decrease by 50 basis points RRaattee ooff ssaallaarryy iinnccrreeaassee Increase by 50 basis points Decrease by 50 basis points RRaattee ooff ppeennssiioonn iinnccrreeaassee Increase by 50 basis points Decrease by 50 basis points Increase by 50 basis points Decrease by 50 basis points LLiiffee eexxppeeccttaannccyy 1.00%. RRaattee ooff iinntteerreesstt ccrreeddiitt oonn rreettiirreemmeenntt ssaavviinnggss Increase in longevity by one additional year 991155 1,061 118844 182 5566 60 11 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. 22 As the plan is closed for future service, a change in assumption is not applicable. 33 As the assumed rate of pension increase was 0% as of 31 December 2021 and as of 31 December 2020, a downward change in assumption is not applicable. 44 As the UK plan does not provide interest credits on retirement savings, a change in assumption is not applicable. 55 As of 31 December 2021, 19% of retirement savings were subject to a legal minimum rate of Swiss pension plan USD million CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss RReeaall eessttaattee // pprrooppeerrttyy Domestic Foreign IInnvveessttmmeenntt ffuunnddss Equity Domestic Foreign Bonds1 Domestic, AAA to BBB– Foreign, AAA to BBB– Foreign, below BBB– Other OOtthheerr iinnvveessttmmeennttss TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss of which:2 Bank accounts at UBS UBS debt instruments UBS shares Securities lent to UBS3 Property occupied by UBS Derivative financial instruments, counterparty UBS3 3311..1122..2211 31.12.20 FFaaiirr vvaalluuee PPllaann aasssseett aallllooccaattiioonn %% Fair value Plan asset allocation % QQuuootteedd iinn aann aaccttiivvee mmaarrkkeett 118877 OOtthheerr 00 TToottaall 118877 00 00 33,,553300 558800 33,,553300 558800 884433 66,,221133 00 22,,665522 884433 88,,886655 44,,444466 55,,009933 11,,331144 44,,221111 666688 2222,,997733 00 00 00 33,,555588 668822 1111,,000022 44,,444466 55,,009933 11,,331144 77,,776699 11,,334499 3333,,997755 3311..1122..2211 3333,,997755 119944 2288 2255 11,,007799 9933 112288 11 1100 22 22 2266 1133 1155 44 2233 44 110000 Quoted in an active market 219 Other 0 Total 219 0 0 3,582 331 3,582 331 826 6,284 0 1,958 826 8,242 3,721 6,146 1,303 3,363 663 22,525 0 0 0 3,722 473 10,065 3,721 6,146 1,303 7,085 1,136 32,590 31.12.20 32,590 231 34 24 1,416 96 149 1 11 1 3 25 11 19 4 22 3 100 11 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification. 22 Bank accounts at UBS encompass accounts in the name of the Swiss pension fund. The other positions disclosed in the table encompass both direct investments in UBS instruments and indirect investments, i.e., those made through funds that the pension fund invests in. 33 Securities lent to UBS and derivative financial instruments are presented gross of any collateral. Securities lent to UBS were fully covered by collateral as of 31 December 2021 and 31 December 2020. Net of collateral, derivative financial instruments amounted to USD 43 million as of 31 December 2021 (31 December 2020: negative USD 17 million). 390 391 383 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Composition and fair value of plan assets (continued) UK pension plan USD million CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss BBoonnddss11 Domestic, AAA to BBB– Foreign, AAA to BBB– Foreign, below BBB– IInnvveessttmmeenntt ffuunnddss Equity Domestic Foreign Bonds1 Domestic, AAA to BBB– Domestic, below BBB– Foreign, AAA to BBB– Foreign, below BBB– 3311..1122..2211 31.12.20 FFaaiirr vvaalluuee PPllaann aasssseett aallllooccaattiioonn %% Fair value Plan asset allocation % QQuuootteedd iinn aann aaccttiivvee mmaarrkkeett 114477 22,,660055 337722 44 4444 992211 553322 1122 117799 111155 OOtthheerr 00 TToottaall 114477 00 00 00 44 00 114477 00 00 00 22,,660055 337722 44 4477 992211 667799 1122 117799 111155 Quoted in an active market 195 Other 0 Total 195 2,150 53 0 34 1,077 919 47 149 110 0 0 0 3 0 131 0 0 0 2,150 53 0 37 1,077 1,050 47 149 110 33 6611 99 00 11 2211 1166 00 44 33 5 52 1 0 1 26 25 1 4 3 Real estate Domestic Foreign Other 112222 4400 ((331133)) IInnssuurraannccee ccoonnttrraaccttss 88 DDeerriivvaattiivveess 5544 AAsssseett--bbaacckkeedd sseeccuurriittiieess 1111 OOtthheerr iinnvveessttmmeennttss22 ((770077)) TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss 44,,229977 11 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification. 22 Mainly relates to repurchase arrangements on UK treasury bonds. 114 37 (86) 8 (3) 6 (794) 4,149 98 0 (86) 0 (3) 0 (803) 3,940 111100 66 ((331133)) 00 5577 00 ((771177)) 44,,007744 3 1 (2) 0 0 0 (19) 100 33 11 ((77)) 00 11 00 ((1166)) 110000 1122 3344 00 88 ((33)) 1111 1100 222233 16 37 0 8 0 6 9 209 392 384 Consolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Composition and fair value of plan assets (continued) UK pension plan USD million CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss BBoonnddss11 Domestic, AAA to BBB– Foreign, AAA to BBB– Foreign, below BBB– IInnvveessttmmeenntt ffuunnddss Equity Domestic Foreign Bonds1 Real estate Domestic Foreign Other Domestic, AAA to BBB– Domestic, below BBB– Foreign, AAA to BBB– Foreign, below BBB– IInnssuurraannccee ccoonnttrraaccttss DDeerriivvaattiivveess AAsssseett--bbaacckkeedd sseeccuurriittiieess OOtthheerr iinnvveessttmmeennttss22 TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss 3311..1122..2211 31.12.20 FFaaiirr vvaalluuee PPllaann aasssseett aallllooccaattiioonn %% Fair value Plan asset allocation % OOtthheerr TToottaall 114477 Quoted in an active market 195 Other Total 195 QQuuootteedd iinn aann aaccttiivvee mmaarrkkeett 114477 22,,660055 337722 44 4444 992211 553322 1122 117799 111155 111100 66 ((331133)) 00 5577 00 ((771177)) 44,,007744 00 00 00 00 44 00 00 00 00 114477 1122 3344 00 88 ((33)) 1111 1100 222233 22,,660055 337722 44 4477 992211 667799 1122 117799 111155 112222 4400 ((331133)) 88 5544 1111 ((770077)) 44,,229977 33 6611 99 00 11 2211 1166 00 44 33 33 11 00 11 00 ((77)) 2,150 53 0 34 1,077 919 47 149 110 98 0 (86) 0 (3) 0 131 1,050 0 0 0 0 3 0 0 0 0 0 8 0 6 9 16 37 2,150 53 0 37 1,077 47 149 110 114 37 (86) 8 (3) 6 5 52 1 0 1 26 25 1 4 3 3 1 0 0 0 (2) 11 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification. 22 Mainly relates to repurchase arrangements on UK treasury bonds. ((1166)) 110000 (803) 3,940 (794) 4,149 209 (19) 100 Note 27 Post-employment benefit plans (continued) US and German pension plans USD million CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss EEqquuiittyy Domestic Foreign BBoonnddss11 Domestic, AAA to BBB– Domestic, below BBB– Foreign, AAA to BBB– Foreign, below BBB– IInnvveessttmmeenntt ffuunnddss Equity Domestic Foreign Bonds1 Domestic, AAA to BBB– Domestic, below BBB– Foreign, AAA to BBB– Foreign, below BBB– 3311..1122..2211 31.12.20 FFaaiirr vvaalluuee QQuuootteedd iinn aann aaccttiivvee mmaarrkkeett 1111 OOtthheerr 00 7799 3311 448866 1177 9977 66 33 5566 226699 114477 1111 22 00 00 00 00 00 00 00 00 00 00 00 00 TToottaall 1111 7799 3311 448866 1177 9977 66 33 5566 226699 114477 1111 22 PPllaann aasssseett aallllooccaattiioonn %% 11 66 22 3377 11 77 00 00 44 2200 1111 11 00 Fair value Quoted in an active market 38 Other 0 0 0 490 7 99 1 210 169 195 34 19 3 0 0 0 0 0 0 0 0 0 0 0 0 Total 38 0 0 490 7 99 1 210 169 195 34 19 3 Plan asset allocation % 3 0 0 36 0 7 0 15 12 14 2 1 0 Real estate Domestic Other 1 6 IInnssuurraannccee ccoonnttrraaccttss 0 OOtthheerr iinnvveessttmmeennttss 0 TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss 100 11 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification. 99 9999 11 55 11,,332299 0 79 0 0 1,345 14 79 1 0 1,360 00 9999 00 55 11,,331199 11 77 00 00 110000 14 0 1 0 15 99 00 11 00 1100 392 393 385 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) b) Defined contribution plans UBS sponsors a number of defined contribution plans, with the most significant plans in the US and the UK. UBS’s obligation is limited to its contributions made in accordance with each plan, include direct contributions and matching which may contributions. Employer contributions to defined contribution plans are recognized as an expense. Expenses related to defined contribution plans USD million US plan UK plan Remaining plans TToottaall11 11 Refer to Note 6. c) Related-party disclosure For the year ended 3311..1122..2211 31.12.20 31.12.19 119988 110011 6644 336633 190 88 65 343 173 82 71 326 UBS is the principal provider of banking services for the pension fund of UBS in Switzerland. In this capacity, UBS is engaged to execute most of the pension fund’s banking activities. These activities can include, but are not limited to, trading, securities lending and borrowing and derivative transactions. The non-Swiss UBS pension funds do not have a similar banking relationship with UBS. Also, UBS leases certain properties that are owned by the Swiss pension fund. As of 31 December 2021, the minimum commitment toward the Swiss pension fund under the related leases was approximately USD 9 million (31 December 2020: USD 11 million). › Refer to the “Composition and fair value of plan assets” table in Note 27a for more information about fair value of investments in UBS instruments held by the Swiss pension fund The following amounts have been received or paid by UBS from and to the post-employment benefit plans located in Switzerland, the UK, the US and Germany in respect of these banking activities and arrangements. Related-party disclosure USD million RReecceeiivveedd bbyy UUBBSS Fees PPaaiidd bbyy UUBBSS Rent Dividends, capital repayments and interest For the year ended 3311..1122..2211 31.12.20 31.12.19 3399 44 55 34 5 10 34 4 11 The transaction volumes in UBS shares and UBS debt instruments and the balances of UBS shares held were: Transaction volumes – UBS shares and UBS debt instruments FFiinnaanncciiaall iinnssttrruummeennttss bboouugghhtt bbyy ppeennssiioonn ffuunnddss UBS shares (in thousands of shares) UBS debt instruments (par values, USD million) FFiinnaanncciiaall iinnssttrruummeennttss ssoolldd bbyy ppeennssiioonn ffuunnddss oorr mmaattuurreedd UBS shares (in thousands of shares) UBS debt instruments (par values, USD million) UBS shares held by post-employment benefit plans Number of shares (in thousands of shares) Fair value (USD million) 394 386 For the year ended 3311..1122..2211 31.12.20 990077 3377 11,,668888 4400 1,758 28 2,605 6 3311..1122..2211 1144,,007733 225522 31.12.20 14,854 210 Consolidated financial statements | UBS Group AG consolidated financial statements Note 27 Post-employment benefit plans (continued) Note 28 Employee benefits: variable compensation b) Defined contribution plans a) Plans offered UBS sponsors a number of defined contribution plans, with the which may include direct contributions and matching most significant plans in the US and the UK. UBS’s obligation is contributions. Employer contributions to defined contribution limited to its contributions made in accordance with each plan, plans are recognized as an expense. UBS is the principal provider of banking services for the pension leases was approximately USD 9 million (31 December 2020: fund of UBS in Switzerland. In this capacity, UBS is engaged to USD 11 million). execute most of the pension fund’s banking activities. These activities can include, but are not limited to, trading, securities lending and borrowing and derivative transactions. The non-Swiss UBS pension funds do not have a similar banking relationship with › Refer to the “Composition and fair value of plan assets” table in Note 27a for more information about fair value of investments in UBS instruments held by the Swiss pension fund UBS. The following amounts have been received or paid by UBS Also, UBS leases certain properties that are owned by the Swiss from and to the post-employment benefit plans located in pension fund. As of 31 December 2021, the minimum Switzerland, the UK, the US and Germany in respect of these commitment toward the Swiss pension fund under the related banking activities and arrangements. The transaction volumes in UBS shares and UBS debt instruments and the balances of UBS shares held were: Transaction volumes – UBS shares and UBS debt instruments Expenses related to defined contribution plans USD million US plan UK plan Remaining plans TToottaall11 11 Refer to Note 6. c) Related-party disclosure Related-party disclosure USD million RReecceeiivveedd bbyy UUBBSS PPaaiidd bbyy UUBBSS Fees Rent Dividends, capital repayments and interest FFiinnaanncciiaall iinnssttrruummeennttss bboouugghhtt bbyy ppeennssiioonn ffuunnddss UBS shares (in thousands of shares) UBS debt instruments (par values, USD million) FFiinnaanncciiaall iinnssttrruummeennttss ssoolldd bbyy ppeennssiioonn ffuunnddss oorr mmaattuurreedd UBS shares (in thousands of shares) UBS debt instruments (par values, USD million) UBS shares held by post-employment benefit plans Number of shares (in thousands of shares) Fair value (USD million) For the year ended 3311..1122..2211 31.12.20 31.12.19 119988 110011 6644 336633 190 88 65 343 173 82 71 326 For the year ended 3311..1122..2211 31.12.20 31.12.19 3399 44 55 34 5 10 34 4 11 For the year ended 3311..1122..2211 31.12.20 990077 3377 11,,668888 4400 1,758 28 2,605 6 3311..1122..2211 1144,,007733 225522 31.12.20 14,854 210 The Group has several share-based and other deferred compensation plans that align the interests of Group Executive Board (GEB) members and other employees with the interests of investors. Share-based awards are granted in the form of notional shares and, where permitted, carry a dividend equivalent that may be paid in notional shares or cash. Awards are settled by delivering UBS shares at vesting, except in jurisdictions where this is not permitted for legal or tax reasons. Deferred compensation awards are generally forfeitable upon, among other circumstances, voluntary termination of employment with UBS. These compensation plans are also designed to meet regulatory requirements and include special provisions for regulated employees. The most significant deferred compensation plans are described The Deferred Contingent Capital Plan The Deferred Contingent Capital Plan (DCCP) is a deferred compensation plan for all employees who are subject to deferral requirements. Such employees are awarded notional additional tier 1 (AT1) capital instruments, which, at the discretion of UBS, can be settled as a cash payment or a perpetual, marketable AT1 capital instrument. DCCP awards generally vest in full after five years, unless the award is written down following the occurrence of a viability event (as defined under the terms of an AT1 instrument) or if the Group’s CET1 capital ratio falls below a defined threshold. Additional performance conditions apply to GEB members. Interest payments on DCCP awards are paid at the discretion of UBS. Where interest payments are not permitted, such as for certain regulated employees, the DCCP award reflects the fair value of the granted non-interest-bearing award. below. › Refer to Note 1a item 5 for a description of the accounting policy related to share-based and other deferred compensation plans Financial advisor variable compensation Mandatory deferred compensation plans The Long-Term Incentive Plan The Long-Term Incentive Plan (LTIP) is a mandatory deferred share-based compensation plan for senior leaders of the Group (i.e., GEB members and selected senior management). The number of notional shares delivered at vesting depends on two equally weighted performance metrics over a three-year performance period: reported return on common equity tier 1 capital and relative total shareholder return, which measures the performance of UBS against an index of Global Systemically Important Banks as determined by the Financial Stability Board. In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global Wealth Management predominantly includes production payout and deferred compensation awards. Production payout is primarily based on compensable revenue. Financial advisors may also qualify for deferred compensation awards, which generally vest over a six-year period. These awards are based on strategic performance measures, including production and length of service with UBS. Production payout rates and deferred compensation awards may be reduced for, among other things, errors, negligence or carelessness, or failure to comply with the firm’s rules, standards, practices and / or policies, and / or applicable laws and regulations. The final number of shares will vest in three equal installments in each of the three years following the performance period for GEB members, and cliff vest in the first year following the performance period for selected senior management. Financial advisor compensation also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. The Equity Ownership Plan The Equity Ownership Plan (EOP) is a deferred share-based compensation plan for employees who are subject to deferral requirements but do not receive LTIP awards. Vesting under the EOP generally occurs in equal installments two and three years after grant, subject to continued employment and, in certain cases, achievement of defined performance conditions. Asset Management employees receive some or all of their EOP in the form of cash-settled notional investment funds. The amount delivered depends on the value of the underlying investment funds at the time of vesting. Share delivery obligations Share delivery obligations related to employee share-based compensation awards were 175 million shares as of 31 December 2021 (31 December 2020: 172 million shares). Share delivery obligations are calculated on the basis of undistributed notional share awards, taking applicable performance conditions into account. As of 31 December 2021, UBS held 149 million treasury shares (31 December 2020: 157 million) that were available to satisfy share delivery obligations. 394 395 387 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 28 Employee benefits: variable compensation (continued) b) Effect on the income statement Effect on the income statement for the financial year and future periods The table below provides information about compensation expenses related to total variable compensation, including financial advisor variable compensation, that were recognized in the financial year ended 31 December 2021, as well as expenses that were deferred and will be recognized in the income statement for 2022 and later. The majority of expenses deferred to 2022 and later that are related to the 2021 performance year pertain to awards granted in February 2022. The total unamortized compensation expense for unvested share-based awards granted up to 31 December 2021 will be recognized in future periods over a weighted average period of 2.5 years. Variable compensation including financial advisor variable compensation EExxppeennsseess rreeccooggnniizzeedd iinn 22002211 EExxppeennsseess ddeeffeerrrreedd ttoo 22002222 aanndd llaatteerr11 USD million Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrddss VVaarriiaabbllee ccoommppeennssaattiioonn –– ootthheerr22 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn Financial advisor variable compensation of which: non-deferred cash of which: deferred share-based awards of which: deferred cash-based awards Compensation commitments with recruited financial advisors3 TToottaall FFAA vvaarriiaabbllee ccoommppeennssaattiioonn TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn 405 183 140 54 29 22,,778888 119911 22,,997799 4,134 3,858 106 170 41 44,,117755 77,,115555 RReellaatteedd ttoo tthhee 22002211 ppeerrffoorrmmaannccee yyeeaarr 2,383 RReellaatteedd ttoo pprriioorr ppeerrffoorrmmaannccee yyeeaarrss (10) TToottaall 2,373 817 363 297 73 84 33,,119900 222299 33,,441199 4,382 412 180 158 19 56 440022 3388 444400 248 (6) 3,853 51 202 438 668855 11,,112255 157 372 479 44,,886600 88,,22880044 RReellaatteedd ttoo tthhee 22002211 ppeerrffoorrmmaannccee yyeeaarr 0 RReellaatteedd ttoo pprriioorr ppeerrffoorrmmaannccee yyeeaarrss 0 797 393 299 50 56 779977 221155 11,,001122 434 0 123 311 662 11,,009977 22,,110099 624 184 329 33 78 662244 118822 880066 641 0 146 495 1,682 22,,332233 33,,112299 TToottaall 0 1,421 577 628 83 133 11,,442211 339977 11,,881188 1,075 0 269 806 2,344 33,,441199 55,,223388 11 Estimate as of 31 December 2021. Actual amounts to be expensed in future periods may vary, e.g., due to forfeiture of awards. 22 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Reflects expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date. Amounts in the “Related to the 2021 performance year” columns represent commitments entered into in 2021. 44 Includes USD 651 million in expenses related to share-based compensation (performance awards: USD 435 million; other variable compensation: USD 59 million; financial advisor compensation: USD 157 million). A further USD 85 million in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 5 million related to role-based allowances; social security: USD 64 million; other personnel expenses: USD 16 million related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 641 million. 396 388 Consolidated financial statements | UBS Group AG consolidated financial statements Note 28 Employee benefits: variable compensation (continued) Note 28 Employee benefits: variable compensation (continued) b) Effect on the income statement Variable compensation including financial advisor variable compensation (continued) Effect on the income statement for the financial year and future The majority of expenses deferred to 2022 and later that are related periods to the 2021 performance year pertain to awards granted in February The table below provides information about compensation expenses 2022. The total unamortized compensation expense for unvested related to total variable compensation, including financial advisor share-based awards granted up to 31 December 2021 will be variable compensation, that were recognized in the financial year recognized in future periods over a weighted average period of 2.5 ended 31 December 2021, as well as expenses that were deferred years. and will be recognized in the income statement for 2022 and later. Variable compensation including financial advisor variable compensation USD million Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrddss VVaarriiaabbllee ccoommppeennssaattiioonn –– ootthheerr22 Financial advisor variable compensation of which: non-deferred cash of which: deferred share-based awards of which: deferred cash-based awards Compensation commitments with recruited financial advisors3 TToottaall FFAA vvaarriiaabbllee ccoommppeennssaattiioonn TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn EExxppeennsseess rreeccooggnniizzeedd iinn 22002211 EExxppeennsseess ddeeffeerrrreedd ttoo 22002222 aanndd llaatteerr11 RReellaatteedd ttoo tthhee 22002211 RReellaatteedd ttoo pprriioorr ppeerrffoorrmmaannccee ppeerrffoorrmmaannccee RReellaatteedd ttoo tthhee 22002211 RReellaatteedd ttoo pprriioorr ppeerrffoorrmmaannccee ppeerrffoorrmmaannccee yyeeaarr 2,383 405 183 140 54 29 22,,778888 119911 22,,997799 4,134 3,858 106 170 41 44,,117755 77,,115555 yyeeaarrss (10) 412 180 158 19 56 440022 3388 444400 248 51 202 438 668855 TToottaall 2,373 817 363 297 73 84 33,,119900 222299 33,,441199 4,382 157 372 479 44,,886600 88,,22880044 yyeeaarr 0 797 393 299 50 56 779977 221155 11,,001122 434 0 123 311 662 11,,009977 22,,110099 yyeeaarrss 0 624 184 329 33 78 662244 118822 880066 641 0 146 495 1,682 22,,332233 33,,112299 TToottaall 0 1,421 577 628 83 133 11,,442211 339977 11,,881188 1,075 0 269 806 2,344 33,,441199 55,,223388 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn 11,,112255 11 Estimate as of 31 December 2021. Actual amounts to be expensed in future periods may vary, e.g., due to forfeiture of awards. 22 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Reflects expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date. Amounts in the “Related to the 2021 performance year” columns represent commitments entered into in 2021. 44 Includes USD 651 million in expenses related to share-based compensation (performance awards: USD 435 million; other variable compensation: USD 59 million; financial advisor compensation: USD 157 million). A further USD 85 million in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 5 million related to role-based allowances; social security: USD 64 million; other personnel expenses: USD 16 million related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 641 million. USD million Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrddss VVaarriiaabbllee ccoommppeennssaattiioonn –– ootthheerr22 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn Financial advisor variable compensation of which: non-deferred cash of which: deferred share-based awards of which: deferred cash-based awards Compensation commitments with recruited financial advisors3 TToottaall FFAA vvaarriiaabbllee ccoommppeennssaattiioonn TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn Expenses recognized in 2020 Expenses deferred to 2021 and later1 Related to the 2020 performance year 2,167 Related to prior performance years (26) 341 137 112 42 49 22,,550088 112266 22,,663344 3,356 3,154 69 133 22 33,,337788 66,,001122 727 327 351 11 39 770011 9944 779955 233 0 50 183 480 771133 11,,550088 Related to the 2020 performance year 0 Related to prior performance years 0 756 306 280 50 120 775566 118811 993388 350 0 79 271 473 882222 11,,776600 288 69 196 10 12 228888 119922 448800 602 0 135 467 1,682 22,,228844 22,,776644 Total 2,141 1,068 463 463 54 88 33,,220099 222200 33,,442299 3,589 3,154 119 316 502 44,,009911 77,,55220044 Total 0 1,044 376 476 61 132 11,,004444 337744 11,,441188 952 0 214 738 2,155 33,,110066 44,,552244 11 Estimate as of 31 December 2020. Actual amounts to be expensed in future periods may vary, e.g., due to forfeiture of awards. 22 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Reflects expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date. Amounts in the “Related to the 2020 performance year” columns represent commitments entered into in 2020. 44 Includes USD 686 million in expenses related to share-based compensation (performance awards: USD 517 million; other variable compensation: USD 50 million; financial advisor compensation: USD 119 million). A further USD 100 million in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 4 million related to role-based allowances; social security: USD 54 million; other personnel expenses: USD 42 million related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 691 million. (6) 3,853 Variable compensation including financial advisor variable compensation (continued) USD million Non-deferred cash Deferred compensation awards of which: Equity Ownership Plan of which: Deferred Contingent Capital Plan of which: Long-Term Incentive Plan of which: Asset Management EOP VVaarriiaabbllee ccoommppeennssaattiioonn –– ppeerrffoorrmmaannccee aawwaarrddss VVaarriiaabbllee ccoommppeennssaattiioonn –– ootthheerr22 TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn eexxcclluuddiinngg ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn Financial advisor variable compensation of which: non-deferred cash of which: deferred share-based awards of which: deferred cash-based awards Compensation commitments with recruited financial advisors3 TToottaall FFAA vvaarriiaabbllee ccoommppeennssaattiioonn TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn Expenses recognized in 2019 Expenses deferred to 2020 and later1 Related to the 2019 performance year 1,894 Related to prior performance years (26) 299 122 113 39 25 22,,119933 115599 22,,335522 3,233 3,064 57 112 32 33,,226655 55,,661177 588 300 262 0 26 556622 8888 665500 268 0 48 219 510 777788 11,,442288 Related to the 2019 performance year 0 Related to prior performance years 0 429 205 173 25 26 442299 111177 554455 197 0 54 144 350 554488 11,,009933 608 219 365 0 23 660088 223322 884400 710 0 130 580 1,617 22,,332277 33,,116666 Total 1,868 887 422 375 39 51 22,,775555 224466 33,,000011 3,501 3,064 106 331 542 44,,004433 77,,00445544 Total 0 1,036 424 538 25 49 11,,003366 334499 11,,338855 907 0 183 724 1,967 22,,887744 44,,225599 11 Estimate as of 31 December 2019. Actual amounts expensed may vary, e.g., due to forfeiture of awards. 22 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Reflects expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date. Amounts in the “Related to the 2019 performance year” columns represent commitments entered into in 2019. 44 Includes USD 610 million in expenses related to share-based compensation (performance awards: USD 461 million; other variable compensation: USD 43 million; financial advisor compensation: USD 106 million). A further USD 61 million in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 10 million related to role-based allowances; social security: USD 25 million; other personnel expenses: USD 27 million related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 619 million. 396 397 389 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 28 Employee benefits: variable compensation (continued) c) Outstanding share-based compensation awards Share and performance share awards Movements in outstanding share-based awards during 2021 and 2020 are provided in the table below. Movements in outstanding share-based compensation awards Outstanding, at the beginning of the year Awarded during the year Distributed during the year Forfeited during the year Outstanding, at the end of the year of which: shares vested for accounting purposes NNuummbbeerr ooff sshhaarreess 22002211 117744,,990000,,339955 6688,,772211,,554499 ((5522,,113377,,228877)) ((1100,,990066,,009966)) 118800,,557788,,556611 110077,,882288,,997799 WWeeiigghhtteedd aavveerraaggee ggrraanntt ddaattee ffaaiirr vvaalluuee ((UUSSDD)) 1122 Number of shares 2020 156,064,763 Weighted average grant date fair value (USD) 14 1155 1133 1133 1133 72,250,157 (46,899,362) (6,515,164) 174,900,395 118,260,527 11 15 13 12 The total carrying amount of the liability related to cash-settled share-based awards as of 31 December 2021 and 31 December 2020 was USD 37 million and USD 36 million, respectively. d) Valuation UBS share awards UBS measures compensation expense based on the average market price of UBS shares on the grant date as quoted on the SIX Swiss Exchange, taking into consideration post-vesting sale and hedge restrictions, non-vesting conditions and market conditions, where applicable. The fair value of the share awards subject to post-vesting sale and hedge restrictions is discounted on the basis of the duration of the post-vesting restriction and is referenced to the cost of purchasing an at-the-money European put option for the term of the transfer restriction. The grant date fair value of notional shares without dividend entitlements also includes a deduction for the present value of future expected dividends to be paid between the grant date and distribution. 398 390 Consolidated financial statements | UBS Group AG consolidated financial statements Outstanding, at the beginning of the year Awarded during the year Distributed during the year Forfeited during the year Outstanding, at the end of the year of which: shares vested for accounting purposes was USD 37 million and USD 36 million, respectively. d) Valuation UBS share awards Note 28 Employee benefits: variable compensation (continued) Note 29 Interests in subsidiaries and other entities c) Outstanding share-based compensation awards a) Interests in subsidiaries Share and performance share awards Movements in outstanding share-based awards during 2021 and 2020 are provided in the table below. Movements in outstanding share-based compensation awards WWeeiigghhtteedd aavveerraaggee Weighted average NNuummbbeerr ooff sshhaarreess ggrraanntt ddaattee ffaaiirr vvaalluuee Number of shares grant date fair value 22002211 ((UUSSDD)) 2020 (USD) 117744,,990000,,339955 6688,,772211,,554499 ((5522,,113377,,228877)) ((1100,,990066,,009966)) 118800,,557788,,556611 110077,,882288,,997799 1122 1155 1133 1133 1133 156,064,763 72,250,157 (46,899,362) (6,515,164) 174,900,395 118,260,527 14 11 15 13 12 UBS defines its significant subsidiaries as those entities that, either individually or in aggregate, contribute significantly to the Group’s financial position or results of operations, based on a number of criteria, including the subsidiaries’ equity and contribution to the Group’s total assets and profit or loss before tax, in accordance with the requirements set by IFRS 12, Swiss regulations and the rules of the US Securities and Exchange Commission (the SEC). Individually significant subsidiaries The two tables below list the Group’s individually significant subsidiaries as of 31 December 2021. Unless otherwise stated, the subsidiaries listed below have share capital consisting solely of ordinary shares held entirely by the Group, and the proportion of ownership interest held is equal to the voting rights held by the Group. The country where the respective registered office is located is also the principal place of business. UBS AG operates through a global branch network and a significant proportion of its business activity is conducted outside Switzerland, including in the UK, the US, Singapore, Hong Kong SAR and other countries. UBS Europe SE has branches and offices in a number of EU Member States, including Germany, Italy, Luxembourg and Spain. Share capital is provided in the currency of the legally registered office. The total carrying amount of the liability related to cash-settled share-based awards as of 31 December 2021 and 31 December 2020 Individually significant subsidiaries of UBS Group AG as of 31 December 2021 Company UBS AG Registered office Zurich and Basel, Switzerland UBS Business Solutions AG1 11 UBS Business Solutions AG holds subsidiaries in China, India, Israel and Poland. Zurich, Switzerland UBS measures compensation expense based on the average referenced to the cost of purchasing an at-the-money European Individually significant subsidiaries of UBS AG as of 31 December 20211 on the basis of the duration of the post-vesting restriction and is market price of UBS shares on the grant date as quoted on the put option for the term of the transfer restriction. The grant date Company Registered office UBS Americas Holding LLC Wilmington, Delaware, USA UBS Americas Inc. Wilmington, Delaware, USA Primary business Group Functions Group Functions UBS Asset Management AG Zurich, Switzerland Asset Management UBS Bank USA UBS Europe SE Salt Lake City, Utah, USA Global Wealth Management Frankfurt, Germany Global Wealth Management UBS Financial Services Inc. Wilmington, Delaware, USA Global Wealth Management UBS Securities LLC UBS Switzerland AG Wilmington, Delaware, USA Investment Bank Zurich, Switzerland Personal & Corporate Banking SIX Swiss Exchange, taking into consideration post-vesting sale fair value of notional shares without dividend entitlements also and hedge restrictions, non-vesting conditions and market includes a deduction for the present value of future expected conditions, where applicable. The fair value of the share awards dividends to be paid between the grant date and distribution. subject to post-vesting sale and hedge restrictions is discounted Share capital in million Equity interest accumulated in % CHF CHF 385.8 1.0 100.0 100.0 Share capital in million 4,150.02 USD USD CHF USD EUR USD USD CHF 0.0 43.2 0.0 446.0 0.0 1,283.13 10.0 Equity interest accumulated in % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 11 Includes direct and indirect subsidiaries of UBS AG. 22 Consists of common share capital of USD 1,000 and non-voting preferred share capital of USD 4,150,000,000. 33 Consists of common share capital of USD 100,000 and non-voting preferred share capital of USD 1,283,000,000. 398 399 391 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 29 Interests in subsidiaries and other entities (continued) Other subsidiaries The table below lists other direct and indirect subsidiaries of UBS AG that are not individually significant but contribute to the Group’s total assets and aggregated profit before tax thresholds and are thus disclosed in accordance with requirements set by the SEC. Other subsidiaries of UBS AG as of 31 December 2021 Company UBS Asset Management (Americas) Inc. Registered office Wilmington, Delaware, USA UBS Asset Management (Hong Kong) Limited Hong Kong SAR, China UBS Asset Management Life Ltd London, United Kingdom UBS Asset Management Switzerland AG Zurich, Switzerland Primary business Asset Management Asset Management Asset Management Asset Management UBS Business Solutions US LLC Wilmington, Delaware, USA Group Functions UBS Credit Corp. UBS (France) S.A. Wilmington, Delaware, USA Global Wealth Management Paris, France Global Wealth Management UBS Fund Management (Luxembourg) S.A. Luxembourg, Luxembourg UBS Fund Management (Switzerland) AG Basel, Switzerland Asset Management Asset Management UBS (Monaco) S.A. UBS O‘Connor LLC UBS Realty Investors LLC UBS Securities Australia Ltd UBS Securities Hong Kong Limited UBS Securities Japan Co., Ltd. UBS SuMi TRUST Wealth Management Co., Ltd. Monte Carlo, Monaco Global Wealth Management Wilmington, Delaware, USA Asset Management Boston, Massachusetts, USA Asset Management Sydney, Australia Hong Kong SAR, China Tokyo, Japan Tokyo, Japan Investment Bank Investment Bank Investment Bank Global Wealth Management 11 Includes a nominal amount relating to redeemable preference shares. Share capital in million 0.0 USD Equity interest accumulated in % 100.0 HKD GBP CHF USD USD EUR EUR CHF EUR USD USD AUD HKD JPY JPY 254.0 15.0 0.5 0.0 0.0 133.0 13.0 1.0 49.2 1.0 9.0 0.31 4,154.2 34,708.7 5,165.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 Consolidated structured entities Consolidated structured entities (SEs) include certain investment funds, securitization vehicles and client investment vehicles. UBS has no individually significant subsidiaries that are SEs. In 2021 and 2020, the Group did not enter into any contractual obligation that could require the Group to provide financial support to consolidated SEs. In addition, the Group did not provide support, financial or otherwise, to a consolidated SE when the Group was not contractually obligated to do so, nor does the Group have any intention to do so in the future. Furthermore, the Group did not provide support, financial or otherwise, to a previously unconsolidated SE that resulted in the Group controlling the SE during the reporting period. 400 392 Consolidated financial statements | UBS Group AG consolidated financial statements Note 29 Interests in subsidiaries and other entities (continued) Note 29 Interests in subsidiaries and other entities (continued) Other subsidiaries b) Interests in associates and joint ventures The table below lists other direct and indirect subsidiaries of UBS AG that are not individually significant but contribute to the Group’s total assets and aggregated profit before tax thresholds and are thus disclosed in accordance with requirements set by the SEC. Other subsidiaries of UBS AG as of 31 December 2021 Company Registered office UBS Asset Management (Americas) Inc. Wilmington, Delaware, USA UBS Asset Management (Hong Kong) Limited Hong Kong SAR, China UBS Asset Management Life Ltd London, United Kingdom UBS Asset Management Switzerland AG Zurich, Switzerland Primary business Asset Management Asset Management Asset Management Asset Management UBS Business Solutions US LLC Wilmington, Delaware, USA Group Functions UBS Credit Corp. UBS (France) S.A. Wilmington, Delaware, USA Global Wealth Management Paris, France Global Wealth Management UBS Fund Management (Luxembourg) S.A. Luxembourg, Luxembourg UBS Fund Management (Switzerland) AG Basel, Switzerland Asset Management Asset Management UBS (Monaco) S.A. UBS O‘Connor LLC UBS Realty Investors LLC UBS Securities Australia Ltd UBS Securities Hong Kong Limited UBS Securities Japan Co., Ltd. UBS SuMi TRUST Wealth Management Co., Ltd. 11 Includes a nominal amount relating to redeemable preference shares. Monte Carlo, Monaco Global Wealth Management Wilmington, Delaware, USA Asset Management Boston, Massachusetts, USA Asset Management Sydney, Australia Hong Kong SAR, China Tokyo, Japan Tokyo, Japan Investment Bank Investment Bank Investment Bank Global Wealth Management Share capital in million Equity interest accumulated in % USD HKD GBP CHF USD USD EUR EUR CHF EUR USD USD AUD HKD JPY JPY 0.0 254.0 15.0 0.5 0.0 0.0 133.0 13.0 1.0 49.2 1.0 9.0 0.31 4,154.2 34,708.7 5,165.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 Consolidated structured entities not provide support, financial or otherwise, to a consolidated SE Consolidated structured entities (SEs) include certain investment when the Group was not contractually obligated to do so, nor funds, securitization vehicles and client investment vehicles. UBS does the Group have any intention to do so in the future. has no individually significant subsidiaries that are SEs. Furthermore, the Group did not provide support, financial or In 2021 and 2020, the Group did not enter into any otherwise, to a previously unconsolidated SE that resulted in the contractual obligation that could require the Group to provide Group controlling the SE during the reporting period. financial support to consolidated SEs. In addition, the Group did As of 31 December 2021 and 2020, no associate or joint venture was individually material to the Group. Also, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to UBS Group AG or its subsidiaries as cash dividends or to repay loans or advances made. There were no quoted market prices for any associates or joint ventures of the Group. Investments in associates and joint ventures USD million Carrying amount at the beginning of the year Additions Reclassifications1 Share of comprehensive income of which: share of net profit 2 of which: share of other comprehensive income 3 Share of changes in retained earnings Dividends received Foreign currency translation CCaarrrryyiinngg aammoouunntt aatt tthhee eenndd ooff tthhee yyeeaarr of which: associates of which: SIX Group AG, Zurich 4 of which: Clearstream Fund Centre AG, Zurich 1 of which: other associates of which: joint ventures 22002211 11,,555577 11 ((338866)) 115500 110055 4455 11 ((3399)) ((3399)) 11,,224433 11,,220000 11,,004433 115577 4433 2020 1,051 388 0 83 84 (1) (40) (33) 108 1,557 1,513 965 399 150 44 11 In the second quarter of 2021, UBS reclassified its minority investment (48.8%) in Clearstream Fund Centre AG (previously Fondcenter AG) of USD 386 million to Properties and other non-current assets held for sale and sold the investment in the same quarter. Refer to Note 30 for more information. 22 For 2021, consists of USD 79 million from associates and USD 26 million from joint ventures. For 2020, consists of USD 64 million from associates and USD 19 million from joint ventures. 33 For 2021, consists of USD 44 million from associates and USD 1 million from joint ventures. For 2020, consists of negative USD 1 million from associates. 44 In 2021, UBS AG’s equity interest amounted to 17.31%. UBS AG is represented on the Board of Directors. 400 401 393 Financial statementsConsolidated financial statements | UBS Group AG consolidated financial statements Note 29 Interests in subsidiaries and other entities (continued) c) Unconsolidated structured entities UBS is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or in bringing together relevant counterparties for a transaction facilitated by the entity. During 2021, the Group sponsored the creation of various SEs and interacted with a number of non-sponsored SEs, including securitization vehicles, client vehicles and certain investment funds, that UBS did not consolidate as of 31 December 2021 because it did not control them. Interests in unconsolidated structured entities The table below presents the Group’s interests in and maximum exposure to loss from unconsolidated SEs, as well as the total assets held by the SEs in which UBS had an interest as of year- end, except for investment funds sponsored by third parties, for which the carrying amount of UBS’s interest as of year-end has been disclosed. Sponsored unconsolidated structured entities in which UBS did not have an interest at year-end During 2021 and 2020, the Group did not earn material income from sponsored unconsolidated SEs in which UBS did not have an interest at year-end. During 2021 and 2020, UBS and third parties did not transfer any assets into sponsored securitization vehicles created in the year. UBS and third parties transferred assets, alongside deposits and debt issuances (which are assets from the perspective of the vehicle), of USD 1 billion and USD 2 billion, respectively, into sponsored client vehicles created in 2021 (2020: USD 0 billion and USD 9 billion, respectively). For sponsored investment funds, transfers arose during the period as investors invested and redeemed positions, thereby changing the overall size of the funds, which, when combined with market movements, resulted in a total closing net asset value of USD 46 billion (31 December 2020: USD 37 billion). Interests in unconsolidated structured entities USD million, except where indicated Financial assets at fair value held for trading Derivative financial instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Other financial assets measured at amortized cost TToottaall aasssseettss Derivative financial instruments TToottaall lliiaabbiilliittiieess AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt ((UUSSDD bbiilllliioonn)) USD million, except where indicated Financial assets at fair value held for trading Derivative financial instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Other financial assets measured at amortized cost TToottaall aasssseettss Derivative financial instruments SSeeccuurriittiizzaattiioonn vveehhiicclleess 224466 55 3355 332244 66110033 22 22 330044 Securitization vehicles 375 6 35 4163 3 CClliieenntt vveehhiicclleess 116622 4455 44,,552255 0022 44,,773322 1111 1111 881155 Client vehicles 131 49 12 6,624 02 6,805 11 3311..1122..2211 IInnvveessttmmeenntt ffuunnddss 66,,774433 115555 112255 222222 00 77,,224477 228811 228811 11558866 31.12.20 Investment funds 7,595 158 179 172 8,104 376 TToottaall 77,,115511 220055 112255 225577 44,,884499 11 1122,,558888 229944 229944 Total 8,101 213 179 208 6,624 0 15,326 390 MMaaxxiimmuumm eexxppoossuurree ttoo lloossss11 77,,115511 220055 112255 225577 44,,884499 225500 Maximum exposure to loss1 8,101 211 179 208 6,624 250 0 TToottaall lliiaabbiilliittiieess AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt ((UUSSDD bbiilllliioonn)) 11 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 22 Represents the carrying amount of loan commitments. The maximum exposure to loss for these instruments is equal to the notional amount. 33 As of 31 December 2021, USD 0.1 billion of the USD 0.6 billion (31 December 2020: USD 0.2 billion of the USD 0.4 billion) was held in Group Functions – Non-core and Legacy Portfolio. 44 Represents the principal amount outstanding. 55 Represents the market value of total assets. 66 Represents the net asset value of the investment funds sponsored by UBS and the carrying amount of UBS’s interests in the investment funds not sponsored by UBS. In 2021, UBS updated the presentation of this table to remove its interests in unconsolidated structured investment funds and the corresponding total asset information, where UBS’s interest is driven solely from UBS’s role as the fund’s investment manager and the fees it receives. This information is now separately disclosed in the accompanying text on the following page. Prior-period information has been aligned with this new presentation. 1365 1246 394 376 390 11 3 402 394 Note 29 Interests in subsidiaries and other entities (continued) Note 29 Interests in subsidiaries and other entities (continued) The Group retains or purchases interests in unconsolidated SEs in the form of direct investments, financing, guarantees, letters of credit, derivatives, as well as through management contracts. The Group’s maximum exposure to loss is generally equal to the carrying amount of the Group’s interest in the SE, with this subject to change over time with market movements. Guarantees, letters of credit and credit derivatives are an exception, with the contract’s notional amount, adjusted for losses already incurred, representing the maximum loss that the Group is exposed to. The maximum exposure to loss disclosed in the table on the previous page does not reflect the Group’s risk management activities, including effects from financial instruments that may be used to economically hedge risks inherent in the unconsolidated SE or risk-reducing effects of collateral or other credit enhancements. In 2021 and 2020, the Group did not provide support, financial or otherwise, to an unconsolidated SE when not contractually obligated to do so, nor does the Group have any intention to do so in the future. In 2021 and 2020, income and expenses from interests in unconsolidated SEs primarily resulted from mark-to-market movements recognized in Other net income from financial instruments measured at fair value through profit of loss, which have generally been hedged with other financial instruments, as well as fee and commission income received from UBS- sponsored funds. Interests in securitization vehicles As of 31 December 2021 and 31 December 2020, the Group held interests, both retained and acquired, in various securitization vehicles that relate to financing, underwriting, secondary market and derivative trading activities. The numbers outlined in the table on the previous page may differ from the securitization positions presented in the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for the following reasons: (i) exclusion of synthetic securitizations transacted with entities that are not SEs and transactions in which the Group did not have an interest because it did not absorb any risk; (ii) a different measurement basis in certain cases (e.g., IFRS carrying amount within the previous table compared with net exposure amount at default for Pillar 3 disclosures); and (iii) different classification of vehicles viewed as sponsored by the Group versus sponsored by third parties. › Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information Interests in client vehicles Client vehicles are established predominantly for clients to gain exposure to specific assets or risk exposures. Such vehicles may enter into derivative agreements, with UBS or a third party, to align the cash flows of the entity with the investor’s intended investment objective, or to introduce other desired risk exposures. As of 31 December 2021 and 31 December 2020, the Group retained interests in client vehicles sponsored by UBS and third parties that relate to financing, secondary market and derivative trading activities, and to hedge structured product offerings. Interests in investment funds Investment funds have a collective investment objective, and are either passively managed, so that any decision making does not have a substantive effect on variability, or are actively managed and investors or their governing bodies do not have substantive voting or similar rights. The Group holds interests in a number of investment funds, primarily resulting from seed investments or in order to hedge structured product offerings. In addition to the interests disclosed in the table on the previous page, the Group manages the assets of various pooled investment funds and receives fees based, in whole or part, on the net asset value of the fund and / or the performance of the fund. The specific fee structure is determined based on various market factors and considers the fund’s nature and the jurisdiction of incorporation, as well as fee schedules negotiated with clients. These fee contracts represent an interest in the fund, as they align the Group’s exposure with investors, providing a variable return based on the performance of the entity. Depending on the structure of the fund, these fees may be collected directly from the fund’s assets and / or from the investors. Any amounts due are collected on a regular basis and are generally backed by the fund’s assets. Therefore interest in such funds is not represented by the on-balance sheet fee receivable but rather by the future exposure to variable fees. The total assets of such funds were USD 370 billion and USD 359 billion as of 31 December 2021 and 31 December 2020, respectively, and have been excluded from the table on the previous page. The Group did not have any material exposure to loss from these interests as of 31 December 2021 or as of 31 December 2020. Consolidated financial statements | UBS Group AG consolidated financial statements c) Unconsolidated structured entities UBS is considered to sponsor another entity if, in addition to Sponsored unconsolidated structured entities in which UBS did ongoing involvement with the entity, it had a key role in not have an interest at year-end establishing that entity or in bringing together relevant During 2021 and 2020, the Group did not earn material income counterparties for a transaction facilitated by the entity. During from sponsored unconsolidated SEs in which UBS did not have an 2021, the Group sponsored the creation of various SEs and interest at year-end. interacted with a number of non-sponsored SEs, including During 2021 and 2020, UBS and third parties did not transfer securitization vehicles, client vehicles and certain investment any assets into sponsored securitization vehicles created in the funds, that UBS did not consolidate as of 31 December 2021 year. UBS and third parties transferred assets, alongside deposits because it did not control them. Interests in unconsolidated structured entities and debt issuances (which are assets from the perspective of the vehicle), of USD 1 billion and USD 2 billion, respectively, into sponsored client vehicles created in 2021 (2020: USD 0 billion and The table below presents the Group’s interests in and maximum USD 9 billion, respectively). For sponsored investment funds, exposure to loss from unconsolidated SEs, as well as the total transfers arose during the period as investors invested and assets held by the SEs in which UBS had an interest as of year- redeemed positions, thereby changing the overall size of the end, except for investment funds sponsored by third parties, for funds, which, when combined with market movements, resulted which the carrying amount of UBS’s interest as of year-end has in a total closing net asset value of USD 46 billion (31 December been disclosed. 2020: USD 37 billion). Interests in unconsolidated structured entities USD million, except where indicated Financial assets at fair value held for trading Derivative financial instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Other financial assets measured at amortized cost Derivative financial instruments TToottaall aasssseettss TToottaall lliiaabbiilliittiieess ((UUSSDD bbiilllliioonn)) AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt USD million, except where indicated Financial assets at fair value held for trading Derivative financial instruments Loans and advances to customers Financial assets at fair value not held for trading Financial assets measured at fair value through other comprehensive income Other financial assets measured at amortized cost Derivative financial instruments TToottaall aasssseettss TToottaall lliiaabbiilliittiieess ((UUSSDD bbiilllliioonn)) SSeeccuurriittiizzaattiioonn vveehhiicclleess MMaaxxiimmuumm eexxppoossuurree ttoo lloossss11 CClliieenntt vveehhiicclleess 116622 4455 44,,552255 0022 44,,773322 1111 1111 881155 Client vehicles 131 49 6,624 12 02 6,805 11 11 3311..1122..2211 IInnvveessttmmeenntt ffuunnddss 66,,774433 115555 112255 222222 00 77,,224477 228811 228811 11558866 158 179 172 8,104 376 376 31.12.20 Investment funds 7,595 TToottaall 77,,115511 220055 112255 225577 44,,884499 11 1122,,558888 229944 229944 Total 8,101 213 179 208 6,624 0 15,326 390 390 224466 55 3355 332244 66110033 22 22 330044 375 6 35 4163 3 3 77,,115511 220055 112255 225577 44,,884499 225500 8,101 211 179 208 6,624 250 0 Securitization vehicles Maximum exposure to loss1 AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt 394 1365 1246 11 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 22 Represents the carrying amount of loan commitments. The maximum exposure to loss for these instruments is equal to the notional amount. 33 As of 31 December 2021, USD 0.1 billion of the USD 0.6 billion (31 December 2020: USD 0.2 billion of the USD 0.4 billion) was held in Group Functions – Non-core and Legacy Portfolio. 44 Represents the principal amount outstanding. 55 Represents the market value of total assets. 66 Represents the net asset value of the investment funds sponsored by UBS and the carrying amount of UBS’s interests in the investment funds not sponsored by UBS. In 2021, UBS updated the presentation of this table to remove its interests in unconsolidated structured investment funds and the corresponding total asset information, where UBS’s interest is driven solely from UBS’s role as the fund’s investment manager and the fees it receives. This information is now separately disclosed in the accompanying text on the following page. Prior-period information has been aligned with this new presentation. 402 403 395 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses Sale of wealth management business in Spain in 2022 In October 2021, UBS signed an agreement to sell its domestic wealth management business in Spain to Singular Bank. The agreement transition of employees, client relationships, products and services of the wealth management business of UBS in Spain. The transaction is subject to customary closing conditions and is expected to close in the third quarter of 2022. includes the As of 31 December 2021, the assets and liabilities of the business were presented in Global Wealth Management as a disposal group held for sale within Other non-financial assets and Other non-financial liabilities and amounted to USD 647 million and USD 823 million, respectively. Upon the closing of the transaction, UBS expects to record a pre-tax gain of approximately USD 0.2 billion. Sale of UBS Swiss Financial Advisers AG in 2022 In December 2021, UBS signed an agreement to sell its wholly owned subsidiary UBS Swiss Financial Advisers AG (SFA) to Vontobel. SFA is an SEC-registered investment advisor and FINMA-licensed securities firm that offers US clients tailored investment solutions in a Switzerland-based environment. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the third quarter of 2022. As of 31 December 2021, the assets and liabilities that are subject to the transaction were presented in Global Wealth Management as a disposal group held for sale within Other non- financial assets and Other non-financial liabilities and amounted to USD 446 million and USD 475 million, respectively. Upon the closing of the transaction, UBS does not expect a material effect on profit or loss or shareholders’ equity of the Group. Acquisitions of subsidiaries and businesses in 2022 Acquisition of Wealthfront in 2022 In January 2022, UBS entered into an agreement to acquire Wealthfront, an industry-leading digital wealth management provider, for a cash consideration of USD 1.4 billion. The acquisition is aligned with UBS’s growth strategy in the Americas, will broaden our reach among affluent investors and will add a new digital-first offering increasing our distribution capabilities. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the second half of 2022. Upon the closing of the transaction, Wealthfront will become a wholly owned subsidiary of UBS and UBS expects to recognize additional goodwill and other intangible assets of approximately USD 1.2 billion. Strategic partnership with Sumitomo Mitsui Trust Holdings In 2019, UBS entered into a strategic wealth management partnership in Japan with Sumitomo Mitsui Trust Holdings, Inc. (SuMi Trust Holdings). In January 2020, the first phase was launched, with operations commencing in the joint venture that was established to promote the respective services. At the time, UBS and SuMi Trust Holdings also started offering each other’s products and services to their respective clients. In the third quarter of 2021, the second phase of the partnership was completed, with the launch of a new operational partnership entity, UBS SuMi TRUST Wealth Management Co., Ltd., which is 51%-owned and controlled by UBS, requiring UBS to consolidate this entity. The new entity offers global securities and wealth management capabilities, together with the custody, real estate, inheritance and wealth transfer expertise of a Japanese trust banking group. Upon completion of this transaction in the third quarter of 2021, shareholders’ equity of the Group increased by USD 155 million, with no effect on profit or loss. Disposals of subsidiaries and businesses Sale of remaining investment in Clearstream Fund Centre AG In the second quarter of 2021, UBS sold its remaining minority investment in Clearstream Fund Centre AG to Deutsche Börse AG for CHF 390 million. The transaction followed the sale of a majority investment and successful transfer of control of Fondcenter AG to Deutsche Börse AG in 2020, when UBS recognized a post-tax gain on sale of USD 631 million in Other income. The sale of the remaining 48.8% investment resulted in a post-tax gain of USD 37 million in 2021, which was recognized in Other income, with no associated net tax expense. Long-term commercial cooperation arrangements remain in place for the provision of services by Clearstream to UBS, including jointly servicing banks and insurance companies. Sale of wealth management business in Austria In the third quarter of 2021, UBS completed the sale of its domestic wealth management business in Austria to LGT. The sale resulted in a pre-tax gain of USD 100 million, which was recognized in Other income, and an associated tax expense of USD 25 million. 404 396 Strategic partnership with Sumitomo Mitsui Trust Sale of wealth management business in Spain in 2022 Holdings In October 2021, UBS signed an agreement to sell its domestic wealth management business in Spain to Singular Bank. The In 2019, UBS entered into a strategic wealth management agreement includes the transition of employees, client partnership in Japan with Sumitomo Mitsui Trust Holdings, Inc. relationships, products and services of the wealth management (SuMi Trust Holdings). In January 2020, the first phase was business of UBS in Spain. The transaction is subject to customary launched, with operations commencing in the joint venture that closing conditions and is expected to close in the third quarter of UBS and SuMi Trust Holdings also started offering each other’s As of 31 December 2021, the assets and liabilities of the products and services to their respective clients. business were presented in Global Wealth Management as a In the third quarter of 2021, the second phase of the disposal group held for sale within Other non-financial assets and partnership was completed, with the launch of a new operational Other non-financial liabilities and amounted to USD 647 million partnership entity, UBS SuMi TRUST Wealth Management Co., and USD 823 million, respectively. Upon the closing of the Ltd., which is 51%-owned and controlled by UBS, requiring UBS transaction, UBS expects to record a pre-tax gain of approximately to consolidate this entity. The new entity offers global securities USD 0.2 billion. and wealth management capabilities, together with the custody, real estate, inheritance and wealth transfer expertise of a Sale of UBS Swiss Financial Advisers AG in 2022 Japanese trust banking group. Upon completion of this In December 2021, UBS signed an agreement to sell its wholly transaction in the third quarter of 2021, shareholders’ equity of owned subsidiary UBS Swiss Financial Advisers AG (SFA) to the Group increased by USD 155 million, with no effect on profit Vontobel. SFA is an SEC-registered investment advisor and or loss. Disposals of subsidiaries and businesses FINMA-licensed securities firm that offers US clients tailored investment solutions in a Switzerland-based environment. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the third quarter Sale of remaining investment in Clearstream Fund Centre AG of 2022. In the second quarter of 2021, UBS sold its remaining minority As of 31 December 2021, the assets and liabilities that are investment in Clearstream Fund Centre AG to Deutsche Börse AG subject to the transaction were presented in Global Wealth for CHF 390 million. The transaction followed the sale of a Management as a disposal group held for sale within Other non- majority investment and successful transfer of control of financial assets and Other non-financial liabilities and amounted Fondcenter AG to Deutsche Börse AG in 2020, when UBS to USD 446 million and USD 475 million, respectively. Upon the recognized a post-tax gain on sale of USD 631 million in Other closing of the transaction, UBS does not expect a material effect income. The sale of the remaining 48.8% investment resulted in on profit or loss or shareholders’ equity of the Group. a post-tax gain of USD 37 million in 2021, which was recognized in Other income, with no associated net tax expense. Long-term Acquisitions of subsidiaries and businesses in 2022 commercial cooperation arrangements remain in place for the provision of services by Clearstream to UBS, including jointly Acquisition of Wealthfront in 2022 servicing banks and insurance companies. Sale of wealth management business in Austria In January 2022, UBS entered into an agreement to acquire Wealthfront, an industry-leading digital wealth management provider, for a cash consideration of USD 1.4 billion. The In the third quarter of 2021, UBS completed the sale of its acquisition is aligned with UBS’s growth strategy in the Americas, domestic wealth management business in Austria to LGT. The sale will broaden our reach among affluent investors and will add a resulted in a pre-tax gain of USD 100 million, which was new digital-first offering increasing our distribution capabilities. recognized in Other income, and an associated tax expense of The transaction is subject to customary closing conditions, USD 25 million. including regulatory approvals, and is expected to close in the second half of 2022. Upon the closing of the transaction, Wealthfront will become a wholly owned subsidiary of UBS and UBS expects to recognize additional goodwill and other intangible assets of approximately USD 1.2 billion. Consolidated financial statements | UBS Group AG consolidated financial statements Note 30 Changes in organization and acquisitions and disposals of subsidiaries and businesses Note 31 Related parties was established to promote the respective services. At the time, 2022. a) Remuneration of key management personnel UBS defines related parties as associates (entities that are significantly influenced by UBS), joint ventures (entities in which UBS shares control with another party), post-employment benefit plans for UBS employees, key management personnel, close family members of key management personnel and entities that are, directly or indirectly, controlled or jointly controlled by key management personnel or their close family members. Key management personnel is defined as members of the Board of Directors (BoD) and Group Executive Board (GEB). The Chairman of the BoD has a specific management employment contract and receives pension benefits upon retirement. Total remuneration of the Chairman of the BoD and all GEB members is included in the table below. Remuneration of key management personnel USD million, except where indicated Base salaries and other cash payments1 Incentive awards – cash2 Annual incentive award under DCCP Employer’s contributions to retirement benefit plans Benefits in kind, fringe benefits (at market value) Share-based compensation3 TToottaall 3311..1122..2211 31.12.20 31.12.19 3311 1177 2266 33 11 4455 112244 33 18 27 3 1 47 129 32 14 21 3 1 37 108 TToottaall ((CCHHFF mmiilllliioonn))44 11 May include role-based allowances in line with market practice and regulatory requirements. 22 The cash portion may also include blocked shares in line with regulatory requirements. 33 Compensation expense is based on the share price on grant date taking into account performance conditions. Refer to Note 27 for more information. For GEB members, share-based compensation for 2021, 2020 and 2019 was entirely composed of LTIP awards.For the Chairman of the BoD the share-based compensation for 2021, 2020 and 2019 was entirely composed of UBS shares. 44 Swiss franc amounts disclosed represent the respective US dollar amounts translated at the applicable performance award currency exchange rates (2021: USD / CHF 0.92; 2020: USD / CHF 0.94; 2019: USD / CHF 0.99). 121 107 111133 The independent members of the BoD do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the BoD. Payments to these individuals for their services as external board members amounted to USD 7.5 million (CHF 6.9 million) in 2021, USD 7.0 million (CHF 6.6 million) in 2020 and USD 7.3 million (CHF 7.3 million) in 2019. b) Equity holdings of key management personnel Equity holdings of key management personnel1 3311..1122..2211 31.12.20 Number of shares held by members of the BoD, GEB and parties closely linked to them2 11 No options were held in 2021 and 2020 by non-independent members of the BoD and any GEB member or any of its related parties. 22 Excludes shares granted under variable compensation plans with forfeiture provisions. 5,288,317 44,,559977,,000066 Of the share totals above, no shares were held by close family members of key management personnel on 31 December 2021 and 31 December 2020. No shares were held by entities that are directly or indirectly controlled or jointly controlled by key management personnel or their close family members on 31 December 2021 and 31 December 2020. As of 31 December 2021, no member of the BoD or GEB was the beneficial owner of more than 1% of UBS Group AG’s shares. 404 405 397 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 31 Related parties (continued) c) Loans, advances and mortgages to key management personnel The non-independent members of the BoD and GEB members are granted loans, fixed advances and mortgages in the ordinary course of business on substantially the same terms and conditions that are available to other employees, including interest rates and collateral, and neither involve more than the normal risk of collectability nor contain any other unfavorable features for the Independent BoD members are granted loans and firm. mortgages in the ordinary course of business at general market conditions. Movements in the loan, advances and mortgage balances are as follows. Loans, advances and mortgages to key management personnel1 USD million, except where indicated Balance at the beginning of the year Additions Reductions BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr2 22002211 3388 1111 ((1155)) 3344 2020 33 14 (8) 38 BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr ((CCHHFF mmiilllliioonn))2, 3 11 All loans are secured loans. 22 There were no unused uncommitted credit facilities as of 31 December 2021 and 31 December 2020. 33 Swiss franc amounts disclosed represent the respective US dollar amounts translated at the relevant year-end closing exchange rate. 3311 34 d) Other related-party transactions with entities controlled by key management personnel In 2021 and 2020, UBS did not enter into transactions with entities that are directly or indirectly controlled or jointly controlled by UBS’s key management personnel or their close family members and as of 31 December 2021, 31 December 2020 and 31 December 2019, there were no outstanding balances related to such transactions. Furthermore, in 2021 and 2020, entities controlled by key management personnel did not sell any goods or provide any services to UBS, and therefore did not receive any fees from UBS. UBS also did not provide services to such entities in 2021 and 2020, and therefore also received no fees. e) Transactions with associates and joint ventures Loans to and outstanding receivables from associates and joint ventures USD million Carrying amount at the beginning of the year Additions Reductions Foreign currency translation Carrying amount at the end of the year of which: unsecured loans and receivables Other transactions with associates and joint ventures USD million Payments to associates and joint ventures for goods and services received Fees received for services provided to associates and joint ventures Liabilities to associates and joint ventures Commitments and contingent liabilities to associates and joint ventures › Refer to Note 29 for an overview of investments in associates and joint ventures 22002211 663300 113333 ((449977)) ((1144)) 225511 224433 2020 982 527 (1,001) 123 630 621 As of or for the year ended 3311..1122..2211 31.12.20 115577 110044 112277 77 139 128 91 9 406 398 Consolidated financial statements | UBS Group AG consolidated financial statements Note 31 Related parties (continued) Note 32 Invested assets and net new money c) Loans, advances and mortgages to key management personnel The non-independent members of the BoD and GEB members are firm. Independent BoD members are granted loans and granted loans, fixed advances and mortgages in the ordinary mortgages in the ordinary course of business at general market course of business on substantially the same terms and conditions conditions. The following disclosures provide a breakdown of UBS’s invested assets and a presentation of their development, including net new money, as required by the Swiss Financial Market Supervisory Authority. that are available to other employees, including interest rates and Movements in the loan, advances and mortgage balances are Invested assets collateral, and neither involve more than the normal risk of as follows. collectability nor contain any other unfavorable features for the Loans, advances and mortgages to key management personnel1 USD million, except where indicated Balance at the beginning of the year Additions Reductions BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr2 BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr ((CCHHFF mmiilllliioonn))2, 3 translated at the relevant year-end closing exchange rate. 11 All loans are secured loans. 22 There were no unused uncommitted credit facilities as of 31 December 2021 and 31 December 2020. 33 Swiss franc amounts disclosed represent the respective US dollar amounts d) Other related-party transactions with entities controlled by key management personnel In 2021 and 2020, UBS did not enter into transactions with 2020, entities controlled by key management personnel did not entities that are directly or indirectly controlled or jointly sell any goods or provide any services to UBS, and therefore did controlled by UBS’s key management personnel or their close not receive any fees from UBS. UBS also did not provide services family members and as of 31 December 2021, 31 December to such entities in 2021 and 2020, and therefore also received no 2020 and 31 December 2019, there were no outstanding fees. balances related to such transactions. Furthermore, in 2021 and Invested assets consist of all client assets managed by or deposited with UBS for investment purposes. Invested assets include managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts, and wealth management securities or brokerage accounts. All assets held for purely transactional purposes and custody-only assets, including corporate client assets held for cash management and transactional purposes, are excluded from invested assets, as the Group only administers the assets and does not offer advice on how they should be invested. Also excluded are non-bankable assets (e.g., art collections) and deposits from third-party banks for funding or trading purposes. Discretionary assets are defined as client assets that UBS decides how to invest. Other invested assets are those where the client ultimately decides how the assets are invested. When a single product is created in one business division and sold in another, it is counted in both the business division managing the investment and the one distributing it. This results in double counting within UBS total invested assets, as both business divisions are independently providing a service to their respective clients, and both add value and generate revenue. Net new money Net new money in a reporting period is the amount of invested assets entrusted to UBS by new and existing clients, less those withdrawn by existing clients and clients who terminated relationships with UBS. Net new money is calculated using the direct method, under which inflows and outflows to / from invested assets are determined at the client level, based on transactions. Interest and dividend income from invested assets are not counted as net new money inflows. Market and currency movements, as well as fees, commissions and interest on loans charged, are excluded from net new money, as are effects resulting from any acquisition or divestment of a UBS subsidiary or business. Reclassifications between invested assets and custody-only assets as a result of a change in service level delivered are generally treated as net new money flows. However, where the change in service level directly results from an externally imposed regulation or a strategic decision by UBS to exit a market or specific service offering, the one-time net effect is reported as Other effects. The Investment Bank does not track invested assets and net new money. However, when a client is transferred from the Investment Bank to another business division, this may produce net new money even though the client assets were already with UBS. e) Transactions with associates and joint ventures Invested assets and net new money Loans to and outstanding receivables from associates and joint ventures Carrying amount at the beginning of the year USD million Additions Reductions Foreign currency translation Carrying amount at the end of the year of which: unsecured loans and receivables Other transactions with associates and joint ventures USD million Payments to associates and joint ventures for goods and services received Fees received for services provided to associates and joint ventures Liabilities to associates and joint ventures Commitments and contingent liabilities to associates and joint ventures › Refer to Note 29 for an overview of investments in associates and joint ventures USD billion Fund assets managed by UBS Discretionary assets Other invested assets TToottaall iinnvveesstteedd aasssseettss11 of which: double counts NNeett nneeww mmoonneeyy11 11 Includes double counts. Development of invested assets USD billion Total invested assets at the beginning of the year1 Net new money Market movements2 Foreign currency translation Other effects of which: acquisitions / (divestments) TToottaall iinnvveesstteedd aasssseettss aatt tthhee eenndd ooff tthhee yyeeaarr11 11 Includes double counts. 22 Includes interest and dividend income. As of or for the year ended 3311..1122..2211 31.12.20 441199 11,,770055 22,,447722 44,,559966 335566 115599 22002211 44,,118877 115599 333399 ((6655)) ((2244)) ((55)) 397 1,459 2,331 4,187 311 127 2020 3,607 127 359 96 (1) 0 44,,559966 4,187 22002211 2020 3388 1111 ((1155)) 3344 3311 33 14 (8) 38 34 22002211 663300 113333 ((449977)) ((1144)) 225511 224433 115577 110044 112277 77 2020 982 527 (1,001) 123 630 621 139 128 91 9 As of or for the year ended 3311..1122..2211 31.12.20 406 407 399 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 33 Currency translation rates The following table shows the rates of the main currencies used to translate the financial information of UBS’s operations with a functional currency other than the US dollar into US dollars. 1 CHF 1 EUR 1 GBP 100 JPY CClloossiinngg eexxcchhaannggee rraattee As of AAvveerraaggee rraattee11 For the year ended 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 31.12.19 11..1100 11..1144 11..3355 00..8877 1.13 1.22 1.37 0.97 11..0099 11..1188 11..3377 00..9911 1.07 1.15 1.29 0.94 1.01 1.12 1.28 0.92 11 Monthly income statement items of operations with a functional currency other than the US dollar are translated into US dollars using month-end rates. Disclosed average rates for a year represent an average of 12 month-end rates, weighted according to the income and expense volumes of all operations of the Group with the same functional currency for each month. Weighted average rates for individual business divisions may deviate from the weighted average rates for the Group. Note 34 Events after the reporting period Russia’s invasion of Ukraine Russia’s invasion of Ukraine on 24 February 2022 has triggered disruptions and uncertainties in the markets and the global economy, as well as coordinated implementation of sanctions by Switzerland, the United States, the European Union, the United Kingdom and others against Russia and, certain Russian entities and nationals. These events, together with potential counter- sanctions and other measures taken by Russia, impact UBS’s businesses. UBS’s country risk exposure to Russia was approximately USD 0.6 billion across its business divisions as of 31 December 2021. This exposure has been reduced since year-end 2021. In addition, UBS is currently monitoring settlement risk on certain open transactions with Russian bank- or non-bank counterparties or Russian underlyings, as market closures, the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures. UBS’s balance sheet as of 31 December 2021 also included net assets of USD 51 million held in UBS’s Russian subsidiary, OOO UBS Bank. As of 3 March 2022, UBS also had approximately USD 0.2 billion of exposure arising from reliance on Russian assets as collateral on Lombard lending and other secured financing in Global Wealth Management. As of 3 March 2022, UBS identified a small number of Global Wealth Management clients subject to the recently introduced sanctions with total loans outstanding of under USD 10 million. UBS continues to closely monitor related effects on its financial statements, including estimated direct and indirect impacts on expected credit loss calculations and on fair value measurement of assets, liabilities and off-balance sheet exposures. The situation continues to evolve and broader implications for other counterparties of UBS, including financial institutions, are not possible to assess at this time; however, there were no material adverse effects on UBS’s financial statements as of 4 March 2022. › Refer to “Top and emerging risks” and “Country risk” in the “Risk management and control” section and to “Performance in the financial services industry is affected by market conditions and the macroeconomic climate” in the “Risk factors” section of this report for more information 408 400 Consolidated financial statements | UBS Group AG consolidated financial statements The following table shows the rates of the main currencies used to translate the financial information of UBS’s operations with a functional currency other than the US dollar into US dollars. CClloossiinngg eexxcchhaannggee rraattee As of AAvveerraaggee rraattee11 For the year ended 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 31.12.19 11..1100 11..1144 11..3355 00..8877 1.13 1.22 1.37 0.97 11..0099 11..1188 11..3377 00..9911 1.07 1.15 1.29 0.94 1.01 1.12 1.28 0.92 11 Monthly income statement items of operations with a functional currency other than the US dollar are translated into US dollars using month-end rates. Disclosed average rates for a year represent an average of 12 month-end rates, weighted according to the income and expense volumes of all operations of the Group with the same functional currency for each month. Weighted average rates for individual business divisions may deviate from the weighted average rates for the Group. Note 34 Events after the reporting period Russia’s invasion of Ukraine of exposure arising from reliance on Russian assets as collateral Russia’s invasion of Ukraine on 24 February 2022 has triggered on Lombard lending and other secured financing in Global Wealth disruptions and uncertainties in the markets and the global Management. economy, as well as coordinated implementation of sanctions by As of 3 March 2022, UBS identified a small number of Global Switzerland, the United States, the European Union, the United Wealth Management clients subject to the recently introduced Kingdom and others against Russia and, certain Russian entities sanctions with total loans outstanding of under USD 10 million. and nationals. These events, together with potential counter- UBS continues to closely monitor related effects on its financial sanctions and other measures taken by Russia, impact UBS’s statements, including estimated direct and indirect impacts on businesses. expected credit loss calculations and on fair value measurement UBS’s country risk exposure to Russia was approximately of assets, liabilities and off-balance sheet exposures. The situation USD 0.6 billion across its business divisions as of 31 December continues to evolve and broader implications for other 2021. This exposure has been reduced since year-end 2021. In counterparties of UBS, including financial institutions, are not addition, UBS is currently monitoring settlement risk on certain possible to assess at this time; however, there were no material open transactions with Russian bank- or non-bank counterparties adverse effects on UBS’s financial statements as of 4 March 2022. or Russian underlyings, as market closures, the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures. UBS’s › Refer to “Top and emerging risks” and “Country risk” in the “Risk management and control” section and to “Performance in the financial services industry is affected by market conditions and the macroeconomic climate” in the “Risk factors” section of balance sheet as of 31 December 2021 also included net assets of this report for more information USD 51 million held in UBS’s Russian subsidiary, OOO UBS Bank. As of 3 March 2022, UBS also had approximately USD 0.2 billion 1 CHF 1 EUR 1 GBP 100 JPY 408 Note 33 Currency translation rates Note 35 Main differences between IFRS and Swiss GAAP The consolidated financial statements of UBS Group AG are prepared in accordance with International Financial Reporting Standards (IFRS). The Swiss Financial Market Supervisory Authority (FINMA) requires financial groups presenting financial statements under IFRS to provide a narrative explanation of the main differences between IFRS and Swiss generally accepted accounting principles (GAAP) (the FINMA Accounting Ordinance, FINMA Circular 2020/1 “Accounting – banks” and the Banking Ordinance (the BO)). Included in this Note are the significant differences in the recognition and measurement between IFRS and the provisions of the BO and the guidelines of FINMA governing true and fair view financial statement reporting pursuant to Art. 25 to Art. 42 of the BO. 1. Consolidation Under IFRS, all entities that are controlled by the holding entity are consolidated. Under Swiss GAAP, controlled entities deemed immaterial to the Group or held only temporarily are exempt from instead are recorded as participations consolidation, but accounted for under the equity method of accounting or as financial investments measured at the lower of cost or market value. 2. Classification and measurement of financial assets Under IFRS, debt instruments are measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL), depending on the nature of the business model within which the asset is held and the characteristics of the contractual cash flows of the asset. Equity instruments are accounted for at FVTPL by UBS. Under Swiss GAAP, trading assets and derivatives are measured at FVTPL in line with IFRS. However, non-trading debt instruments are generally measured at amortized cost, even when the assets are managed on a fair value basis. In addition, the measurement of financial assets in the form of securities depends on the nature of the asset: debt instruments not held to maturity, i.e., instruments available for sale, and equity instruments with no permanent holding intent, are classified as Financial investments and measured at the lower of (amortized) cost or market value. Market value adjustments up to the original cost amount and realized gains or losses upon disposal of the investment are recorded in the income statement as Other income from ordinary activities. Equity instruments with a permanent holding intent are classified as participations in Non-consolidated investments in subsidiaries and other participations and are measured at cost less impairment. Impairment losses are recorded in the income statement as Impairment of investments in non-consolidated subsidiaries and other participations. Reversals of impairments up to the original cost amount and realized gains or losses upon disposal of the investment are recorded as Extraordinary income / Extraordinary expenses. 3. Fair value option applied to financial liabilities Under IFRS, UBS applies the fair value option to certain financial liabilities not held for trading. Instruments for which the fair value option is applied are accounted for at FVTPL. The amount of change in the fair value attributable to changes in UBS’s own credit is presented in Other comprehensive income directly within Retained earnings. The fair value option is applied primarily to issued structured debt instruments, certain non-structured debt instruments, certain payables under repurchase agreements and cash collateral on securities lending agreements, amounts due under unit-linked investment contracts, and brokerage payables. Under Swiss GAAP, the fair value option can only be applied to structured debt instruments consisting of a debt host contract and one or more embedded derivatives that do not relate to own equity. Furthermore, unrealized changes in fair value attributable to changes in UBS’s own credit are not recognized, whereas realized own credit is recognized in Net trading income. 4. Allowances and provisions for credit losses Swiss GAAP permit use of IFRS for accounting for allowances and provisions for credit losses based on an expected credit loss (ECL) model. UBS has chosen to apply the IFRS 9 ECL approach to the substantial majority of exposures in scope of Swiss GAAP ECL requirements, including all exposures in scope of ECL under both Swiss GAAP and IFRS. In addition, for a small population of exposures within the scope of Swiss GAAP ECL requirements, which are not subject to ECL under IFRS due to classification and measurements differences, UBS applies an alternative approach. Where Pillar 1 internal ratings-based (IRB) models are applied to measure credit risk, ECL for such exposures is determined by the regulatory expected loss (EL), with an add-on for scaling up to the residual maturity of exposures maturing beyond the next 12 months. For detailed information on regulatory EL, refer to the “Risk management and control” section of this report. For exposures where the Pillar 1 standardized approach (SA) is used to measure credit risk, ECL is determined using a portfolio approach that derives a conservative probability of default (PD) and loss given default (LGD) for the entire portfolio. 5. Hedge accounting Under IFRS, when cash flow hedge accounting is applied, the fair value gain or loss on the effective portion of a derivative designated as a cash flow hedge is recognized initially in equity and reclassified to the income statement when certain conditions are met. When fair value hedge accounting is applied, the fair value change of the hedged item attributable to the hedged risk is reflected in the measurement of the hedged item and is recognized in the income statement along with the change in the fair value of the hedging derivative. Under Swiss GAAP, the effective portion of the fair value change of a derivative instrument designated as a cash flow or as a fair value hedge is deferred on the balance sheet as Other assets or Other liabilities. The carrying amount of the hedged item designated in fair value hedges is not adjusted for fair value changes attributable to the hedged risk. 409 401 Financial statements Consolidated financial statements | UBS Group AG consolidated financial statements Note 35 Main differences between IFRS and Swiss GAAP (continued) 6. Goodwill and intangible assets Under IFRS, goodwill acquired in a business combination is not amortized but tested annually for impairment. Intangible assets with an indefinite useful life are also not amortized but tested annually for impairment. Under Swiss GAAP, goodwill and intangible assets with indefinite useful lives are amortized over a period not exceeding five years, unless a longer useful life, which may not exceed 10 years, can be justified. In addition, these assets are tested annually for impairment. 7. Post-employment benefit plans Swiss GAAP permit the use of IFRS or Swiss accounting standards for post-employment benefit plans, with the election made on a plan-by-plan basis. UBS has elected to apply IFRS (IAS 19) for the non-Swiss defined benefit plans in the UBS AG standalone financial statements and Swiss GAAP (FER 16) for the Swiss pension plan in the UBS AG and the UBS Switzerland AG standalone financial statements. The requirements of Swiss GAAP are better aligned with the specific nature of Swiss pension plans, which are hybrid in that they combine elements of defined contribution and defined benefit plans, but are treated as defined benefit plans under IFRS. Key differences between Swiss GAAP and IFRS include the treatment of dynamic elements, such as future salary increases and future interest credits on retirement savings, which are not considered under the static method used in accordance with Swiss GAAP. Also, the discount rate used to determine the defined benefit obligation in accordance with IFRS is based on the yield of high-quality corporate bonds of the market in the respective pension plan country. The discount rate used in accordance with Swiss GAAP (i.e., the technical interest rate) is determined by the Pension Foundation Board based on the expected returns of the Board’s investment strategy. For defined benefit plans, IFRS require the full defined benefit obligation net of the plan assets to be recorded on the balance sheet subject to the asset ceiling rules, with changes resulting from remeasurements recognized directly in equity. However, for non-Swiss defined benefit plans for which IFRS accounting is elected, changes due to remeasurements are recognized in the income statement of UBS AG standalone under Swiss GAAP. Swiss GAAP require employer contributions to the pension fund to be recognized as personnel expenses in the income statement. Swiss GAAP also require an assessment of whether, based on the pension fund’s financial statements prepared in accordance with Swiss accounting standards (FER 26), an economic benefit to, or obligation of, the employer arises from the pension fund that is recognized in the balance sheet when conditions are met. Conditions for recording a pension asset or liability would be met if, for example, an employer contribution reserve is available or the employer is required to contribute to the reduction of a pension deficit (on an FER 26 basis). 8. Leasing Under IFRS, a single lease accounting model applies that requires UBS to record a right-of-use (RoU) asset and a corresponding lease liability on the balance sheet when UBS is a lessee in a lease arrangement. The RoU asset and the lease liability are recognized when UBS acquires control of the physical use of the asset. The lease liability is measured based on the present value of the lease payments over the lease term, discounted using UBS’s unsecured borrowing rate. The RoU asset is recorded at an amount equal to the lease liability but is adjusted for rent prepayments, initial direct costs, any costs to refurbish the leased asset and / or lease incentives received. The RoU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. Under Swiss GAAP, leases that transfer substantially all the risks and rewards, but not necessarily legal title in the underlying assets, are classified as finance leases. All other leases are classified as operating leases. Whereas finance leases are recognized on the balance sheet and measured in line with IFRS, operating leases are not recognized on the balance sheet, with payments recognized as General and administrative expenses on a straight-line basis over the lease term, which commences with control of the physical use of the asset. Lease incentives are treated as a reduction of rental expense and recognized on a consistent basis over the lease term. 9. Netting of derivative assets and liabilities Under IFRS, derivative assets, derivative liabilities and related cash collateral not settled to market are reported on a gross basis unless the restrictive IFRS netting requirements are met: (i) existence of master netting agreements and related collateral arrangements that are unconditional and legally enforceable, in both the normal course of business and the event of default, bankruptcy or insolvency of UBS and its counterparties; and (ii) UBS’s intention to either settle on a net basis or to realize the asset and settle the liability simultaneously. Under Swiss GAAP, derivative assets, derivative liabilities and related cash collateral not settled to market are generally reported on a net basis, provided the master netting and the related collateral agreements are legally enforceable in the event of default, bankruptcy or insolvency of UBS’s counterparties. 10. Negative interest Under IFRS, negative interest income arising on a financial asset does not meet the definition of interest income and, therefore, negative interest on financial assets and negative interest on financial liabilities are presented within interest expense and interest income, respectively. Under Swiss GAAP, negative interest on financial assets is presented within interest income and negative interest on financial liabilities is presented within interest expense. 11. Extraordinary income and expense Certain non-recurring and non-operating income and expense items, such as realized gains or losses from the disposal of participations, fixed and intangible assets, and reversals of impairments of participations and fixed assets, are classified as extraordinary items under Swiss GAAP. This distinction is not available under IFRS.  410 402 Standalone financial statements Table of contents 404 UBS Group AG standalone financial statements 404 405 406 Income statement Balance sheet Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve 407 Notes to the UBS Group AG standalone financial statements 407 408 1 2 Corporate information Accounting policies 412 412 412 412 412 413 413 414 414 415 417 417 418 Liquid assets Balance sheet notes 9 10 Marketable securities 11 Other short-term receivables 12 Accrued income and prepaid expenses Investments in subsidiaries Financial assets Current interest-bearing liabilities Accrued expenses and deferred income Long-term interest-bearing liabilities Compensation-related long-term liabilities Share capital Treasury shares 13 14 15 16 17 18 19 20 410 410 410 410 410 411 411 4 5 6 7 8 Income statement notes 3 Dividend income from investments in subsidiaries Other operating income Financial income Personnel expenses Other operating expenses Financial expenses 419 Additional information 419 21 419 419 420 22 23 24 421 25 Assets pledged to secure own liabilities Contingent liabilities Significant shareholders Share ownership of the members of the Board of Directors, the Group Executive Board and other employees Related parties 422 Report of the statutory auditor on the financial statements 403 UBS Group AG standalone financial statements UBS Group AG standalone financial statements Audited | Income statement Dividend income from investments in subsidiaries Other operating income Financial income OOppeerraattiinngg iinnccoommee Personnel expenses Other operating expenses Amortization of intangible assets Financial expenses OOppeerraattiinngg eexxppeennsseess Profit / (loss) before income taxes Tax expense / (benefit) NNeett pprrooffiitt // ((lloossss)) USD million For the year ended CHF million For the year ended Note 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3 4 5 6 7 8 44,,667722 1122 11,,880066 66,,449900 2211 4444 44 11,,775511 11,,881199 44,,667711 77 44,,666644 3,853 17 1,836 5,706 19 69 4 1,765 1,858 3,848 6 3,841 44,,227700 1122 11,,665533 55,,993355 1199 4400 44 11,,660033 11,,666655 44,,227700 66 44,,226644 3,646 16 1,714 5,376 18 63 4 1,650 1,735 3,641 6 3,635 404 404 UBS Group AG standalone financial statements UBS Group AG standalone financial statements Audited | Income statement Dividend income from investments in subsidiaries Other operating income Financial income OOppeerraattiinngg iinnccoommee Personnel expenses Other operating expenses Amortization of intangible assets Financial expenses OOppeerraattiinngg eexxppeennsseess Profit / (loss) before income taxes Tax expense / (benefit) NNeett pprrooffiitt // ((lloossss)) USD million For the year ended CHF million For the year ended Note 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3 4 5 6 7 8 44,,667722 1122 11,,880066 66,,449900 2211 4444 44 11,,775511 11,,881199 44,,667711 77 44,,666644 3,853 17 1,836 5,706 19 69 4 1,765 1,858 3,848 6 3,841 44,,227700 1122 11,,665533 55,,993355 1199 4400 44 11,,660033 11,,666655 44,,227700 66 44,,226644 3,646 16 1,714 5,376 18 63 4 1,650 1,735 3,641 6 3,635 Balance sheet Assets Liquid assets Marketable securities Other short-term receivables Accrued income and prepaid expenses TToottaall ccuurrrreenntt aasssseettss Investments in subsidiaries of which: investment in UBS AG Financial assets Other intangible assets Other non-current assets TToottaall nnoonn--ccuurrrreenntt aasssseettss TToottaall aasssseettss of which: amounts due from subsidiaries Liabilities Current interest-bearing liabilities Accrued expenses and deferred income TToottaall sshhoorrtt--tteerrmm lliiaabbiilliittiieess Long-term interest-bearing liabilities Compensation-related long-term liabilities TToottaall lloonngg--tteerrmm lliiaabbiilliittiieess TToottaall lliiaabbiilliittiieess of which: amounts due to subsidiaries Equity Share capital General reserves of which: statutory capital reserve of which: capital contribution reserve Voluntary earnings reserve Treasury shares of which: against capital contribution reserve Reserve for own shares held by subsidiaries Net profit / (loss) EEqquuiittyy aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss TToottaall lliiaabbiilliittiieess aanndd eeqquuiittyy USD million CHF million Note 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 9 10 11 12 13 14 15 16 17 18 19 20 11,,990011 110022 44,,994422 992277 77,,887722 4411,,119999 4400,,888899 5566,,335500 00 2266 9977,,557766 110055,,444488 2,198 84 5,555 947 8,784 41,199 40,889 50,062 4 21 91,286 100,071 6633,,558877 58,340 44,,773322 11,,884466 66,,557788 5555,,003344 33,,111166 5588,,114499 6644,,772277 3,853 2,097 5,950 50,993 3,128 54,120 60,071 11,,773333 9933 44,,550055 884455 77,,117777 3377,,556600 3377,,227777 5511,,337733 00 2244 8888,,995577 9966,,113333 5577,,997700 44,,331144 11,,668833 55,,999977 5500,,117722 22,,884411 5533,,001133 5599,,001100 1,946 74 4,919 839 7,779 36,483 36,209 44,332 3 19 80,837 88,616 51,662 3,412 1,857 5,269 45,156 2,770 47,925 53,194 774411 1,268 667755 1,123 337777 2266,,116611 2266,,116611 2266,,116611 1144,,114466 ((44,,662299)) ((11,,224422)) 00 44,,666644 4400,,772200 393 27,048 27,048 27,048 12,738 (4,020) (180) 0 3,841 40,000 110055,,444488 100,071 337700 2255,,668822 2255,,668822 2255,,668822 1111,,115533 ((44,,334455)) ((11,,114455)) 00 44,,226644 3377,,112244 9966,,113333 386 26,506 26,506 26,506 8,812 (3,917) (174) 0 3,635 35,421 88,616 404 405 405 Financial statementsUBS Group AG standalone financial statements Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 6 April 2022 approve the appropriation of total profit and an ordinary dividend distribution of USD 0.50 (gross) in cash per share of CHF 0.10 nominal value under the terms set out below: Net profit for the period Profit / (loss) carried forward TToottaall pprrooffiitt aavvaaiillaabbllee ffoorr aapppprroopprriiaattiioonn AApppprroopprriiaattiioonn ooff ttoottaall pprrooffiitt Appropriation to voluntary earnings reserve Dividend distribution: USD 0.50 (gross) per dividend-bearing share, USD 0.25 of which out of total profit1 PPrrooffiitt // ((lloossss)) ccaarrrriieedd ffoorrwwaarrdd USD million CHF million For the year ended For the year ended 3311..1122..2211 44,,666644 00 44,,666644 ((33,,773399)) ((992266)) 00 3311..1122..2211 44,,226644 00 44,,226644 ((33,,442233)) ((884411))22 00 11 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 926 million presented is based on the total number of shares issued as of 31 December 2021. If the final total amount of the dividend is higher / lower, the difference will be balanced through the appropriation to the voluntary earnings reserve. 22 For illustrative purposes, converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10). Total statutory capital reserve: capital contribution reserve before proposed distribution1 Dividend distribution: USD 0.50 (gross) per dividend-bearing share, USD 0.25 of which out of capital contribution reserve2 TToottaall ssttaattuuttoorryy ccaappiittaall rreesseerrvvee:: ccaappiittaall ccoonnttrriibbuuttiioonn rreesseerrvvee aafftteerr pprrooppoosseedd ddiissttrriibbuuttiioonn USD million CHF million For the year ended For the year ended 3311..1122..2211 2266,,116611 ((992266)) 2255,,223366 3311..1122..2211 2255,,668822 ((884411))33 2244,,884400 11 The Swiss Federal Tax Administration’s current position is that, of the CHF 25.7 billion capital contribution reserve available as of 31 December 2021, an amount limited to CHF 11.0 billion is available from which dividends may be paid without a Swiss withholding tax deduction. This amount includes a reduction of capital contribution reserves of CHF 223 million in 2021 (based on the purchase price). 22 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 926 million presented is based on the total number of shares issued as of 31 December 2021. 33 For illustrative purposes, converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10). As set out above, half of the ordinary dividend distribution of USD 0.50 (gross) in cash per share is payable out of total profit and the other half is payable out of the capital contribution reserve. The portion of the dividend paid out of total profit will be subject to a 35% Swiss withholding tax. The ordinary dividend distribution is declared in US dollars. Shareholders whose shares are held through SIX SIS AG will receive dividends in Swiss francs, based on a published exchange rate calculated up to five decimal places on the day prior to the ex-dividend date. Shareholders holding shares through DTC or directly registered in the US share register with Computershare will be paid dividends in US dollars. The total amount of the dividend distribution will be capped at CHF 3,400 million (the Cap). To the extent that the Swiss franc equivalent of the total dividend distribution would exceed the Cap on the day of the AGM, based on the exchange rate determined by the Board of Directors in its reasonable opinion, the US dollar per share amount of the dividend will be reduced on a pro rata basis so that the total Swiss franc amount does not exceed the Cap. Provided that the proposed dividend distribution out of the total profit and the capital contribution reserve is approved, the payment of the dividend will be made on 14 April 2022 to holders of shares on the record date of 13 April 2022. The shares will be traded ex-dividend as of 12 April 2022 and, accordingly, the last day on which the shares may be traded with entitlement to receive the dividend will be 11 April 2022. 406 406 Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve Notes to the UBS Group AG standalone financial statements Note 1 Corporate information UBS Group AG is incorporated and domiciled in Switzerland and its registered office is at Bahnhofstrasse 45, CH-8001 Zurich, Switzerland. UBS Group AG operates under Art. 620 et seq. of the Swiss Code of Obligations as an Aktiengesellschaft (a corporation limited by shares). UBS Group AG is the ultimate holding company of the UBS Group, the grantor of the majority of UBS’s deferred compensation plans and the issuer of loss-absorbing capital notes which qualify as Basel III additional tier 1 (AT1) capital on a consolidated UBS Group basis and senior unsecured debt which contributes to the total loss-absorbing capacity (TLAC) of the Group. The proceeds from the issuances of loss-absorbing AT1 capital notes and TLAC-eligible senior unsecured debt instruments are on-lent to UBS AG. › Refer to Notes 15 and 17 for more information about the main terms and conditions of the loss-absorbing AT1 capital notes and TLAC-eligible senior unsecured debt instruments issued Furthermore, UBS Group AG grants Deferred Contingent Capital Plan (DCCP) awards to UBS Group employees. These DCCP awards also qualify as Basel III AT1 capital on a consolidated UBS Group basis. In 2021, as approved by the Annual General Meeting held on 8 April 2021, the cancellation of 156,632,400 shares, each with a nominal value of CHF 0.10, purchased under the 2018–2021 share repurchase program, was executed. The cancellation of shares resulted in reclassifications within equity but had no net effect on the total equity attributable to shareholders. Share capital was reduced by the nominal value of the repurchased shares upon cancellation, i.e., USD 16 million (CHF 16 million). Following the requirements of the Swiss tax law for Switzerland- domiciled companies with shares listed on a Swiss stock exchange, effective 1 January 2020, the capital contribution reserve was reduced by 50% of the total capital reduction amount exceeding the nominal value upon cancellation of the shares repurchased from 2020 onward, i.e., USD 236 million (CHF 224 million). The voluntary earnings reserve was reduced by the remaining portion of the total capital reduction amount exceeding the repurchased shares, i.e., USD 1,792 million (CHF 1,762 million). the nominal value upon cancellation of As of 31 December 2021, UBS Group AG’s distributable items for the purpose of AT1 capital instruments were USD 40.3 billion (CHF 36.7 billion) (31 December 2020: USD 39.5 billion (CHF 35.0 billion)). For this purpose, distributable items are defined in the terms and conditions of the relevant instruments as the aggregate of (i) net profits carried forward and (ii) freely distributable reserves, in each case less any amounts that must be contributed to legal reserves under applicable law. UBS Group AG standalone financial statements The Board of Directors proposes that the Annual General Meeting (gross) in cash per share of CHF 0.10 nominal value under the of Shareholders (AGM) on 6 April 2022 approve the appropriation terms set out below: of total profit and an ordinary dividend distribution of USD 0.50 Net profit for the period Profit / (loss) carried forward TToottaall pprrooffiitt aavvaaiillaabbllee ffoorr aapppprroopprriiaattiioonn AApppprroopprriiaattiioonn ooff ttoottaall pprrooffiitt Appropriation to voluntary earnings reserve PPrrooffiitt // ((lloossss)) ccaarrrriieedd ffoorrwwaarrdd USD million CHF million For the year ended For the year ended 3311..1122..2211 44,,666644 00 44,,666644 ((33,,773399)) ((992266)) 00 3311..1122..2211 2266,,116611 ((992266)) 2255,,223366 3311..1122..2211 44,,226644 00 44,,226644 ((33,,442233)) ((884411))22 00 3311..1122..2211 2255,,668822 ((884411))33 2244,,884400 USD million CHF million For the year ended For the year ended Dividend distribution: USD 0.50 (gross) per dividend-bearing share, USD 0.25 of which out of total profit1 11 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 926 million presented is based on the total number of shares issued as of 31 December 2021. If the final total amount of the dividend is higher / lower, the difference will be balanced through the appropriation to the voluntary earnings reserve. 22 For illustrative purposes, converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10). Total statutory capital reserve: capital contribution reserve before proposed distribution1 Dividend distribution: USD 0.50 (gross) per dividend-bearing share, USD 0.25 of which out of capital contribution reserve2 TToottaall ssttaattuuttoorryy ccaappiittaall rreesseerrvvee:: ccaappiittaall ccoonnttrriibbuuttiioonn rreesseerrvvee aafftteerr pprrooppoosseedd ddiissttrriibbuuttiioonn 11 The Swiss Federal Tax Administration’s current position is that, of the CHF 25.7 billion capital contribution reserve available as of 31 December 2021, an amount limited to CHF 11.0 billion is available from which dividends may be paid without a Swiss withholding tax deduction. This amount includes a reduction of capital contribution reserves of CHF 223 million in 2021 (based on the purchase price). 22 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 926 million presented is based on the total number of shares issued as of 31 December 2021. 33 For illustrative purposes, converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10). As set out above, half of the ordinary dividend distribution of Cap). To the extent that the Swiss franc equivalent of the total USD 0.50 (gross) in cash per share is payable out of total profit dividend distribution would exceed the Cap on the day of the and the other half is payable out of the capital contribution AGM, based on the exchange rate determined by the Board of reserve. The portion of the dividend paid out of total profit will be Directors in its reasonable opinion, the US dollar per share amount subject to a 35% Swiss withholding tax. of the dividend will be reduced on a pro rata basis so that the The ordinary dividend distribution is declared in US dollars. total Swiss franc amount does not exceed the Cap. Shareholders whose shares are held through SIX SIS AG will Provided that the proposed dividend distribution out of the receive dividends in Swiss francs, based on a published exchange total profit and the capital contribution reserve is approved, the rate calculated up to five decimal places on the day prior to the payment of the dividend will be made on 14 April 2022 to holders ex-dividend date. Shareholders holding shares through DTC or of shares on the record date of 13 April 2022. The shares will be directly registered in the US share register with Computershare traded ex-dividend as of 12 April 2022 and, accordingly, the last will be paid dividends in US dollars. The total amount of the day on which the shares may be traded with entitlement to dividend distribution will be capped at CHF 3,400 million (the receive the dividend will be 11 April 2022. 406 407 407 Financial statements UBS Group AG standalone financial statements Note 2 Accounting policies The UBS Group AG standalone financial statements are prepared in accordance with the principles of the Swiss law on accounting and financial reporting (32nd title of the Swiss Code of Obligations). The functional currency of UBS Group AG is the US dollar. The significant accounting and valuation principles applied are described below. Presentation currencies As the primary presentation currency of the standalone financial statements of UBS Group AG is the US dollar, amounts in Swiss francs are additionally presented for each component of the financial statements. UBS Group AG applies the modified closing rate method for converting US dollar amounts into Swiss francs: assets and liabilities are translated at the closing rate, equity positions at historic rates and income and expense items at the weighted average rate for the period. All resulting currency translation effects are recognized separately in Voluntary earnings reserve, amounting to a negative currency translation effect of CHF 2,808 million as of 31 December 2021 (31 December 2020: negative CHF 3,867 million). Foreign currency translation Transactions denominated in foreign currency are translated into US dollars at the spot exchange rate on the date of the transaction. At the balance sheet date, all current assets and short-term liabilities, as well as Financial assets measured at fair value that are denominated in a foreign currency, are translated into US dollars using the closing exchange rate. For Other non- current assets and long-term liabilities, where the asset mirrors the terms of a corresponding liability or the asset and liability otherwise form an economic hedge relationship, the asset and liability are treated as one unit of account for foreign currency translation purposes, with offsetting unrealized foreign currency translation gains and losses based on the closing exchange rate presented net in subsidiaries measured at historic cost are translated at the spot exchange rate on the date of the transaction. Currency translation effects from dividends paid in Swiss francs are recognized in equity. All other currency translation effects are recognized in the income statement. income statement. Investments in the The main currency translation rates used by UBS Group AG are provided in Note 33 of the consolidated financial statements. Marketable securities include securities investments in alternative Marketable investment vehicles (AIVs) with a short-term holding period. The holding period is deemed short term if the vesting of the awards hedged by the AIV is within 12 months after the balance sheet date. These are equity instruments and are measured at fair value based on quoted market prices or other observable market prices 408 408 as of the balance sheet date. Gains and losses resulting from fair value changes are recognized in Financial income and Financial expenses, respectively. Financial assets Financial assets include investments in AIVs with a long-term holding period. The holding period is deemed long term if the vesting of the awards hedged by the AIV is more than 12 months after the balance sheet date. These are equity instruments and are measured at fair value based on their quoted market prices or other observable market prices as of the balance sheet date. Gains and losses resulting from fair value changes are recognized in Financial income and Financial expenses, respectively. Investments in AIVs that have no quoted market price or no other observable market price are recognized as Financial assets and are measured at their acquisition cost adjusted for impairment losses. Financial assets further include loans granted to UBS AG that substantially mirror the terms of the perpetual AT1 capital notes and the TLAC-eligible senior unsecured debt instruments issued, as well as fixed-term deposits with UBS AG with maturities more than 12 months after the balance sheet date. The loans and deposits are measured at nominal value. › Refer to Note 14 for more information Derivative instruments UBS Group AG uses derivative instruments to manage exposures to foreign currency risks from investments in foreign subsidiaries. The derivative instruments are entered into with UBS AG, mirroring the conditions of the closing transactions UBS AG enters into with third parties. Derivative instruments are measured at fair value based on quoted market prices or other observable market prices as of the balance sheet date. Unrealized gains and losses are recognized on the balance sheet as Accrued income and prepaid expenses and respectively. Accrued Corresponding gains and losses resulting from fair value changes are recognized in Financial income and Financial expenses, respectively. and deferred expenses income, Investments in subsidiaries Investments in subsidiaries are equity interests that are held to carry on the business of the UBS Group or for other strategic purposes. They include all subsidiaries directly held by UBS Group AG through which UBS conducts its business on a global basis. The investments are measured individually and carried at cost less impairment. › Refer to Note 13 for more information › Refer to Note 2 in the “Consolidated financial statements” section of this report for a description of businesses of the UBS Group UBS Group AG standalone financial statements Note 2 Accounting policies Note 2 Accounting policies (continued) The UBS Group AG standalone financial statements are prepared as of the balance sheet date. Gains and losses resulting from fair Long-term interest-bearing liabilities rate method for converting US dollar amounts into Swiss francs: Investments in AIVs that have no quoted market price or no Treasury shares Long-term interest-bearing liabilities include perpetual loss- absorbing capital notes that qualify as Basel III AT1 capital and TLAC-eligible senior unsecured debt instruments at Group level. They are measured at nominal value. Any difference to nominal value, e.g., premium, discount or external costs that are directly related to the issue, is deferred as Accrued income and prepaid expenses or Accrued expenses and deferred income and amortized to Financial expenses or Financial income over the maturity of the instrument or until the first call date or optional redemption date, where applicable. › Refer to Note 17 for more information Treasury shares acquired by UBS Group AG are recognized at acquisition cost and are presented as a deduction from shareholders’ equity. Upon disposal of treasury shares or settlement of related share- based awards, any realized gain or loss is recognized in Voluntary earnings reserve. Realized gains and losses from settlement of share-based awards represent the difference between the acquisition cost of the UBS Group AG shares and the grant date fair value of the share-based awards. For the year ended 31 December 2021, a net gain of USD 9 million (CHF 8 million) from settlement of share-based awards was recognized in Voluntary earnings reserve (2020 comparative period: net gain of USD 38 million (CHF 37 million)). For UBS Group AG shares acquired by a direct or indirect subsidiary, a Reserve for own shares held by subsidiaries is generally created in UBS Group AG’s equity. However, where UBS AG or UBS Switzerland AG acquire UBS Group AG shares and hold such in their trading portfolios, no Reserve for own shares held by subsidiaries is created. › Refer to Note 20 for more information presented net in the income statement. Investments in Accrued expenses and deferred income, respectively. Share-based and other deferred compensation plans Share-based compensation plans The grant date fair value of equity-settled share-based is generally compensation awards granted to employees recognized over the vesting period of the awards. Awards granted in the form of UBS Group AG shares and notional shares are settled by delivering UBS Group AG shares at vesting except in jurisdictions where this is not permitted for legal or tax reasons. They are recognized as Compensation-related long-term liabilities in accordance with the principles of the Swiss law on accounting value changes are recognized in Financial income and Financial and financial reporting (32nd title of the Swiss Code of expenses, respectively. The functional currency of UBS Group AG is the US dollar. The Financial assets significant accounting and valuation principles applied are Obligations). described below. Presentation currencies Financial assets include investments in AIVs with a long-term holding period. The holding period is deemed long term if the vesting of the awards hedged by the AIV is more than 12 months after the balance sheet date. These are equity instruments and are As the primary presentation currency of the standalone financial measured at fair value based on their quoted market prices or statements of UBS Group AG is the US dollar, amounts in Swiss other observable market prices as of the balance sheet date. Gains francs are additionally presented for each component of the and losses resulting from fair value changes are recognized in financial statements. UBS Group AG applies the modified closing Financial income and Financial expenses, respectively. assets and liabilities are translated at the closing rate, equity other observable market price are recognized as Financial assets positions at historic rates and income and expense items at the and are measured at their acquisition cost adjusted for weighted average rate for the period. All resulting currency impairment losses. translation effects are recognized separately in Voluntary earnings Financial assets further include loans granted to UBS AG that reserve, amounting to a negative currency translation effect of substantially mirror the terms of the perpetual AT1 capital notes CHF 2,808 million as of 31 December 2021 (31 December 2020: and the TLAC-eligible senior unsecured debt instruments issued, negative CHF 3,867 million). Foreign currency translation as well as fixed-term deposits with UBS AG with maturities more than 12 months after the balance sheet date. The loans and deposits are measured at nominal value. › Refer to Note 14 for more information Transactions denominated in foreign currency are translated into US dollars at the spot exchange rate on the date of the Derivative instruments transaction. At the balance sheet date, all current assets and short-term liabilities, as well as Financial assets measured at fair UBS Group AG uses derivative instruments to manage exposures value that are denominated in a foreign currency, are translated to foreign currency risks from investments in foreign subsidiaries. into US dollars using the closing exchange rate. For Other non- The derivative instruments are entered into with UBS AG, current assets and long-term liabilities, where the asset mirrors mirroring the conditions of the closing transactions UBS AG enters the terms of a corresponding liability or the asset and liability into with third parties. otherwise form an economic hedge relationship, the asset and Derivative instruments are measured at fair value based on liability are treated as one unit of account for foreign currency quoted market prices or other observable market prices as of the translation purposes, with offsetting unrealized foreign currency balance sheet date. Unrealized gains and losses are recognized on translation gains and losses based on the closing exchange rate the balance sheet as Accrued income and prepaid expenses and subsidiaries measured at historic cost are translated at the spot Corresponding gains and losses resulting from fair value changes exchange rate on the date of the transaction. Currency translation are recognized in Financial income and Financial expenses, effects from dividends paid in Swiss francs are recognized in respectively. equity. All other currency translation effects are recognized in the income statement. Investments in subsidiaries The main currency translation rates used by UBS Group AG are provided in Note 33 of the consolidated financial statements. Investments in subsidiaries are equity interests that are held to Marketable securities carry on the business of the UBS Group or for other strategic purposes. They include all subsidiaries directly held by UBS Group AG through which UBS conducts its business on a global basis. Marketable securities include investments in alternative The investments are measured individually and carried at cost less investment vehicles (AIVs) with a short-term holding period. The impairment. holding period is deemed short term if the vesting of the awards hedged by the AIV is within 12 months after the balance sheet date. These are equity instruments and are measured at fair value › Refer to Note 13 for more information › Refer to Note 2 in the “Consolidated financial statements” section of this report for a description of businesses of the UBS based on quoted market prices or other observable market prices Group if vesting is more than 12 months after the balance sheet date or as Accrued expenses and deferred income if vesting is within 12 months of the balance sheet date. The amount recognized is adjusted for forfeiture assumptions, such that the amount ultimately recognized is based on the number of awards that meet the related service conditions at the vesting date. The grant date fair value is based on the UBS Group AG share price on the date of grant, taking into consideration post-vesting sale and hedge restrictions, dividend rights, non-vesting conditions and market conditions, where applicable. Upon settlement of the share-based awards, any realized gain or loss on the treasury shares is recognized in Voluntary earnings reserve. Realized gains and losses from settlement of share-based awards represent the difference between the acquisition cost of the UBS Group AG shares and the grant date fair value of the share-based awards. Other deferred compensation plans Deferred compensation plans that are not share-based, including DCCP awards and awards in the form of AIVs, are accounted for as cash-settled awards. The present value or fair value of the amount payable to employees that is settled in cash is recognized as a liability generally over the vesting period, as Compensation- related long-term liabilities if vesting is more than 12 months after the balance sheet date and as Accrued expenses and deferred income if vesting is within 12 months from the balance sheet date. The liabilities are remeasured at each balance sheet date at the present value of the corresponding DCCP award and the fair value of investments in AIVs. Gains and losses resulting from remeasurement of the liabilities are recognized in Other operating income and Other operating expenses, respectively. Recharge of compensation expenses Expenses related to deferred compensation plans are recharged by UBS Group AG to its subsidiaries employing the personnel. Upon recharge, UBS Group AG recognizes a receivable from its subsidiaries corresponding to a liability representing its obligation toward the employees. Dispensations in the standalone financial statements As UBS Group AG prepares consolidated financial statements in accordance with IFRS, UBS Group AG is exempt from various disclosures financial statements. The dispensations include the management report and the statement of cash flows, as well as certain note disclosures. the standalone in 408 409 409 Financial statements UBS Group AG standalone financial statements Income statement notes Note 3 Dividend income from investments in subsidiaries Dividend income from investments in subsidiaries in 2021 consisted of USD 4,539 million (CHF 4,149 million) received from UBS AG related to the financial year ended 31 December 2020, which was approved by the Annual General Meeting of the Shareholders of UBS AG on 7 April 2021, USD 133 million (CHF 122 million) received from UBS Business Solutions AG related to the financial year ended 31 December 2020, which was approved by the Annual General Meeting of Shareholders of UBS Business Solutions AG on 7 April 2021, and USD 0.2 million (CHF 0.2 million) net liquidation dividend received from UBS Group Funding in Liquidation following liquidation of the entity in the course of 2020, which was approved by the Extraordinary General Meeting of the Shareholders of UBS Group Funding (Switzerland) AG in (Switzerland) AG Liquidation held on 8 October 2020. In 2020, dividend income from investments in subsidiaries consisted of USD 3,848 million (CHF 3,641 million) received from UBS AG related to the financial year ended 31 December 2019, which was approved by the Annual General Meeting of the Shareholders of UBS AG on 27 April 2020 (USD 2,550 million (CHF 2,462 million)) and the Extraordinary General Meeting of the Shareholders of UBS AG on 19 November 2020 (USD 1,298 million (CHF 1,179 million)), and USD 5 million (CHF 5 million) net liquidation dividend received from UBS Group Funding (Switzerland) AG in Liquidation following liquidation of the entity in the course of 2020, which was approved by the Extraordinary General Meeting of the Shareholders of UBS Group Funding (Switzerland) AG in Liquidation held on 8 October 2020. Note 4 Other operating income Other operating income includes gains related to equity-settled and cash-settled awards. Note 5 Financial income Interest income on onward lending to UBS AG1 Interest income on other interest-bearing assets Fair value gains on investments in AIVs Other TToottaall ffiinnaanncciiaall iinnccoommee USD million For the year ended CHF million For the year ended 3311..1122..2211 11,,775566 31.12.20 1,769 3311..1122..2211 11,,660088 31.12.20 1,653 2211 2233 66 14 49 4 1199 2211 66 13 44 4 11,,880066 1,836 11,,665533 1,714 11 Interest income on onward lending to UBS AG of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes. Refer to Note 1 for more information. Note 6 Personnel expenses Personnel expenses include recharges from UBS AG and UBS Business Solutions AG for personnel-related costs for activities performed by the personnel of those companies for the benefit of UBS Group AG. UBS Group AG had no employees throughout 2021 and 2020. All employees of the UBS Group, including the members of the Group Executive Board (GEB) of UBS Group AG, were employed by subsidiaries of UBS Group AG. As of 31 December 2021, the UBS Group employed 71,385 personnel (31 December 2020: 71,551) on a full-time equivalent basis. 410 410 UBS Group AG standalone financial statements Income statement notes Note 7 Other operating expenses Note 3 Dividend income from investments in subsidiaries Dividend income from investments in subsidiaries in 2021 Liquidation held on 8 October 2020. In 2020, dividend income consisted of USD 4,539 million (CHF 4,149 million) received from from investments in subsidiaries consisted of USD 3,848 million UBS AG related to the financial year ended 31 December 2020, (CHF 3,641 million) received from UBS AG related to the financial which was approved by the Annual General Meeting of the year ended 31 December 2019, which was approved by the Shareholders of UBS AG on 7 April 2021, USD 133 million Annual General Meeting of the Shareholders of UBS AG on (CHF 122 million) received from UBS Business Solutions AG 27 April 2020 (USD 2,550 million (CHF 2,462 million)) and the related to the financial year ended 31 December 2020, which was Extraordinary General Meeting of the Shareholders of UBS AG on approved by the Annual General Meeting of Shareholders of UBS 19 November 2020 (USD 1,298 million (CHF 1,179 million)), and Business Solutions AG on 7 April 2021, and USD 0.2 million USD 5 million (CHF 5 million) net liquidation dividend received (CHF 0.2 million) net liquidation dividend received from UBS from UBS Group Funding (Switzerland) AG in Liquidation Group Funding (Switzerland) AG in Liquidation following following liquidation of the entity in the course of 2020, which liquidation of the entity in the course of 2020, which was was approved by the Extraordinary General Meeting of the approved by the Extraordinary General Meeting of the Shareholders of UBS Group Funding (Switzerland) AG in Shareholders of UBS Group Funding (Switzerland) AG in Liquidation held on 8 October 2020. Fair value losses on AIV awards Capital tax Other TToottaall ootthheerr ooppeerraattiinngg eexxppeennsseess Note 8 Financial expenses Interest expense on interest-bearing liabilities Other TToottaall ffiinnaanncciiaall eexxppeennsseess USD million For the year ended CHF million For the year ended 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 2233 99 1111 4444 48 9 12 69 2211 88 1100 4400 43 8 12 63 USD million For the year ended CHF million For the year ended 3311..1122..2211 31.12.20 3311..1122..2211 11,,774400 1111 11,,775511 1,756 10 1,765 11,,559933 1100 11,,660033 31.12.20 1,641 9 1,650 Other operating income includes gains related to equity-settled and cash-settled awards. Note 4 Other operating income Note 5 Financial income Interest income on onward lending to UBS AG1 Interest income on other interest-bearing assets Fair value gains on investments in AIVs Other TToottaall ffiinnaanncciiaall iinnccoommee information. Note 6 Personnel expenses USD million For the year ended CHF million For the year ended 3311..1122..2211 11,,775566 31.12.20 1,769 3311..1122..2211 11,,660088 31.12.20 1,653 2211 2233 66 14 49 4 1199 2211 66 13 44 4 11,,880066 1,836 11,,665533 1,714 11 Interest income on onward lending to UBS AG of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes. Refer to Note 1 for more Personnel expenses include recharges from UBS AG and UBS UBS Group AG had no employees throughout 2021 and 2020. Business Solutions AG for personnel-related costs for activities All employees of the UBS Group, including the members of the performed by the personnel of those companies for the benefit of Group Executive Board (GEB) of UBS Group AG, were employed UBS Group AG. by subsidiaries of UBS Group AG. As of 31 December 2021, the UBS Group employed 71,385 personnel (31 December 2020: 71,551) on a full-time equivalent basis. 410 411 411 Financial statements UBS Group AG standalone financial statements Balance sheet notes Note 9 Liquid assets As of 31 December 2021, liquid assets consisted of USD 590 million (CHF 538 million) held on current accounts at UBS Switzerland AG and UBS AG and USD 1,311 million (CHF 1,195 million) of time deposits placed with UBS AG. As of 31 December 2020, liquid assets consisted of USD 987 million (CHF 874 million) held on current accounts at UBS Switzerland AG and UBS AG and USD 1,211 million (CHF 1,072 million) of time deposits placed with UBS AG. Note 10 Marketable securities Marketable securities include investments in AIVs related to compensation awards vesting within 12 months after the balance sheet date. Note 11 Other short-term receivables Onward lending to UBS AG1 Receivables from employing entities related to compensation awards Other TToottaall ootthheerr sshhoorrtt--tteerrmm rreecceeiivvaabblleess USD million CHF million 3311..1122..2211 44,,225522 663399 5511 44,,994422 31.12.20 4,987 517 51 5,555 3311..1122..2211 33,,887766 558833 4466 44,,550055 31.12.20 4,416 458 45 4,919 11 Short-term receivables from the onward lending to UBS AG of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes. Refer to Note 1 for more information. Note 12 Accrued income and prepaid expenses Accrued interest income Other accrued income and prepaid expenses TToottaall aaccccrruueedd iinnccoommee aanndd pprreeppaaiidd eexxppeennsseess USD million CHF million 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 770033 222244 992277 754 193 947 664411 220044 884455 668 171 839 412 412 UBS Group AG standalone financial statements Balance sheet notes Note 9 Liquid assets Note 10 Marketable securities Note 11 Other short-term receivables Receivables from employing entities related to compensation awards Onward lending to UBS AG1 Other TToottaall ootthheerr sshhoorrtt--tteerrmm rreecceeiivvaabblleess more information. Note 12 Accrued income and prepaid expenses Accrued interest income Other accrued income and prepaid expenses TToottaall aaccccrruueedd iinnccoommee aanndd pprreeppaaiidd eexxppeennsseess As of 31 December 2021, liquid assets consisted of USD 590 31 December 2020, liquid assets consisted of USD 987 million million (CHF 538 million) held on current accounts at (CHF 874 million) held on current accounts at UBS Switzerland AG UBS Switzerland AG and UBS AG and USD 1,311 million and UBS AG and USD 1,211 million (CHF 1,072 million) of time Marketable securities include investments in AIVs related to compensation awards vesting within 12 months after the balance sheet date. 11 Short-term receivables from the onward lending to UBS AG of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes. Refer to Note 1 for USD million CHF million 3311..1122..2211 44,,225522 663399 5511 44,,994422 31.12.20 4,987 517 51 5,555 3311..1122..2211 33,,887766 558833 4466 44,,550055 31.12.20 4,416 458 45 4,919 USD million CHF million 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 770033 222244 992277 754 193 947 664411 220044 884455 668 171 839 (CHF 1,195 million) of time deposits placed with UBS AG. As of deposits placed with UBS AG. Individually significant subsidiaries of UBS Group AG as of 31 December 2021 Note 13 Investments in subsidiaries Unless otherwise stated, the subsidiaries listed below have share capital consisting solely of ordinary shares, which are held by UBS Group AG or UBS AG. The proportion of ownership interest held is equal to the voting rights held by UBS Group AG or UBS AG. The country where the respective registered office is located is also the principal place of business. UBS AG operates through a global network of branches and a significant proportion of its business activity is conducted outside Switzerland, in the UK, the US, Singapore, Hong Kong SAR and other countries. UBS Europe SE has branches and offices in a number of EU Member States, including Germany, Italy, Luxembourg, Spain and Austria. Share capital is provided in the currency of the legally registered office. Company UBS AG Registered office Zurich and Basel, Switzerland UBS Business Solutions AG1 11 UBS Business Solutions AG holds subsidiaries in China, India, Israel and Poland. Zurich, Switzerland Share capital in million Equity interest accumulated in % CHF CHF 385.8 1.0 100.0 100.0 Individually significant subsidiaries of UBS AG as of 31 December 20211 Company Registered office UBS Americas Holding LLC Wilmington, Delaware, USA UBS Americas Inc. Wilmington, Delaware, USA Primary business Group Functions Group Functions UBS Asset Management AG Zurich, Switzerland Asset Management UBS Bank USA UBS Europe SE Salt Lake City, Utah, USA Global Wealth Management Frankfurt, Germany Global Wealth Management UBS Financial Services Inc. Wilmington, Delaware, USA Global Wealth Management UBS Securities LLC UBS Switzerland AG Wilmington, Delaware, USA Investment Bank Zurich, Switzerland Personal & Corporate Banking Share capital in million 4,150.02 USD USD CHF USD EUR USD USD CHF 0.0 43.2 0.0 446.0 0.0 1,283.13 10.0 Equity interest accumulated in % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 11 Includes direct and indirect subsidiaries of UBS AG. 22 Consists of common share capital of USD 1,000 and non-voting preferred share capital of USD 4,150,000,000. 33 Consists of common share capital of USD 100,000 and non-voting preferred share capital of USD 1,283,000,000. Individually significant subsidiaries of UBS AG are those entities that contribute significantly to the Group’s financial position or results of operations, based on a number of criteria, including the subsidiaries’ equity and their contribution to the Group’s total assets and profit or loss before tax, in accordance with Swiss regulations. › Refer to Note 29 in the “Consolidated financial statements” section of this report for more information Note 14 Financial assets Long-term receivables from UBS AG of which: onward lending1 Investments in alternative investment vehicles at fair value related to awards vesting after 12 months Investments in alternative investment vehicles at cost less impairment Other TToottaall ffiinnaanncciiaall aasssseettss USD million CHF million 3311..1122..2211 5555,,776633 31.12.20 49,554 3311..1122..2211 5500,,883377 31.12.20 43,882 5544,,778811 48,598 4499,,994422 43,035 333322 22 225533 248 2 258 330033 22 223300 219 2 229 5566,,335500 50,062 5511,,337733 44,332 11 Onward lending to UBS AG of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes. Refer to Note 1 for more information. 412 413 413 Financial statementsUBS Group AG standalone financial statements Note 15 Current interest-bearing liabilities As of 31 December 2021, current interest-bearing liabilities totaled USD 4,732 million (CHF 4,314 million) comprising TLAC- eligible senior unsecured debt instruments of USD 4,252 million (CHF 3,876 million) and loans from UBS AG and UBS Switzerland AG of USD 480 million (CHF 437 million). As of 31 December 2020, current interest-bearing liabilities totaled USD 3,853 million (CHF 3,412 million) comprising TLAC-eligible senior unsecured debt instruments of USD 2,850 million (CHF 2,524 million) and loans from UBS AG and UBS Switzerland AG of USD 1,003 million (CHF 889 million). Notes issued, overview by amount, maturity and coupon 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount CCoonnttrraaccttuuaall mmaattuurriittyy FFiirrsstt ooppttiioonnaall ccaallll ddaattee iinn ttrraannssaaccttiioonn ccuurrrreennccyy in transaction currency CCoouuppoonn11 nn//aa iinn CCHHFF iinn UUSSDD 1155..44..2211 1144..44..2211 33MM UUSSDD LLIIBBOORR ++ 117788 bbppss In million, except where indicated US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes 0 TToottaall nnootteess iissssuueedd 22,,552244 11 For TLAC-eligible senior unsecured notes, the disclosed coupon rate refers to the contractual coupon rate applied from the issue date up to the contractual maturity date or, if applicable, to the first optional call date. 33MM UUSSDD LLIIBBOORR ++ 115533 bbppss 0 22,,885500 11,,229977 33,,887766 11,,442233 44,,225522 1166..1111..2222 2222..22..2222 22..6655%% 11..7755%% 00..7755%% in USD in CHF 11..22..2222 11..22..2222 1,850 1,000 1,850 22,,000000 1,638 11,,225500 1,000 11,,882233 22,,000000 886 332299 330000 550000 550000 445566 330000 33%% nn//aa nn//aa nn//aa nn//aa nn//aa 00 00 00 00 00 00 0 0 0 0 0 0 0 0 0 0 Note 16 Accrued expenses and deferred income Short-term portion of compensation liabilities of which: Deferred Contingent Capital Plan of which: other deferred compensation plans Accrued interest expense Other TToottaall aaccccrruueedd eexxppeennsseess aanndd ddeeffeerrrreedd iinnccoommee USD million CHF million 3311..1122..2211 11,,115577 31.12.20 1,312 3311..1122..2211 11,,005544 31.12.20 1,162 338844 777733 666644 2255 518 794 728 57 335500 770055 660066 2233 458 703 644 51 11,,884466 2,097 11,,668833 1,857 414 414 UBS Group AG standalone financial statements Note 15 Current interest-bearing liabilities Note 17 Long-term interest-bearing liabilities As of 31 December 2021, current interest-bearing liabilities 2020, current interest-bearing liabilities totaled USD 3,853 million totaled USD 4,732 million (CHF 4,314 million) comprising TLAC- (CHF 3,412 million) comprising TLAC-eligible senior unsecured eligible senior unsecured debt instruments of USD 4,252 million debt instruments of USD 2,850 million (CHF 2,524 million) and (CHF 3,876 million) and loans from UBS AG and UBS Switzerland loans from UBS AG and UBS Switzerland AG of USD 1,003 million AG of USD 480 million (CHF 437 million). As of 31 December (CHF 889 million). As of 31 December 2021, long-term interest-bearing liabilities totaled USD 55,034 million (CHF 50,172 million) comprising loss- absorbing AT1 perpetual capital notes and TLAC-eligible senior unsecured debt instruments of USD 54,781 million (CHF 49,942 million) and fixed-term loans from UBS AG of USD 253 million (CHF 230 million). As of 31 December 2020, long-term interest- bearing liabilities totaled USD 50,993 million (CHF 45,156 million) comprising loss-absorbing AT1 perpetual capital notes and TLAC- eligible senior unsecured debt instruments of USD 50,735 million (CHF 44,927 million) and fixed-term loans from UBS AG of USD 258 million (CHF 229 million). CCoonnttrraaccttuuaall FFiirrsstt ooppttiioonnaall mmaattuurriittyy ccaallll ddaattee iinn ttrraannssaaccttiioonn in transaction CCoouuppoonn11 ccuurrrreennccyy iinn UUSSDD iinn CCHHFF currency in USD in CHF 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount nn//aa 33MM UUSSDD LLIIBBOORR ++ 117788 bbppss 00 00 00 00 00 00 1,000 1,000 886 1,850 1,850 1,638 nn//aa 33MM UUSSDD LLIIBBOORR ++ 115533 bbppss 550000 550000 445566 22,,000000 22,,000000 11,,882233 330000 332299 330000 11,,225500 11,,442233 44,,225522 11,,229977 33,,887766 0 0 0 0 0 0 0 0 0 0 0 0 22,,885500 22,,552244 nn//aa nn//aa nn//aa nn//aa 33%% 22..6655%% 00..7755%% 11..7755%% 11 For TLAC-eligible senior unsecured notes, the disclosed coupon rate refers to the contractual coupon rate applied from the issue date up to the contractual maturity date or, if applicable, to the first optional call In million, except where indicated US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes TToottaall nnootteess iissssuueedd notes date. Swiss franc-denominated TLAC-eligible senior Euro-denominated TLAC-eligible senior unsecured 1144..44..2211 1155..44..2211 11..22..2222 11..22..2222 2222..22..2222 1166..1111..2222 Note 16 Accrued expenses and deferred income Short-term portion of compensation liabilities of which: Deferred Contingent Capital Plan of which: other deferred compensation plans Accrued interest expense Other TToottaall aaccccrruueedd eexxppeennsseess aanndd ddeeffeerrrreedd iinnccoommee USD million CHF million 3311..1122..2211 11,,115577 31.12.20 1,312 3311..1122..2211 11,,005544 31.12.20 1,162 338844 777733 666644 2255 518 794 728 57 335500 770055 660066 2233 458 703 644 51 11,,884466 2,097 11,,668833 1,857 Notes issued, overview by amount, maturity and coupon Notes issued, overview by amount, maturity and coupon In million, except where indicated US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes2 US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes3 Euro-denominated TLAC-eligible senior unsecured notes4 US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Yen-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes CCoonnttrraaccttuuaall mmaattuurriittyy FFiirrsstt ooppttiioonnaall ccaallll ddaattee PPeerrppeettuuaall 2222..33..2211 PPeerrppeettuuaall 1100..88..2211 CCoouuppoonn11 66..887755%% 77..112255%% 2200..99..2222 2200..99..2211 33MM EEUURR LLIIBBOORR ++ 7700 bbppss 11..22..2222 11..22..2222 2222..22..2222 1166..1111..2222 nn//aa 33MM UUSSDD LLIIBBOORR ++ 115533 bbppss nn//aa nn//aa nn//aa 22..6655%% 00..7755%% 11..7755%% 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount iinn ttrraannssaaccttiioonn ccuurrrreennccyy iinn UUSSDD iinn CCHHFF in transaction currency in USD in CHF 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 1,500 1,500 1,328 1,100 1,100 974 1,750 2,137 1,892 500 500 443 2,000 2,000 1,771 300 339 300 1,250 1,526 1,352 2233..55..2233 2233..55..2222 33..449911%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 2233..55..2233 2233..55..2222 33MM UUSSDD LLIIBBOORR ++ 112222 bbppss 11,,000000 11,,000000 991122 1,000 1,000 886 1155..88..2233 1155..88..2222 33MM UUSSDD LLIIBBOORR ++ 9955 bbppss 11,,225500 11,,225500 11,,114400 1,250 1,250 1,107 1155..88..2233 1155..88..2222 22..885599%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 44..33..2244 nn//aa 1188..55..2244 1188..55..2233 22..112255%% 00..662255%% 775500 885544 777788 750 916 811 440000 443399 440000 400 452 400 3300..77..2244 3300..77..2233 11..000088%% 11,,330000 11,,330000 11,,118855 1,300 1,300 1,151 88..1111..2244 88..1111..2233 00..771199%% 113300,,000000 11,,113300 11,,003300 130,000 1,259 1,115 3300..1111..2244 3300..1111..2233 11..55%% 11,,225500 11,,442233 11,,229977 1,250 1,526 1,352 3300..11..2255 3300..11..2244 00..887755%% 440000 443399 440000 400 452 400 1177..44..2255 1177..44..2244 11..2255%% 11,,775500 11,,999922 11,,881166 1,750 2,137 1,892 2244..99..2255 nn//aa 44..112255%% 22,,550000 22,,550000 22,,227799 2,500 2,500 2,214 2299..11..2266 2299..11..2255 2233..22..2266 1155..44..2266 11..99..2266 nn//aa nn//aa nn//aa 33..1111..2266 33..1111..2255 00..2255%% 11..2255%% 11,,550000 11,,770088 11,,555577 1,500 1,832 1,622 115500 116655 115500 150 169 150 44..112255%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 11..2255%% 00..2255%% 11,,225500 11,,442233 11,,229977 1,250 1,526 1,352 11,,225500 11,,442233 11,,229977 0 0 0 3300..11..2277 3300..11..2266 11..336644%% 11,,330000 11,,330000 11,,118855 1,300 1,300 1,151 1100..88..2277 1100..88..2266 11..449944%% 22,,000000 22,,000000 11,,882233 0 0 0 414 415 415 Financial statementsUBS Group AG standalone financial statements Note 17 Long-term interest-bearing liabilities (continued) Notes issued, overview by amount, maturity and coupon (continued) 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount CCoonnttrraaccttuuaall mmaattuurriittyy FFiirrsstt ooppttiioonnaall ccaallll ddaattee CCoouuppoonn1 iinn ttrraannssaaccttiioonn ccuurrrreennccyy iinn UUSSDD iinn CCHHFF in transaction currency in USD in CHF 2244..22..2288 nn//aa 00..2255%% 11,,000000 11,,113388 11,,003388 0 0 0 2233..33..2288 2233..33..2277 44..225533%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 55..1111..2288 55..1111..2277 00..2255%% 11,,550000 11,,770088 11,,555577 1,500 1,832 1,622 99..1111..2288 99..1111..2277 00..997733%% 2200,,000000 117744 115588 20,000 194 171 99..1111..2288 99..1111..2277 2244..88..2299 2244..88..2288 33..1111..2299 33..1111..2288 00..443355%% 00..337755%% 11..887755%% 444400 448833 444400 336600 339955 336600 440000 554411 449944 0 0 0 0 0 0 0 0 0 1133..88..3300 1133..88..2299 33..112266%% 11,,550000 11,,550000 11,,336688 1,500 1,500 1,328 33..1111..3311 nn//aa 00..887755%% 11,,225500 11,,442233 11,,229977 1111..22..3322 1111..22..3311 22..009955%% 22,,000000 22,,000000 11,,882233 2244..22..3333 nn//aa 1188..88..3355 1188..88..3300 00..662255%% ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..55%%)) 2244..1111..3355 2244..1111..2233 33..1122..3355 33..1122..2233 2255..22..3366 2255..22..2244 44..33..3366 44..33..2244 44..1111..4499 44..1111..2222 44..33..5500 44..33..2255 1144..44..5500 1144..44..2255 2222..55..5500 2222..55..2255 2277..55..5500 2277..55..2255 2222..99..5500 2222..99..2233 1122..11..5511 1122..11..2266 2299..11..5511 2299..11..2266 2266..22..5511 2266..22..2266 2266..22..5511 2266..22..2266 2266..55..5511 2266..55..2266 22..2211%% 22..33%% 22..3377%% 22..4499%% ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..66%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 44%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..77%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..0011%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) 11,,225500 11,,442233 11,,229977 3377 4400 4455 2255 4400 2277 4400 3333 2255 4400 2255 3366 3300 2233 3366 0 0 0 36 40 45 0 0 0 0 0 28 40 35 0 0 0 0 0 25 35 31 0 0 115522 115522 113388 146 146 129 112288 112288 111177 124 124 109 221144 221144 119955 206 206 182 110066 110066 9966 102 102 90 552288 552288 448822 510 510 452 5577 5577 110033 110033 5522 9944 333388 333388 330099 117744 117744 115599 9922 6677 6611 227711 227711 224477 55 55 49 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PPeerrppeettuuaall 1199..22..2222 55..7755%% 11,,000000 11,,113388 11,,003388 1,000 1,221 1,081 PPeerrppeettuuaall 3311..11..2233 55%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 PPeerrppeettuuaall 2288..1111..2233 55..887755%% 770000 551199 447733 700 529 469 PPeerrppeettuuaall 3311..11..2244 77%% 22,,550000 22,,550000 22,,227799 2,500 2,500 2,214 PPeerrppeettuuaall 2277..88..2244 44..337755%% 770000 550099 446644 700 540 478 PPeerrppeettuuaall 44..99..2244 44..8855%% 775500 555566 550077 750 567 502 In million, except where indicated Euro-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Yen-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes Swiss franc-denominated TLAC-eligible senior unsecured notes GB pound-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured notes Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated low-trigger loss-absorbing additional tier 1 perpetual capital notes5 US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes Singapore dollar-denominated high-trigger loss- absorbing additional tier 1 perpetual capital notes US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes Australian dollar-denominated high-trigger loss- absorbing additional tier 1 perpetual capital notes Singapore dollar-denominated high-trigger loss- absorbing additional tier 1 perpetual capital notes 416 416 0 0 0 33%% 77%% 664 750 750 668844 775500 775500 668844 775500 775500 275 311 275 227755 227755 330022 11,,550000 1,395 1,575 1,575 11,,443366 11,,557755 11,,557755 1,107 1,250 1,250 11,,114400 11,,225500 11,,225500 22..66..2266 77..88..2255 iinn CCHHFF in CHF in USD iinn UUSSDD 2299..77..2266 1100..22..3311 1199..22..2255 44..337755%% 55..112255%% 33..887755%% 66..887755%% 1133..1111..2255 PPeerrppeettuuaall PPeerrppeettuuaall PPeerrppeettuuaall PPeerrppeettuuaall PPeerrppeettuuaall PPeerrppeettuuaall CCoouuppoonn1 CCoonnttrraaccttuuaall mmaattuurriittyy FFiirrsstt ooppttiioonnaall ccaallll ddaattee iinn ttrraannssaaccttiioonn ccuurrrreennccyy in transaction currency 11,,336688 11,,550000 5544,,778811 4499,,994422 Note 17 Long-term interest-bearing liabilities (continued) Note 17 Long-term interest-bearing liabilities (continued) Notes issued, overview by amount, maturity and coupon (continued) Notes issued, overview by amount, maturity and coupon (continued) 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount In million, except where indicated US dollar-denominated low-trigger loss-absorbing additional tier 1 perpetual capital notes US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes Swiss franc-denominated high-trigger loss- absorbing additional tier 1 perpetual capital notes US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes 0 TToottaall nnootteess iissssuueedd 5500,,773355 4444,,992277 11 For TLAC-eligible senior unsecured notes, the disclosed coupon rate refers to the contractual coupon rate applied from the issue date up to the contractual maturity date or, if applicable, to the first optional call date. For the loss-absorbing additional tier 1 perpetual capital notes, the disclosed coupon rate refers to the contractual fixed coupon rate from the issue date up to the first optional call date. 22 Instrument was redeemed on 22 March 2021. 33 Instrument was redeemed on 10 August 2021. 44 Instrument was redeemed on 20 September 2021. 55 Instrument was called on 13 January 2022. UBS Group AG standalone financial statements In million, except where indicated Euro-denominated TLAC-eligible senior unsecured notes notes notes notes notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured Yen-denominated TLAC-eligible senior unsecured Swiss franc-denominated TLAC-eligible senior Swiss franc-denominated TLAC-eligible senior GB pound-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior unsecured notes unsecured notes unsecured notes unsecured notes Euro-denominated TLAC-eligible senior unsecured US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated TLAC-eligible senior unsecured Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes unsecured notes US dollar-denominated TLAC-eligible senior US dollar-denominated TLAC-eligible senior Australian dollar-denominated TLAC-eligible senior unsecured notes US dollar-denominated TLAC-eligible senior unsecured notes Euro-denominated low-trigger loss-absorbing additional tier 1 perpetual capital notes5 US dollar-denominated high-trigger loss-absorbing Singapore dollar-denominated high-trigger loss- US dollar-denominated high-trigger loss-absorbing Australian dollar-denominated high-trigger loss- Singapore dollar-denominated high-trigger loss- 3311..1122..2211 CCaarrrryyiinngg aammoouunntt 31.12.20 Carrying amount CCoonnttrraaccttuuaall FFiirrsstt ooppttiioonnaall mmaattuurriittyy ccaallll ddaattee iinn ttrraannssaaccttiioonn in transaction CCoouuppoonn1 ccuurrrreennccyy iinn UUSSDD iinn CCHHFF currency in USD in CHF 2244..22..2288 nn//aa 00..2255%% 11,,000000 11,,113388 11,,003388 0 0 0 2233..33..2288 2233..33..2277 44..225533%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 55..1111..2288 55..1111..2277 00..2255%% 11,,550000 11,,770088 11,,555577 1,500 1,832 1,622 99..1111..2288 99..1111..2277 00..997733%% 2200,,000000 117744 115588 20,000 194 171 00..443355%% 00..337755%% 11..887755%% 444400 448833 444400 336600 339955 336600 440000 554411 449944 1133..88..3300 1133..88..2299 33..112266%% 11,,550000 11,,550000 11,,336688 1,500 1,500 1,328 1111..22..3322 1111..22..3311 22..009955%% 22,,000000 22,,000000 11,,882233 00..662255%% 11,,225500 11,,442233 11,,229977 ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..55%%)) 99..1111..2288 99..1111..2277 2244..88..2299 2244..88..2288 33..1111..2299 33..1111..2288 33..1111..3311 2244..22..3333 nn//aa nn//aa 1188..88..3355 1188..88..3300 2244..1111..3355 2244..1111..2233 33..1122..3355 33..1122..2233 2255..22..3366 2255..22..2244 44..33..3366 44..33..2244 44..1111..4499 44..1111..2222 44..33..5500 44..33..2255 1144..44..5500 1144..44..2255 2222..55..5500 2222..55..2255 2277..55..5500 2277..55..2255 2222..99..5500 2222..99..2233 1122..11..5511 1122..11..2266 2299..11..5511 2299..11..2266 2266..22..5511 2266..22..2266 22..2211%% 22..33%% 22..3377%% 22..4499%% ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..66%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 44%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..77%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 22..88%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33%%)) ZZeerroo ccoouuppoonn aaccccrreettiinngg ZZeerroo ccoouuppoonn aaccccrreettiinngg ((aannnnuuaall yyiieelldd ooff 33..55%%)) 0 0 0 0 0 0 36 40 45 0 0 0 0 0 0 0 0 0 0 0 0 0 28 40 35 0 0 0 0 0 0 0 0 0 0 0 0 0 25 35 31 0 0 0 0 0 0 0 3377 4400 4455 2255 4400 2277 4400 3333 2255 4400 2255 3366 3300 2233 3366 115522 115522 113388 146 146 129 112288 112288 111177 124 124 109 221144 221144 119955 206 206 182 110066 110066 9966 102 102 90 552288 552288 448822 510 510 452 55 55 49 5577 5577 110033 110033 5522 9944 333388 333388 330099 117744 117744 115599 2266..22..5511 2266..22..2266 ((aannnnuuaall yyiieelldd ooff 33..0011%%)) 9922 6677 6611 2266..55..5511 2266..55..2266 227711 227711 224477 PPeerrppeettuuaall 1199..22..2222 55..7755%% 11,,000000 11,,113388 11,,003388 1,000 1,221 1,081 additional tier 1 perpetual capital notes PPeerrppeettuuaall 3311..11..2233 55%% 22,,000000 22,,000000 11,,882233 2,000 2,000 1,771 absorbing additional tier 1 perpetual capital notes PPeerrppeettuuaall 2288..1111..2233 55..887755%% 770000 551199 447733 700 529 469 additional tier 1 perpetual capital notes PPeerrppeettuuaall 3311..11..2244 77%% 22,,550000 22,,550000 22,,227799 2,500 2,500 2,214 absorbing additional tier 1 perpetual capital notes PPeerrppeettuuaall 2277..88..2244 44..337755%% 770000 550099 446644 700 540 478 absorbing additional tier 1 perpetual capital notes PPeerrppeettuuaall 44..99..2244 44..8855%% 775500 555566 550077 750 567 502 00..887755%% 11,,225500 11,,442233 11,,229977 Note 18 Compensation-related long-term liabilities Long-term portion of compensation liabilities of which: Deferred Contingent Capital Plan of which: other deferred compensation plans TToottaall ccoommppeennssaattiioonn--rreellaatteedd lloonngg--tteerrmm lliiaabbiilliittiieess Note 19 Share capital USD million CHF million 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 33,,111166 11,,223311 11,,888855 33,,111166 3,128 1,326 1,802 3,128 22,,884411 11,,112222 11,,771199 22,,884411 2,770 1,174 1,595 2,770 As of 31 December 2021, the issued share capital consisted of 3,702,422,995 (31 December 2020: 3,859,055,395) registered shares with a nominal value of CHF 0.10 each. In 2021, as approved by the Annual General Meeting held on 8 April 2021, the cancellation of 156,632,400 shares, each with a nominal value of CHF 0.10, purchased under the 2018–2021 share repurchase program, was executed. Share capital has been reduced by the nominal value of the repurchased shares upon cancellation, i.e., USD 16 million (CHF 16 million). › Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information about UBS Group AG shares 416 417 417 0 0 Financial statementsUBS Group AG standalone financial statements Note 20 Treasury shares BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 of which: treasury shares held by UBS Group AG of which: treasury shares held by UBS AG and other subsidiaries Acquisitions Disposals Delivery of shares to settle equity-settled awards BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 of which: treasury shares held by UBS Group AG 1 of which: treasury shares held by UBS AG and other subsidiaries Acquisitions Disposals Cancellation2 Delivery of shares to settle equity-settled awards BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 of which: treasury shares held by UBS Group AG 1 of which: treasury shares held by UBS AG Number of registered shares Average price in USD Average price in CHF 224433,,002211,,229966 242,930,084 91,212 128,372,257 (10,188,059) (53,728,492) 330077,,447777,,000022 306,114,513 1,362,490 221144,,665500,,117755 ((44,,001155,,771111)) ((115566,,663322,,440000)) ((5588,,228833,,773388)) 330033,,119955,,332288 330011,,881122,,111111 11,,338833,,221177 1133..5577 13.57 12.65 12.27 11.12 13.40 1133..1144 13.13 14.13 1166..3344 1144..9955 1133..0055 1133..5555 1155..3355 1155..3344 1177..8877 1133..3355 13.35 12.75 11.53 9.85 12.85 1122..8800 12.80 12.62 1155..0066 1133..6633 1122..7788 1122..7755 1144..4411 1144..4400 1166..0033 11 Treasury shares held by UBS Group AG had a carrying value of USD 4,629 million (CHF 4,345 million) as of 31 December 2021 (31 December 2020: USD 4,020 million (CHF 3,917 million)). Shares repurchased under our 2021 share repurchase program are expected to be canceled by means of a capital reduction, whereby the capital contribution reserve within the statutory capital reserve is expected to be reduced by USD 1,242 million (CHF 1,139 million, based on purchase price). Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 22 In 2021, as approved by the Annual General Meeting held on 8 April 2021, the cancellation of 156,632,400 shares, each with a nominal value of CHF 0.10, purchased under the 2018–2021 share repurchase program, was executed. Refer to Note 1 for more information. 418 418 UBS Group AG standalone financial statements Note 20 Treasury shares BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199 of which: treasury shares held by UBS Group AG of which: treasury shares held by UBS AG and other subsidiaries Delivery of shares to settle equity-settled awards BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002200 of which: treasury shares held by UBS Group AG 1 of which: treasury shares held by UBS AG and other subsidiaries Acquisitions Disposals Acquisitions Disposals Cancellation2 Delivery of shares to settle equity-settled awards BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22002211 of which: treasury shares held by UBS Group AG 1 of which: treasury shares held by UBS AG Number of registered shares Average price in USD Average price in CHF Additional information 224433,,002211,,229966 242,930,084 91,212 128,372,257 (10,188,059) (53,728,492) 330077,,447777,,000022 306,114,513 1,362,490 221144,,665500,,117755 ((44,,001155,,771111)) ((115566,,663322,,440000)) ((5588,,228833,,773388)) 330033,,119955,,332288 330011,,881122,,111111 11,,338833,,221177 1133..5577 13.57 12.65 12.27 11.12 13.40 1133..1144 13.13 14.13 1166..3344 1144..9955 1133..0055 1133..5555 1155..3355 1155..3344 1177..8877 1133..3355 13.35 12.75 11.53 9.85 12.85 1122..8800 12.80 12.62 1155..0066 1133..6633 1122..7788 1122..7755 1144..4411 1144..4400 1166..0033 Note 21 Assets pledged to secure own liabilities As of 31 December 2021, total pledged assets of UBS Group AG amounted to USD 3,476 million (CHF 3,169 million). These assets consisted of certain liquid assets, marketable securities and financial assets and were pledged to UBS AG. As of 31 December 2020, total pledged assets of UBS Group AG amounted to USD 2,623 million (CHF 2,323 million). The associated liabilities secured by these pledged assets were USD 676 million (CHF 617 million) and USD 1,208 million (CHF 1,070 million) as of 31 December 2021 and 31 December 2020, respectively. Note 22 Contingent liabilities UBS Group AG is jointly and severally liable for the combined value added tax (VAT) liability of UBS entities that belong to the VAT group of UBS in Switzerland. 11 Treasury shares held by UBS Group AG had a carrying value of USD 4,629 million (CHF 4,345 million) as of 31 December 2021 (31 December 2020: USD 4,020 million (CHF 3,917 million)). Shares repurchased under our 2021 share repurchase program are expected to be canceled by means of a capital reduction, whereby the capital contribution reserve within the statutory capital reserve is expected to be reduced by USD 1,242 million (CHF 1,139 million, based on purchase price). Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 22 In 2021, as approved by the Annual General Meeting held on 8 April 2021, the cancellation of 156,632,400 shares, each with a nominal value of CHF 0.10, purchased under the 2018–2021 share repurchase program, was executed. Refer to Note 1 for more information. Note 23 Significant shareholders Shareholders registered in the UBS Group AG share register with 3% or more of the total share capital1 % of share capital Chase Nominees Ltd., London2 DTC (Cede & Co.), New York2,3 3311..1122..2211 88..8899 55..7788 31.12.20 10.39 4.99 Nortrust Nominees Ltd., London2 11 As registration in the UBS share register is optional, shareholders crossing the threshold percentages requiring SIX notification under the FMIA do not necessarily appear in this table. 22 Nominee companies and securities clearing organizations cannot autonomously decide how voting rights are exercised and are therefore not obligated to notify UBS and SIX if they reach, exceed or fall below the threshold percentages requiring disclosure notification under the FMIA. Consequently, they do not appear in the “Shareholders subject to FMIA disclosure notifications” section below. 33 DTC (Cede & Co.), New York, “The Depository Trust Company,” is a US securities clearing organization. 44..8800 5.15 General rules Under the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015 (the FMIA), anyone directly or indirectly, or acting in concert with third parties, holding shares in a company listed in Switzerland or holding derivative rights related to shares in such a company must notify the company and the SIX Swiss Exchange (SIX) if the holding reaches, falls below or exceeds one of the following percentage thresholds: 3, 5, 10, 15, 20, 25, 331⁄3, 50 or 662⁄3% of voting rights, regardless of whether or not such rights may be exercised. Nominee companies that cannot autonomously decide how voting rights are exercised are not required to notify the company and SIX if they reach, exceed or fall below the aforementioned thresholds. Pursuant to the Swiss Code of Obligations, UBS Group AG discloses in its financial statements the identity of any shareholder with a holding of more than 5% of the total share capital of UBS Group AG. Shareholders subject to FMIA disclosure notifications According to the mandatory FMIA disclosure notifications filed with UBS Group AG and SIX, as of 31 December 2021, the following entities held more than 3% of the total share capital of UBS Group AG: Massachusetts Financial Services Company, Boston, which disclosed a holding of 3.01% on 22 June 2021; Artisan Partners Limited Partnership, Milwaukee, which disclosed a holding of 3.15% on 18 November 2020; BlackRock Inc., New York, which disclosed a holding of 4.70% on 26 May 2020; and Norges Bank, Oslo, which disclosed a holding of 3.01% on 24 July 2019. As registration in the UBS share register is optional, shareholders crossing the aforementioned thresholds requiring SIX notification under the FMIA do not necessarily appear in the table above. On 24 January 2022, Dodge & Cox International Stock Fund, San Francisco, disclosed a holding of 3.02% of the total share capital of UBS Group AG. No new disclosures of significant shareholdings have been made since that date. In accordance with the FMIA, the aforementioned holdings are calculated in relation to the total share capital of UBS Group AG reflected in the Articles of Association at the time of the respective disclosure notification. › Refer to ser-ag.com/en/resources/notifications-market- participants/significant-shareholders.html for information about disclosures under the FMIA Shareholders registered in the UBS Group AG share register with 3% or more of the share capital of UBS Group AG As a supplement to the mandatory disclosure requirements according to the SIX Swiss Exchange Corporate Governance Directive, the shareholders (acting in their own name or in their capacity as nominees for other investors or beneficial owners) that were registered in the UBS share register with 3% or more of the total share capital of UBS Group AG as of 31 December 2021 or as of 31 December 2020 are listed in the table above. Cross-shareholdings UBS Group AG has no cross-shareholdings where reciprocal ownership would be in excess of 5% of capital or voting rights with any other company. 418 419 419 Financial statements UBS Group AG standalone financial statements Note 24 Share ownership of the members of the Board of Directors, the Group Executive Board and other employees Shares awarded Awarded to members of the BoD Awarded to members of the GEB Awarded to other UBS Group employees TToottaall FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 For the year ended 31.12.20 NNuummbbeerr ooff sshhaarreess 336611,,885533 55,,119944,,330077 6633,,552277,,224422 6699,,008833,,440022 VVaalluuee ooff sshhaarreess iinn UUSSDD mmiilllliioonn11 55 VVaalluuee ooff sshhaarreess iinn CCHHFF mmiilllliioonn11 55 7766 992288 11,,001100 6699 884466 992211 Number of shares 457,362 5,192,391 67,057,766 72,707,519 Value of shares in USD million1 7 Value of shares in CHF million1 6 56 723 786 50 640 696 11 Shares awarded to members of the BoD were valued at CHF 13.81 for the year ended 31 December 2021 and CHF 12.92 for the year ended 31 December 2020 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). Shares awarded to members of the GEB and other UBS Group employees were valued at weighted average grant date fair value (USD 14.61 for the year ended 31 December 2021 and USD 10.79 for the year ended 31 December 2020). Prior period has been amended to ensure comparability. For illustrative purposes, the value of the shares was converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10) and 31 December 2020 (CHF / USD 1.13), accordingly. › Refer to the “Compensation” section of this report for more information about the terms and conditions of the shares awarded to the members of the Board of Directors and the Group Executive Board Number of shares of BoD members1 Name, function Axel A. Weber, Chairman Jeremy Anderson, Vice Chairman and Senior Independent Director Claudia Böckstiegel, member2 William C. Dudley, member Patrick Firmenich, member2 Reto Francioni, member Fred Hu, member Mark Hughes, member Nathalie Rachou, member Julie G. Richardson, member Beatrice Weder di Mauro, former member2 Dieter Wemmer, member Jeanette Wong, member oonn 3311 DDeecceemmbbeerr 22002211 NNuummbbeerr ooff sshhaarreess hheelldd 11,,114488,,336699 Voting rights in % 0.071 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 11,,004466,,999944 9977,,551188 6666,,774444 00 -- 4499,,771144 2266,,118811 00 -- 113399,,660099 115544,,008866 7744,,448811 4422,,442288 3300,,226633 44,,992200 1188,,110022 00 111177,,336655 8888,,440011 -- 119988,,557788 111144,,008866 8888,,774433 6688,,445522 3333,,772222 11,,885577,,995599 0.062 0.006 0.004 0.000 - 0.003 0.002 0.000 - 0.009 0.009 0.005 0.003 0.002 0.000 0.001 0.000 0.007 0.005 - 0.012 0.007 0.005 0.004 0.002 0.116 Total 0.104 11 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2021 and 2020. 22 At the 2021 AGM, Claudia Böckstiegel and Patrick Firmenich were newly elected and Beatrice Weder di Mauro did not stand for re-election. 11,,775500,,779977 22002200 420 420 UBS Group AG standalone financial statements Note 24 Share ownership of the members of the Board of Directors, the Group Executive Board and other employees Shares awarded Awarded to members of the BoD Awarded to members of the GEB Awarded to other UBS Group employees TToottaall FFoorr tthhee yyeeaarr eennddeedd 3311..1122..2211 For the year ended 31.12.20 NNuummbbeerr ooff sshhaarreess UUSSDD mmiilllliioonn11 CCHHFF mmiilllliioonn11 Number of shares USD million1 CHF million1 VVaalluuee ooff sshhaarreess iinn VVaalluuee ooff sshhaarreess iinn Value of shares in Value of shares in 336611,,885533 55,,119944,,330077 6633,,552277,,224422 6699,,008833,,440022 55 7766 992288 11,,001100 55 6699 884466 992211 457,362 5,192,391 67,057,766 72,707,519 7 56 723 786 6 50 640 696 11 Shares awarded to members of the BoD were valued at CHF 13.81 for the year ended 31 December 2021 and CHF 12.92 for the year ended 31 December 2020 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). Shares awarded to members of the GEB and other UBS Group employees were valued at weighted average grant date fair value (USD 14.61 for the year ended 31 December 2021 and USD 10.79 for the year ended 31 December 2020). Prior period has been amended to ensure comparability. For illustrative purposes, the value of the shares was converted at closing exchange rate as of 31 December 2021 (CHF / USD 1.10) and 31 December 2020 (CHF / USD 1.13), accordingly. › Refer to the “Compensation” section of this report for more information about the terms and conditions of the shares awarded to the members of the Board of Directors and the Group Executive Board Number of shares of BoD members1 Name, function Axel A. Weber, Chairman Jeremy Anderson, Vice Chairman and Senior Independent Director oonn 3311 DDeecceemmbbeerr NNuummbbeerr ooff sshhaarreess hheelldd Voting rights in % 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 11,,114488,,336699 11,,004466,,999944 9977,,551188 6666,,774444 4499,,771144 2266,,118811 00 -- 00 -- 113399,,660099 115544,,008866 7744,,448811 4422,,442288 3300,,226633 44,,992200 1188,,110022 111177,,336655 8888,,440011 00 -- 119988,,557788 111144,,008866 8888,,774433 6688,,445522 3333,,772222 11,,885577,,995599 11,,775500,,779977 0.071 0.062 0.006 0.004 0.000 0.003 0.002 0.000 - - 0.009 0.009 0.005 0.003 0.002 0.000 0.001 0.000 0.007 0.005 - 0.012 0.007 0.005 0.004 0.002 0.116 0.104 11 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2021 and 2020. 22 At the 2021 AGM, Claudia Böckstiegel and Patrick Firmenich were newly elected and Beatrice Weder di Mauro did not stand for re-election. Claudia Böckstiegel, member2 William C. Dudley, member Patrick Firmenich, member2 Reto Francioni, member Fred Hu, member Mark Hughes, member Nathalie Rachou, member Julie G. Richardson, member Dieter Wemmer, member Jeanette Wong, member Total Beatrice Weder di Mauro, former member2 420 Note 24 Share ownership of the members of the Board of Directors, the Group Executive Board and other employees (continued) Share ownership / entitlements of GEB members1 Name, function Ralph A.J.G. Hamers, Group Chief Executive Officer Christian Bluhm, Group Chief Risk Officer Mike Dargan, Group Chief Digital and Information Officer Markus U. Diethelm, former Group General Counsel Kirt Gardner, Group Chief Financial Officer Suni Harford, President Asset Management Robert Karofsky, President Investment Bank Sabine Keller-Busse, President Personal & Corporate Banking and President UBS Switzerland Iqbal Khan, Co-President Global Wealth Management and President EMEA Edmund Koh, President Asia Pacific Axel P. Lehmann, former President Personal & Corporate Banking and President UBS Switzerland Barbara Levi, Group General Counsel Tom Naratil, Co-President Global Wealth Management and President UBS Americas Piero Novelli, former Co-President Investment Bank Markus Ronner, Group Chief Compliance and Governance Officer TToottaall oonn 3311 DDeecceemmbbeerr 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 22002200 22002211 Number of unvested shares / at risk2 122,453 14,841 654,579 582,787 240,343 - - 706,845 780,640 696,500 636,122 352,329 851,520 627,748 798,457 639,087 898,111 742,546 501,322 421,930 - 690,537 430,732 - 1,374,044 1,383,854 - 660,240 418,452 302,584 Number of vested shares 2,673 TToottaall nnuummbbeerr ooff sshhaarreess 112255,,112266 Potentially conferred voting rights in % 0.008 0 226 218 82,743 - - 617,858 236,421 165,223 22,199 0 357,064 357,621 421,491 349,834 113,715 68,253 493,977 337,062 - 331,677 0 - 950,682 770,780 - 408,897 57,856 130,097 1144,,884411 665544,,880055 558833,,000055 332233,,008866 -- -- 11,,332244,,770033 11,,001177,,006611 886611,,772233 665588,,332211 335522,,332299 11,,220088,,558844 998855,,336699 11,,221199,,994488 998888,,992211 11,,001111,,882266 881100,,779999 999955,,229999 775588,,999922 -- 11,,002222,,221144 443300,,773322 -- 22,,332244,,772266 22,,115544,,663344 -- 11,,006699,,113377 447766,,330088 443322,,668811 0.001 0.041 0.035 0.020 - - 0.079 0.063 0.051 0.041 0.021 0.075 0.059 0.076 0.059 0.063 0.048 0.062 0.045 - 0.061 0.027 - 0.145 0.128 - 0.064 0.030 0.026 0.650 7,706,776 2,739,047 1100,,444455,,882233 0.675 11 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2021 and 2020 by any GEB member or any of its related parties. Refer to “Note 28 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2021 for more information. 22 Includes shares granted under variable compensation plans with forfeiture provisions. LTIP values reflect the fair value awarded at grant. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the “Group compensation” section of this report for more information about the plans. 1111,,335599,,334488 7,821,828 3,537,520 22002200 Note 25 Related parties Related parties are defined under the Swiss Code of Obligations as direct and indirect participants with voting rights of 20% or more, management bodies (BoD and GEB), external auditors, and direct and indirect investments in subsidiaries. Payables due to members of the GEB and the external auditors are provided in the table below. Amounts due from and due to subsidiaries are provided on the face of the balance sheet. USD million CHF million 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 Payables due to the members of the GEB of which: Deferred Contingent Capital Plan of which: other deferred compensation plans Payables due to external auditors 112299 5577 7722 00 155 69 86 0 111188 5522 6666 00 138 62 76 0  421 421 Financial statements Ernst & Young Ltd Aeschengraben 27 P.O. Box CH-4002 Basle Phone: Fax: www.ey.com/ch +41 58 286 86 86 +41 58 286 86 00 To the General Meeting of UBS Group AG, Zurich Basel, 4 March 2022 Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of UBS Group AG, which comprise the balance sheet, income statement and notes, for the year ended 31 December 2021. Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2021 comply with Swiss law and the company’s articles of incorporation. Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. We have determined that there are no key audit matters to communicate in our report. 422 2 Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young Ltd Maurice McCormick Licensed audit expert (Auditor in charge) Jan Marxfeld Licensed audit expert 423 Financial statements Significant regulated subsidiary and sub-group information 6 Significant regulated subsidiary and sub-group information Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups All values in million, except where indicated Financial and regulatory requirements As of or for the year ended Financial information1 Income statement Total operating income Total operating expenses Operating profit / (loss) before tax Net profit / (loss) Balance sheet Total assets Total liabilities Total equity Capital2 Common equity tier 1 capital Additional tier 1 capital Total going concern capital / Tier 1 capital Tier 2 capital Total capital Total gone concern loss-absorbing capacity Total loss-absorbing capacity Risk-weighted assets and leverage ratio denominator2 Risk-weighted assets Leverage ratio denominator5 Supplementary leverage ratio denominator6 Capital and leverage ratios (%)2 Common equity tier 1 capital ratio5 Going concern capital ratio / Tier 1 capital ratio Total capital ratio Total loss-absorbing capacity ratio Tier 1 leverage ratio Supplementary tier 1 leverage ratio Going concern leverage ratio5 Total loss-absorbing capacity leverage ratio Gone concern capital coverage ratio Liquidity coverage ratio2,7 High-quality liquid assets (billion) Net cash outflows (billion) Liquidity coverage ratio (%)8,9 Net stable funding ratio2,10 Total available stable funding Total required stable funding Net stable funding ratio (%) UBS AG (standalone) USD Swiss GAAP Swiss SRB rules UBS Switzerland AG (standalone) CHF Swiss GAAP Swiss SRB rules 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 UBS Europe SE (consolidated) EUR IFRS EU regulatory rules 3311..1122..2211 31.12.20 UBS Americas Holding LLC (consolidated) USD US GAAP US Basel III rules 3311..1122..2211 31.12.20 1166,,229933 99,,771122 66,,558811 66,,554488 12,951 8,370 4,581 4,539 88,,449900 55,,447722 33,,001188 22,,445522 7,185 5,590 1,595 1,271 550099,,885511 445555,,444466 5544,,440055 509,024 456,628 52,396 332200,,665566 330055,,991199 1144,,773366 316,829 304,194 12,634 5522,,881188 1133,,884400 6666,,665588 33,,112299 50,269 14,430 64,699 7,719 1122,,660099 55,,338877 1177,,999966 12,234 5,176 17,410 4444,,225500 111100,,990088 45,520 110,219 1100,,885533 2288,,884499 10,824 28,234 11,,112233 880000 332233 222277 4466,,441111 4422,,666644 33,,774477 22,,776644 229900 33,,005544 33,,005544 22,,44114433 55,,446688 1,054 878 176 163 48,591 43,896 4,696 3,703 290 3,993 3,993 1,7843 5,777 331177,,991133 559933,,886688 305,575 595,017 110066,,339999 333399,,778888 107,253 335,251 1122,,332288 4466,,666600 13,175 41,376 1166..66 2211..00 16.5 21.2 1111..99 1166..99 11.4 16.2 2277..11 26.3 2222..44 2244..88 2244..88 4444..44 66..55 28.1 30.3 30.3 43.8 9.7 1144,,449900 1111,,992255 22,,556655 11,,881122 12,675 10,842 1,833 975 220099,,771188 118822,,663333 2277,,008855 172,385 144,103 28,283 1133,,000022 44,,004499 1177,,005511 112255 1177,,117766 77,,00000044 2244,,005511 14,384 3,047 17,431 736 18,166 5,6004 23,031 7722,,997799 118888,,224466 221122,,116677 63,929 154,609 150,019 1177..88 2233..44 2233..55 3333..00 99..11 88..00 22.5 27.3 28.4 36.0 11.3 11.6 5.2 8.4 92 62 148 1111..22 10.9 111122..00 135.7 8899 5522 117733 84 53 159 225577,,999922 228899,,119955 88991111 55..33 88..55 9911 6644 114433 222255,,223399 115588,,007722 11442211 1111..77 14.0 1122..88 14.9 17 11 151 3322 2222 114477 1177 1100 117700 1155,,335588 88,,996633 117711 Other Joint and several liability between UBS AG and UBS Switzerland AG (billion)12 11 The financial information disclosed does not represent financial statements under the respective GAAP / IFRS. 22 Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information. 33 Consists of positions that meet the conditions laid down in Art. 72a–b of the Capital Requirements Regulation (CRR) II with regard to contractual, structural or legal subordination. 44 Consists of eligible long-term debt that meets the conditions specified in 12 CFR 252.162 of the final TLAC rules. TLAC is the sum of tier 1 capital and eligible long-term debt. 55 Leverage ratio denominators and going concern leverage ratios for UBS AG standalone and UBS Switzerland AG standalone for 31 December 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Introduction and basis for preparation” section of the 31 December 2021 Pillar 3 Report. 66 US regulatory authorities temporarily eased the requirements for the supplementary leverage ratio (the SLR), allowing for the exclusion of US Treasury securities and deposits at the Federal Reserve Banks from the SLR denominator through March 2021. This exclusion resulted in an increase in the SLR of 170 bps on 31 December 2020. 77 There was no local disclosure requirement for UBS Americas Holding LLC as of 31 December 2020. 88 In the fourth quarter of 2021, the liquidity coverage ratio (the LCR) of UBS AG was 173%, remaining above the prudential requirements communicated by FINMA. 99 In the fourth quarter of 2021, the LCR of UBS Switzerland AG, which is a Swiss SRB, was 143%, remaining above the prudential requirement communicated by FINMA in connection with the Swiss Emergency Plan. 1100 For UBS AG standalone and UBS Switzerland AG standalone, the local disclosure requirement for the net stable funding ratio (the NSFR) came into force in July 2021. For UBS Europe SE consolidated, the local disclosure requirement for the NSFR came into force in June 2021. For UBS Americas Holding LLC consolidated, the NSFR requirement became effective as of 1 July 2021 and related disclosures will come into effect in the second quarter of 2023. 1111 In accordance with Art. 17h para. 3 and 4 of the Liquidity Ordinance, UBS AG standalone is required to maintain a minimum NSFR of at least 80% without taking into account excess funding of UBS Switzerland AG and 100% after taking into account such excess funding. 1122 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the joint and several liability. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank. 9 55 586 426 UBS Group AG is a holding company and conducts substantially all of its operations through UBS AG and subsidiaries thereof. UBS Group AG and UBS AG have contributed a significant portion of their respective capital to, and provide substantial liquidity to, such subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with minimum capital, liquidity and similar requirements. The table in this section summarizes the regulatory capital components and capital ratios of our significant regulated subsidiaries and sub-groups determined under the regulatory framework of each subsidiary’s or sub-group’s home jurisdiction. › Refer to “Capital and capital ratios of our significant regulated subsidiaries” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information › Refer to “Note 23 Restricted and transferred financial assets” in the “Consolidated financial statements” section of this report for more information. Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis and may limit the ability of an entity to engage in new activities or take capital actions based on the results of those tests. Effective 1 October 2021, UBS Americas Holding LLC is subject to a stress capital buffer (an SCB) of 7.1%, in addition to minimum capital requirements. The SCB was determined by the Federal Reserve Board following the completion of the Comprehensive Capital Analysis and Review (based on Dodd– Frank Act Stress Test (DFAST) results and planned future dividends). The SCB, which replaces the static capital conservation buffer of 2.5%, is subject to change on an annual basis or as otherwise determined by the Federal Reserve Board. Standalone regulatory information for UBS AG and UBS Switzerland AG, as well as consolidated regulatory information for UBS Europe SE and UBS Americas Holding LLC, is provided in the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors. Standalone financial statements for UBS Group AG, as well as standalone financial statements and regulatory information for UBS AG and UBS Switzerland AG, are available under “Holding company and significant regulated subsidiaries and sub-groups” at ubs.com/investors. Significant regulated subsidiary and sub-group information Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups Risk-weighted assets and leverage ratio denominator2 All values in million, except where indicated Financial and regulatory requirements As of or for the year ended Financial information1 Income statement Total operating income Total operating expenses Operating profit / (loss) before tax Net profit / (loss) Balance sheet Total assets Total liabilities Total equity Capital2 Common equity tier 1 capital Additional tier 1 capital Total going concern capital / Tier 1 capital Tier 2 capital Total capital Total gone concern loss-absorbing capacity Total loss-absorbing capacity Risk-weighted assets Leverage ratio denominator5 Supplementary leverage ratio denominator6 Capital and leverage ratios (%)2 Common equity tier 1 capital ratio5 Going concern capital ratio / Tier 1 capital ratio Total capital ratio Total loss-absorbing capacity ratio Tier 1 leverage ratio Supplementary tier 1 leverage ratio Going concern leverage ratio5 Total loss-absorbing capacity leverage ratio Gone concern capital coverage ratio Liquidity coverage ratio2,7 High-quality liquid assets (billion) Net cash outflows (billion) Liquidity coverage ratio (%)8,9 Net stable funding ratio2,10 Total available stable funding Total required stable funding Net stable funding ratio (%) Other (billion)12 UBS AG (standalone) USD Swiss GAAP Swiss SRB rules UBS Switzerland AG (standalone) CHF Swiss GAAP Swiss SRB rules UBS Europe SE (consolidated) EUR IFRS UBS Americas Holding LLC (consolidated) USD US GAAP EU regulatory rules US Basel III rules 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 3311..1122..2211 31.12.20 1166,,229933 12,951 99,,771122 66,,558811 66,,554488 8,370 4,581 4,539 88,,449900 55,,447722 33,,001188 22,,445522 7,185 5,590 1,595 1,271 11,,112233 1,054 880000 332233 222277 878 176 163 1144,,449900 1111,,992255 22,,556655 11,,881122 12,675 10,842 1,833 975 550099,,885511 445555,,444466 5544,,440055 509,024 456,628 52,396 332200,,665566 330055,,991199 1144,,773366 316,829 304,194 12,634 4466,,441111 4422,,666644 33,,774477 48,591 43,896 4,696 220099,,771188 118822,,663333 2277,,008855 172,385 144,103 28,283 5522,,881188 1133,,884400 6666,,665588 33,,112299 50,269 14,430 64,699 7,719 1122,,660099 55,,338877 1177,,999966 12,234 5,176 17,410 4444,,225500 45,520 111100,,990088 110,219 1100,,885533 2288,,884499 10,824 28,234 22,,776644 229900 33,,005544 33,,005544 22,,44114433 55,,446688 3,703 290 3,993 3,993 1,7843 5,777 1133,,000022 44,,004499 1177,,005511 112255 1177,,117766 77,,00000044 2244,,005511 14,384 3,047 17,431 736 18,166 5,6004 23,031 331177,,991133 559933,,886688 305,575 595,017 110066,,339999 333399,,778888 107,253 335,251 1122,,332288 4466,,666600 13,175 41,376 7722,,997799 118888,,224466 221122,,116677 63,929 154,609 150,019 1177..88 2233..44 2233..55 3333..00 99..11 88..00 22.5 27.3 28.4 36.0 11.3 11.6 1166..66 2211..00 16.5 21.2 1111..99 1166..99 11.4 16.2 2277..11 26.3 2222..44 2244..88 2244..88 4444..44 66..55 28.1 30.3 30.3 43.8 9.7 5.2 8.4 92 62 148 1111..22 10.9 111122..00 135.7 8899 5522 117733 84 53 159 225577,,999922 228899,,119955 88991111 55..33 88..55 9911 6644 114433 222255,,223399 115588,,007722 11442211 1177 1100 117700 1155,,335588 88,,996633 117711 1111..77 14.0 1122..88 14.9 17 11 151 3322 2222 114477 Joint and several liability between UBS AG and UBS Switzerland AG 55 9 11 The financial information disclosed does not represent financial statements under the respective GAAP / IFRS. 22 Refer to the 31 December 2021 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information. 33 Consists of positions that meet the conditions laid down in Art. 72a–b of the Capital Requirements Regulation (CRR) II with regard to contractual, structural or legal subordination. 44 Consists of eligible long-term debt that meets the conditions specified in 12 CFR 252.162 of the final TLAC rules. TLAC is the sum of tier 1 capital and eligible long-term debt. 55 Leverage ratio denominators and going concern leverage ratios for UBS AG standalone and UBS Switzerland AG standalone for 31 December 2020 do not reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Introduction and basis for preparation” section of the 31 December 2021 Pillar 3 Report. 66 US regulatory authorities temporarily eased the requirements for the supplementary leverage ratio (the SLR), allowing for the exclusion of US Treasury securities and deposits at the Federal Reserve Banks from the SLR denominator through March 2021. This exclusion resulted in an increase in the SLR of 170 bps on 31 December 2020. 77 There was no local disclosure requirement for UBS Americas Holding LLC as of 31 December 2020. 88 In the fourth quarter of 2021, the liquidity coverage ratio (the LCR) of UBS AG was 173%, remaining above the prudential requirements communicated by FINMA. 99 In the fourth quarter of 2021, the LCR of UBS Switzerland AG, which is a Swiss SRB, was 143%, remaining above the prudential requirement communicated by FINMA in connection with the Swiss Emergency Plan. 1100 For UBS AG standalone and UBS Switzerland AG standalone, the local disclosure requirement for the net stable funding ratio (the NSFR) came into force in July 2021. For UBS Europe SE consolidated, the local disclosure requirement for the NSFR came into force in June 2021. For UBS Americas Holding LLC consolidated, the NSFR requirement became effective as of 1 July 2021 and related disclosures will come into effect in the second quarter of 2023. 1111 In accordance with Art. 17h para. 3 and 4 of the Liquidity Ordinance, UBS AG standalone is required to maintain a minimum NSFR of at least 80% without taking into account excess funding of UBS Switzerland AG and 100% after taking into account such excess funding. 1122 Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the joint and several liability. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank. 586 587 427 Significant regulated subsidiary andsub-group information Appendix A 429 Appendix Alternative performance measures Alternative performance measures An alternative performance measure (an APM) is a financial measure of historical or future financial performance, financial position or cash flows other than a financial measure defined or specified in the applicable recognized accounting standards or in other applicable regulations. We report a number of APMs in the discussion of the financial and operating performance of the Group, our business divisions and our Group Functions. We use APMs to provide a more complete picture of our operating performance and to reflect management’s view of the fundamental drivers of our business results. A definition of each APM, the method used to calculate it and the information content are presented in alphabetical order in the table below. Our APMs may qualify as non-GAAP measures as defined by US Securities and Exchange Commission (SEC) regulations. AAPPMM llaabbeell CCaallccuullaattiioonn IInnffoorrmmaattiioonn ccoonntteenntt Active Digital Banking clients in Corporate & Institutional Clients (%) – P&C Active Digital Banking clients in Personal Banking (%) – P&C Business volume for Personal Banking (CHF and USD) – P&C Client assets (USD and CHF) – P&C Cost / income ratio (%) Fee-generating assets (USD) – GWM Calculated as the average number of active clients for each month in the relevant period divided by the average number of total clients. “Clients” refers to the number of unique business relationships or legal entities operated by Corporate & Institutional Clients, excluding clients that do not have an account, mono- product clients and clients that have defaulted on loans or credit facilities. At the end of each month, any client that has logged on at least once in that month is determined to be “active” (a log-in time stamp is allocated to all business relationship numbers or per legal entity in a digital banking contract). Calculated as the average number of active clients for each month in the relevant period divided by the average number of total clients. “Clients” refers to the number of unique business relationships operated by Personal Banking, excluding persons under the age of 15, clients who do not have a private account, clients domiciled outside Switzerland and clients who have defaulted on loans or credit facilities. At the end of each month, any client that has logged on at least once in that month is determined to be “active” (a log-in time stamp is allocated to all business relationship numbers in a digital banking contract). Calculated as the sum of client assets and loans. This measure provides information about the proportion of active Digital Banking clients in the total number of UBS clients (within the aforementioned meaning) which are serviced by Corporate & Institutional Clients. This measure provides information about the proportion of active Digital Banking clients in the total number of UBS clients (within the aforementioned meaning) who are serviced by Personal Banking. This measure provides information about the volume of client assets and loans. Calculated as the sum of invested assets and other assets held purely for transactional purposes or custody only. Net new money is not measured for Personal & Corporate Banking. This measure provides information about the volume of client assets managed by or deposited with UBS for investment purposes, including other assets held purely for transactional purposes or custody only. Calculated as operating expenses divided by operating income before credit loss expense or release (annualized as applicable). This measure provides information about the efficiency of the business by comparing operating expenses with gross income. Calculated as the sum of discretionary and non- discretionary wealth management portfolios (mandate volume) and assets where generated revenues are predominantly of a recurring nature, i.e., mainly investment and mutual funds, including hedge funds and private markets, where we have a distribution agreement. This measure provides information about the volume of invested assets that create a revenue stream, whether as a result of the nature of the contractual relationship with clients or through the fee structure of the asset. An increase in the level of fee-generating assets results in an increase in the associated revenue stream. 430 430 Alternative performance measures Alternative performance measures An alternative performance measure (an APM) is a financial measure of historical or future financial performance, financial position or cash flows other than a financial measure defined or specified in the applicable recognized accounting standards or in other applicable regulations. We report a number of APMs in the discussion of the financial and operating performance of the Group, our business divisions and our Group Functions. We use APMs to provide a more complete picture of our operating performance and to reflect management’s view of the fundamental drivers of our business results. A definition of each APM, the method used to calculate it and the information content are presented in alphabetical order in the table below. Our APMs may qualify as non-GAAP measures as defined by US Securities and Exchange Commission (SEC) regulations. AAPPMM llaabbeell – P&C CCaallccuullaattiioonn IInnffoorrmmaattiioonn ccoonntteenntt Active Digital Banking clients in Calculated as the average number of active clients for This measure provides information about the Corporate & Institutional Clients (%) each month in the relevant period divided by the proportion of active Digital Banking clients in the total average number of total clients. “Clients” refers to the number of UBS clients (within the aforementioned number of unique business relationships or legal meaning) which are serviced by Corporate & entities operated by Corporate & Institutional Clients, Institutional Clients. Active Digital Banking clients in Calculated as the average number of active clients for This measure provides information about the Personal Banking (%) – P&C each month in the relevant period divided by the proportion of active Digital Banking clients in the total average number of total clients. “Clients” refers to the number of UBS clients (within the aforementioned number of unique business relationships operated by meaning) who are serviced by Personal Banking. excluding clients that do not have an account, mono- product clients and clients that have defaulted on loans or credit facilities. At the end of each month, any client that has logged on at least once in that month is determined to be “active” (a log-in time stamp is allocated to all business relationship numbers or per legal entity in a digital banking contract). Personal Banking, excluding persons under the age of 15, clients who do not have a private account, clients domiciled outside Switzerland and clients who have defaulted on loans or credit facilities. At the end of each month, any client that has logged on at least once in that month is determined to be “active” (a log-in time stamp is allocated to all business relationship numbers in a digital banking contract). Client assets (USD and CHF) Calculated as the sum of invested assets and other This measure provides information about the volume assets held purely for transactional purposes or custody of client assets managed by or deposited with UBS for only. Net new money is not measured for Personal & investment purposes, including other assets held Corporate Banking. purely for transactional purposes or custody only. Cost / income ratio (%) Calculated as operating expenses divided by operating This measure provides information about the income before credit loss expense or release efficiency of the business by comparing operating (annualized as applicable). expenses with gross income. Fee-generating assets (USD) Calculated as the sum of discretionary and non- This measure provides information about the volume discretionary wealth management portfolios (mandate of invested assets that create a revenue stream, volume) and assets where generated revenues are whether as a result of the nature of the contractual predominantly of a recurring nature, i.e., mainly relationship with clients or through the fee structure investment and mutual funds, including hedge funds of the asset. An increase in the level of fee-generating and private markets, where we have a distribution assets results in an increase in the associated revenue agreement. stream. Appendix – P&C – P&C – GWM 430 AAPPMM llaabbeell CCaallccuullaattiioonn IInnffoorrmmaattiioonn ccoonntteenntt Fee-generating asset margin (bps) – GWM Calculated as revenues from fee-generating assets (a portion of which is included in recurring fee income and a portion of which is included in transaction- based income, annualized as applicable) divided by average fee-generating assets for the relevant mandate fee billing period. For the US, fees have been billed on daily balances since the fourth quarter of 2020 and average fee-generating assets are calculated as the average of the monthly average balances. Prior to the fourth quarter 2020, billing was based on prior quarter-end balances, and the average fee-generating assets were thus the prior quarter-end balance. For balances outside of the US, billing is based on prior month-end balances and average fee- generating assets are thus the average of the prior month-end balances. This measure provides information about the revenues from fee-generating assets in relation to their average volume during the relevant mandate fee billing period. Gross margin on invested assets (bps) – AM Calculated as operating income before credit loss expense or release (annualized as applicable) divided by average invested assets. This measure provides information about the operating income before credit loss expense or release of the business in relation to invested assets. Impaired loan portfolio as a percentage of total loan portfolio, gross (%) – GWM, P&C Calculated as impaired loan portfolio divided by total gross loan portfolio. Invested assets (USD and CHF) – GWM, P&C, AM Loan penetration (%) – GWM Mobile Banking log-in share in Personal Banking (%) – P&C Calculated as the sum of managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts, and wealth management securities or brokerage accounts. Calculated as loans divided by invested assets. Calculated as the number of Mobile Banking app log-ins divided by total log-ins via E-Banking and the Mobile Banking app in Personal Banking. If a digital banking contract is linked to multiple business relationships, the log-in is attributed to the business relationship with the most banking products in use. Net interest margin (bps) – P&C Calculated as net interest income (annualized as applicable) divided by average loans. Business volume for Personal Calculated as the sum of client assets and loans. This measure provides information about the volume Banking (CHF and USD) of client assets and loans. Net margin on invested assets (bps) – AM Calculated as operating profit before tax (annualized as applicable) divided by average invested assets. This measure provides information about the proportion of impaired loan portfolio in the total gross loan portfolio. This measure provides information about the volume of client assets managed by or deposited with UBS for investment purposes. This measure provides information about loan volume in relation to invested assets. This measure provides information about the proportion of Mobile Banking app log-ins in the total number of log-ins via E-Banking and the Mobile Banking app in Personal Banking. This measure provides information about the profitability of the business by calculating the difference between the price charged for lending and the cost of funding, relative to loan value. This measure provides information about the operating profit before tax of the business in relation to invested assets. Net new business volume for Personal Banking (CHF and USD) – P&C Calculated as the sum of net inflows and outflows of client assets and loans during a specific period (annualized as applicable). This measure provides information about the business volume as a result of net new business volume flows during a specific period. Net new business volume growth for Personal Banking (%) – P&C Calculated as the sum of net inflows and outflows of client assets and loans during a specific period (annualized as applicable) divided by total business volume / client assets at the beginning of the period. This measure provides information about the growth of business volume as a result of net new business volume flows during a specific period. Net new fee-generating assets (USD) – GWM Calculated as the sum of the net amount of fee- generating assets inflows and outflows, including dividend and interest inflows into mandates and outflows from mandate fees paid by clients, during a specific period. This measure provides information about the development of fee-generating assets during a specific period as a result of net flows and excludes movements due to market performance and foreign exchange translation. Net new money (USD) – GWM, AM Calculated as the sum of the net amount of inflows and outflows of invested assets (as defined in UBS policy) recorded during a specific period. Net profit growth (%) Calculated as the change in net profit attributable to shareholders from continuing operations between current and comparison periods divided by net profit attributable to shareholders from continuing operations of the comparison period. This measure provides information about the development of invested assets during a specific period as a result of net new money flows and excludes movements due to market performance, foreign exchange translation, dividends, interest and fees. This measure provides information about profit growth in comparison with the prior period. 431 431 Appendix AAPPMM llaabbeell Pre-tax profit growth (%) Recurring net fee income (USD and CHF) – GWM, P&C Return on attributed equity (%) CCaallccuullaattiioonn IInnffoorrmmaattiioonn ccoonntteenntt Calculated as the change in net profit before tax attributable to shareholders from continuing operations between current and comparison periods divided by net profit before tax attributable to shareholders from continuing operations of the comparison period. Calculated as the total of fees for services provided on an ongoing basis, such as portfolio management fees, asset-based investment fund fees and custody fees, which are generated on client assets, and administrative fees for accounts. Calculated as annualized business division operating profit before tax divided by average attributed equity. This measure provides information about pre-tax profit growth in comparison with the prior period. This measure provides information about the amount of recurring net fee income. This measure provides information about the profitability of the business divisions in relation to attributed equity. Return on common equity tier 1 capital (%) Calculated as annualized net profit attributable to shareholders divided by average common equity tier 1 capital. This measure provides information about the profitability of the business in relation to common equity tier 1 capital. Return on equity (%) Calculated as annualized net profit attributable to shareholders divided by average equity attributable to shareholders. This measure provides information about the profitability of the business in relation to equity. Return on leverage ratio denominator, gross (%) Calculated as annualized operating income before credit loss expense or release divided by average leverage ratio denominator. This measure provides information about the revenues of the business in relation to leverage ratio denominator. Return on risk-weighted assets, gross (%) Return on tangible equity (%) Secured loan portfolio as a percentage of total loan portfolio, gross (%) – P&C Tangible book value per share (USD and CHF1) Calculated as annualized operating income before credit loss expense or release divided by average risk- weighted assets. Calculated as annualized net profit attributable to shareholders divided by average equity attributable to shareholders less average goodwill and intangible assets. Calculated as secured loan portfolio divided by total gross loan portfolio. Calculated as equity attributable to shareholders less goodwill and intangible assets divided by the number of shares outstanding. This measure provides information about the revenues of the business in relation to risk-weighted assets. This measure provides information about the profitability of the business in relation to tangible equity. This measure provides information about the proportion of the secured loan portfolio in the total gross loan portfolio. This measure provides information about tangible net assets on a per-share basis. Total book value per share (USD and CHF1) Calculated as equity attributable to shareholders divided by the number of shares outstanding. This measure provides information about net assets on a per-share basis. Transaction-based income (USD and CHF) – GWM, P&C Calculated as the total of the non-recurring portion of net fee and commission income, mainly composed of brokerage and transaction-based investment fund fees, and credit card fees, as well as fees for payment and foreign exchange transactions, together with other net income from financial instruments measured at fair value through profit or loss. This measure provides information about the amount of the non-recurring portion of net fee and commission income. 11 Total book value per share and tangible book value per share in Swiss francs are calculated based on a translation of equity under our US dollar presentation currency. 432 432 Appendix AAPPMM llaabbeell CCaallccuullaattiioonn IInnffoorrmmaattiioonn ccoonntteenntt Pre-tax profit growth (%) Calculated as the change in net profit before tax This measure provides information about pre-tax attributable to shareholders from continuing profit growth in comparison with the prior period. operations between current and comparison periods divided by net profit before tax attributable to shareholders from continuing operations of the comparison period. asset-based investment fund fees and custody fees, which are generated on client assets, and administrative fees for accounts. Recurring net fee income Calculated as the total of fees for services provided on This measure provides information about the amount an ongoing basis, such as portfolio management fees, of recurring net fee income. (USD and CHF) – GWM, P&C Return on attributed equity (%) Calculated as annualized business division operating This measure provides information about the profit before tax divided by average attributed equity. profitability of the business divisions in relation to attributed equity. Return on common equity tier 1 Calculated as annualized net profit attributable to This measure provides information about the capital (%) shareholders divided by average common equity tier 1 profitability of the business in relation to common capital. equity tier 1 capital. Return on equity (%) Calculated as annualized net profit attributable to This measure provides information about the shareholders divided by average equity attributable to profitability of the business in relation to equity. shareholders. weighted assets. assets. Return on leverage ratio denominator, Calculated as annualized operating income before This measure provides information about the revenues gross (%) credit loss expense or release divided by average of the business in relation to leverage ratio leverage ratio denominator. denominator. Return on risk-weighted assets, gross (%) Calculated as annualized operating income before This measure provides information about the revenues credit loss expense or release divided by average risk- of the business in relation to risk-weighted assets. Return on tangible equity (%) Calculated as annualized net profit attributable to This measure provides information about the shareholders divided by average equity attributable to profitability of the business in relation to tangible shareholders less average goodwill and intangible equity. Secured loan portfolio as a percentage Calculated as secured loan portfolio divided by total This measure provides information about the of total loan portfolio, gross (%) gross loan portfolio. proportion of the secured loan portfolio in the total – P&C gross loan portfolio. Tangible book value per share Calculated as equity attributable to shareholders less This measure provides information about tangible net (USD and CHF1) goodwill and intangible assets divided by the number assets on a per-share basis. of shares outstanding. Total book value per share Calculated as equity attributable to shareholders This measure provides information about net assets (USD and CHF1) divided by the number of shares outstanding. on a per-share basis. Transaction-based income Calculated as the total of the non-recurring portion of This measure provides information about the amount (USD and CHF) – GWM, P&C net fee and commission income, mainly composed of of the non-recurring portion of net fee and brokerage and transaction-based investment fund commission income. fees, and credit card fees, as well as fees for payment and foreign exchange transactions, together with other net income from financial instruments measured at fair value through profit or loss. 11 Total book value per share and tangible book value per share in Swiss francs are calculated based on a translation of equity under our US dollar presentation currency. Abbreviations frequently used in our financial reports A ABS AGM A-IRB AIV ALCO AMA AML AoA APM ARR ARS ASF AT1 AuM B BCBS BIS BoD C CAO CCAR CCF CCP CCR CCRC asset-backed securities Annual General Meeting of shareholders advanced internal ratings- based alternative investment vehicle Asset and Liability Committee advanced measurement approach anti-money laundering Articles of Association alternative performance measure alternative reference rate auction rate securities available stable funding additional tier 1 assets under management Basel Committee on Banking Supervision Bank for International Settlements Board of Directors Capital Adequacy Ordinance Comprehensive Capital Analysis and Review credit conversion factor central counterparty counterparty credit risk Corporate Culture and Responsibility Committee CDS CEA CEO CET1 CFO CFTC CGU CHF CIO CLS C&ORC CRD IV CRM CST CUSIP CVA D DBO DCCP DM DOJ DTA DVA credit default swap Commodity Exchange Act Chief Executive Officer common equity tier 1 Chief Financial Officer US Commodity Futures Trading Commission cash-generating unit Swiss franc Chief Investment Office Continuous Linked Settlement Compliance & Operational Risk Control EU Capital Requirements Directive of 2013 credit risk mitigation (credit risk) or comprehensive risk measure (market risk) combined stress test Committee on Uniform Security Identification Procedures credit valuation adjustment defined benefit obligation Deferred Contingent Capital Plan discount margin US Department of Justice deferred tax asset debit valuation adjustment E EAD EB EC ECB ECL EGM EIR EL EMEA EOP EPS ESG ETD ETF EU EUR EURIBOR ESR EVE EY F FA FCA FCT FINMA FMIA exposure at default Executive Board European Commission European Central Bank expected credit loss Extraordinary General Meeting of shareholders effective interest rate expected loss Europe, Middle East and Africa Equity Ownership Plan earnings per share environmental, social and governance exchange-traded derivatives exchange-traded fund European Union euro Euro Interbank Offered Rate environmental and social risk economic value of equity Ernst & Young Ltd financial advisor UK Financial Conduct Authority foreign currency translation Swiss Financial Market Supervisory Authority Swiss Financial Market Infrastructure Act 432 433 433 Appendix Abbreviations frequently used in our financial reports (continued) O OCA OCI ORF OTC P PD PIT P&L POCI PRA PRV R RBA RBC RbM REIT RMBS RniV RoCET1 RoTE RoU rTSR RWA International Financial Reporting Standards internal ratings-based interest rate risk in the banking book International Swaps and Derivatives Association International Securities Identification Number Key Risk Taker liquidity-adjusted stress liquidity coverage ratio loss given default London Interbank Offered Rate limited liability company lines of defense leverage ratio denominator Long-Term Incentive Plan loan-to-value mergers and acquisitions Markets in Financial Instruments Directive II Material Risk Taker net asset value net interest income net stable funding ratio New York Stock Exchange own credit adjustment other comprehensive income operational risk framework over-the-counter probability of default point in time profit or loss purchased or originated credit-impaired UK Prudential Regulation Authority positive replacement value role-based allowance risk-based capital risk-based monitoring real estate investment trust residential mortgage- backed securities risks not in VaR return on CET1 capital return on tangible equity right-of-use relative total shareholder return risk-weighted assets IFRS IRB IRRBB ISDA ISIN K KRT L LAS LCR LGD LIBOR LLC LoD LRD LTIP LTV M M&A MiFID II MRT N NAV NII NSFR NYSE FSB FTA FVA FVOCI FVTPL FX G GAAP GCRG GBP GDP GEB GHG GIA GMD GRI G-SIB H Hong Kong SAR HQLA I IAS IASB IBOR IFRIC Financial Stability Board Swiss Federal Tax Administration funding valuation adjustment fair value through other comprehensive income fair value through profit or loss foreign exchange generally accepted accounting principles Group Compliance, Regulatory & Governance pound sterling gross domestic product Group Executive Board greenhouse gas Group Internal Audit Group Managing Director Global Reporting Initiative global systemically important bank Hong Kong Special Administrative Region of the People’s Republic of China high-quality liquid assets International Accounting Standards International Accounting Standards Board interbank offered rate International Financial Reporting Interpretations Committee 434 434 own credit adjustment other comprehensive income operational risk framework over-the-counter probability of default point in time profit or loss purchased or originated credit-impaired UK Prudential Regulation Authority positive replacement value role-based allowance risk-based capital risk-based monitoring real estate investment trust FVOCI fair value through other ISDA International Swaps and comprehensive income FVTPL fair value through profit or ISIN Financial Stability Board IFRS Swiss Federal Tax Administration funding valuation adjustment loss foreign exchange generally accepted accounting principles Group Compliance, Regulatory & Governance pound sterling gross domestic product Group Executive Board greenhouse gas Group Internal Audit Group Managing Director Global Reporting Initiative global systemically important bank LIBOR London Interbank Offered O OCA OCI ORF OTC P PD PIT P&L POCI PRA PRV R RBA RBC RbM REIT RniV RoTE RoU rTSR RWA International Financial Reporting Standards internal ratings-based interest rate risk in the banking book Derivatives Association International Securities Identification Number Key Risk Taker liquidity-adjusted stress liquidity coverage ratio loss given default Rate limited liability company lines of defense leverage ratio denominator loan-to-value mergers and acquisitions Markets in Financial Instruments Directive II net asset value net interest income net stable funding ratio New York Stock Exchange IRB IRRBB K KRT L LAS LCR LGD LLC LoD LRD LTIP LTV M M&A MiFID II N NAV NII NSFR NYSE Administrative Region of MRT Material Risk Taker Hong Kong H SAR Hong Kong Special the People’s Republic of China HQLA high-quality liquid assets International Accounting Standards International Accounting Standards Board interbank offered rate International Financial Reporting Interpretations Committee Long-Term Incentive Plan RMBS residential mortgage- backed securities risks not in VaR RoCET1 return on CET1 capital return on tangible equity right-of-use relative total shareholder return risk-weighted assets Appendix FSB FTA FVA FX G GAAP GCRG GBP GDP GEB GHG GIA GMD GRI G-SIB I IAS IASB IBOR IFRIC 434 Abbreviations frequently used in our financial reports (continued) Abbreviations frequently used in our financial reports (continued) S SA SA-CCR SAR SBC SDG SE SEC SEEOP SFT standardized approach standardized approach for counterparty credit risk stock appreciation right or Special Administrative Region Swiss Bank Corporation Sustainable Development Goal structured entity US Securities and Exchange Commission Senior Executive Equity Ownership Plan securities financing transaction SI SIBOR SICR SIX SME SMF SNB SOR SPPI SRB SRM SVaR sustainable investing or sustainable investments Singapore Interbank Offered Rate significant increase in credit risk SIX Swiss Exchange small and medium-sized entities Senior Management Function Swiss National Bank Singapore Swap Offer Rate solely payments of principal and interest systemically relevant bank specific risk measure stressed value-at-risk T TBTF TCFD TIBOR TLAC U UoM USD V VaR VAT too big to fail Task Force on Climate- related Financial Disclosures Tokyo Interbank Offered Rate total loss-absorbing capacity units of measure US dollar value-at-risk value added tax This is a general list of the abbreviations frequently used in our financial reporting. Not all of the listed abbreviations may appear in this particular report. 435 435 Appendix Information sources Reporting publications Other information Website The “Investor Relations” website at ubs.com/investors provides the following information about UBS: news releases; financial information, including results-related filings with the US Securities and Exchange Commission for shareholders, including UBS share price charts, as well as data and dividend information, and for bondholders; the UBS corporate calendar; and presentations by management for investors and financial analysts. Information is available online in English, with some information also available in German. (the SEC); information Results presentations Our quarterly results presentations are webcast live. Playbacks of most from can ubs.com/presentations. presentations downloaded be Messaging service Email alerts to news about UBS can be subscribed for under “UBS News Alert” at ubs.com/global/en/investor-relations/contact/ investor-services.html. Messages are sent in English, German, French or Italian, with an option to select theme preferences for such alerts. Form 20-F and other submissions to the US Securities and Exchange Commission We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (the SEC). Principal among these filings is the annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934. The filing of Form 20-F is structured as a wrap-around document. Most sections of the filing can be satisfied by referring to the combined UBS Group AG and UBS AG annual report. However, there is a small amount of additional information in Form 20-F that is not presented elsewhere and is particularly targeted at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that we file with the SEC is available on the SEC’s for more website: information. to ubs.com/investors sec.gov. Refer Annual publications Annual Report (SAP No. 80531): Published in English, this single- volume report provides descriptions of: our Group strategy and performance; the strategy and performance of the business divisions and Group Functions; risk, capital and funding, and balance sheet management; corporate governance, corporate including responsibility and our compensation framework, information about compensation for the Board of Directors and the Group Executive Board members; and financial information, including the financial statements. Geschäftsbericht (SAP No. 80531): This publication provides a translation into German of selected sections of our Annual Report. Annual Review (SAP No. 80530): This booklet contains key information about our strategy and performance, with a focus on corporate responsibility at UBS. It is published in English, German, French and Italian. Compensation Report (SAP No. 82307): This report discusses our compensation framework and provides information about compensation for the Board of Directors and the Group Executive Board members. It is available in English and German. Quarterly publications The quarterly financial report provides an update on our strategy and performance for the respective quarter. It is available in English. How to order publications The annual and quarterly publications are available in .pdf format at ubs.com/investors, under “Financial information,” and printed copies can be requested from UBS free of charge. For annual publications, refer to the “Investor services” section at ubs.com/investors. Alternatively, they can be ordered by quoting the SAP number and the language preference, where applicable, from UBS AG, F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland. 436 436 Appendix Information sources Reporting publications Annual publications Other information Website Annual Report (SAP No. 80531): Published in English, this single- The “Investor Relations” website at ubs.com/investors provides volume report provides descriptions of: our Group strategy and the following information about UBS: news releases; financial performance; the strategy and performance of the business information, including results-related filings with the US Securities divisions and Group Functions; risk, capital and funding, and and Exchange Commission (the SEC); information for balance sheet management; corporate governance, corporate shareholders, including UBS share price charts, as well as data and responsibility and our compensation framework, including dividend information, and for bondholders; the UBS corporate information about compensation for the Board of Directors and calendar; and presentations by management for investors and the Group Executive Board members; and financial information, financial analysts. Information is available online in English, with including the financial statements. some information also available in German. Geschäftsbericht (SAP No. 80531): This publication provides a translation into German of selected sections of our Annual Results presentations Report. Our quarterly results presentations are webcast live. Playbacks Annual Review (SAP No. 80530): This booklet contains key of most presentations can be downloaded from information about our strategy and performance, with a focus on ubs.com/presentations. corporate responsibility at UBS. It is published in English, German, French and Italian. Messaging service Compensation Report (SAP No. 82307): This report discusses our Email alerts to news about UBS can be subscribed for under “UBS compensation framework and provides information about News Alert” at ubs.com/global/en/investor-relations/contact/ compensation for the Board of Directors and the Group Executive investor-services.html. Messages are sent in English, German, Board members. It is available in English and German. French or Italian, with an option to select theme preferences for such alerts. The quarterly financial report provides an update on our strategy Form 20-F and other submissions to the US Securities and and performance for the respective quarter. It is available in Exchange Commission We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (the SEC). Principal among these filings is the annual report on Form 20-F, filed The annual and quarterly publications are available in .pdf format pursuant to the US Securities Exchange Act of 1934. The filing of at ubs.com/investors, under “Financial information,” and printed Form 20-F is structured as a wrap-around document. Most copies can be requested from UBS free of charge. For annual sections of the filing can be satisfied by referring to the combined publications, refer to the “Investor services” section at UBS Group AG and UBS AG annual report. However, there is a ubs.com/investors. Alternatively, they can be ordered by quoting small amount of additional information in Form 20-F that is not the SAP number and the language preference, where applicable, presented elsewhere and is particularly targeted at readers in the from UBS AG, F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland. US. Readers are encouraged to refer to this additional disclosure. Quarterly publications English. How to order publications Any document that we file with the SEC is available on the SEC’s website: sec.gov. Refer to ubs.com/investors for more information. Cautionary Statement Regarding Forward-Looking Statements | This report contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance, statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development and goals or intentions to achieve climate, sustainability and other social objectives. While these forward-looking statements represent UBS’s judgments, expectations and objectives concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. Russia’s invasion of Ukraine has led to heightened volatility across global markets and to the coordinated implementation of sanctions on Russia, Russian entities and nationals. Russia’s invasion of Ukraine already has caused significant population displacement, and as the conflict continues, the disruption will likely increase. The scale of the conflict and the speed and extent of sanctions, as well as the uncertainty as to how the situation will develop, may have significant adverse effects to the market and macroeconomic conditions, including in ways that cannot be anticipated. This creates significantly greater uncertainty about forward-looking statements. The COVID-19 pandemic and the measures taken to manage it have had and may also continue to have a significant adverse effect on global and regional economic activity, including disruptions to global supply chains, inflationary pressures, and labor market displacements. Factors that may affect our performance and ability to achieve our plans, outlook and other objectives also include, but are not limited to: (i) the degree to which UBS is successful in the ongoing execution of its strategic plans, including its cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA) and leverage ratio denominator (LRD), liquidity coverage ratio and other financial resources, including changes in RWA assets and liabilities arising from higher market volatility; (ii) the degree to which UBS is successful in implementing changes to its businesses to meet changing market, regulatory and other conditions; (iii) the continuing low or negative interest rate environment in Switzerland and other jurisdictions; (iv) developments in the macroeconomic climate and in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, and currency exchange rates, and the effects of economic conditions, market developments, and increasing geopolitical tensions, and changes to national trade policies on the financial position or creditworthiness of UBS’s clients and counterparties, as well as on client sentiment and levels of activity; (v) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, as well as availability and cost of funding to meet requirements for debt eligible for total loss-absorbing capacity (TLAC); (vi) changes in central bank policies or the implementation of financial legislation and regulation in Switzerland, the US, the UK, the European Union and other financial centers that have imposed, or resulted in, or may do so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, net stable funding ratio, liquidity and funding requirements, heightened operational resilience requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these will or would have on UBS’s business activities; (vii) UBS’s ability to successfully implement resolvability and related regulatory requirements and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and regulatory requirements, or other external developments; (viii) UBS’s ability to maintain and improve its systems and controls for complying with sanctions and for the detection and prevention of money laundering to meet evolving regulatory requirements and expectations, in particular in current geopolitical turmoil; (ix) the uncertainty arising from domestic stresses in certain major economies; (x) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements among the major financial centers adversely affect UBS’s ability to compete in certain lines of business; (xi) changes in the standards of conduct applicable to our businesses that may result from new regulations or new enforcement of existing standards, including measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (xii) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain businesses, potentially large fines or monetary penalties, or the loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as the effect that litigation, regulatory and similar matters have on the operational risk component of our RWA, as well as the amount of capital available for return to shareholders; (xiii) the effects on UBS’s cross-border banking business of sanctions, tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (xiv) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses, which may be affected by competitive factors; (xv) changes in accounting or tax standards or policies, and determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xvi) UBS’s ability to implement new technologies and business methods, including digital services and technologies, and ability to successfully compete with both existing and new financial service providers, some of which may not be regulated to the same extent; (xvii) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xviii) the occurrence of operational failures, such as fraud, misconduct, unauthorized trading, financial crime, cyberattacks, data leakage and systems failures, the risk of which is increased with cyberattack threats from nation states and while COVID-19 control measures require large portions of the staff of both UBS and its service providers to work remotely; (xix) restrictions on the ability of UBS Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation to protective measures, restructuring and liquidation proceedings; (xx) the degree to which changes in regulation, capital or legal structure, financial results or other factors may affect UBS’s ability to maintain its stated capital return objective; (xxi) uncertainty over the scope of actions that may be required by UBS, governments and others to achieve goals relating to climate, environmental and social matters, as well as the evolving nature of underlying science and industry and governmental standards; and (xxii) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2021. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages and percent changes disclosed in text and tables are calculated on the basis of unrounded figures. Absolute changes between reporting periods disclosed in the text, which can be derived from numbers presented in related tables, are calculated on a rounded basis. Tables | Within tables, blank fields generally indicate non-applicability or that presentation of any content would not be meaningful, or that information is not available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis. Values that are zero on a rounded basis can be either negative or positive on an actual basis. 436 437 437 UBS Group AG P.O. Box CH-8098 Zurich ubs.com

Continue reading text version or see original annual report in PDF format above