Report of Foreign Issuer (6-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

 

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 

Date: February 28, 2020

 

 

UBS Group AG

Commission File Number: 1-36764

 

UBS AG

Commission File Number: 1-15060

 

 

(Registrants' Name)

 

Bahnhofstrasse 45, Zurich, Switzerland and
Aeschenvorstadt 1, Basel, Switzerland

(Address of principal executive offices)

 

Indicate by check mark whether the registrants file or will file annual reports under cover of Form 20‑F or Form 40-F.

 

This Form 6-K consists of the 31 December 2019 Pillar 3 report of UBS Group AG and significant regulated subsidiaries and sub-groups, which appears immediately following this page.

 

  

 

 

31 December 2019 Pillar 3 report

 

UBS Group and significant regulated subsidiaries and sub-groups

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terms used in this report, unless the context requires otherwise

 

Switchboards

For all general inquiries.
www.ubs.com/contact

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London +44-207-567 8000
New York +1-212-821 3000
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Investor Relations

UBS’s Investor Relations team supports institutional, professional and retail investors from
our offices in Zurich,
London, New York and Krakow.

UBS Group AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland

www.ubs.com/investors

Zurich +41-44-234 4100
New York +1-212-882 5734

Media Relations

UBS’s Media Relations team supports
global media and journalists
from our offices in Zurich, London, New York and Hong Kong.

www.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-ny@ubs.com

Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com

Office of the Group Company Secretary

The Group Company Secretary receives inquiries regarding compensation and related issues addressed to 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

+41-44-235 6652

Shareholder Services

UBS’s Shareholder Services team,
a unit of the Group Company Secretary Office, is responsible
for 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

Hotline +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:
www.computershare.com/investor

Calls from the US

+1-866-305-9566
Calls from outside the US
+1-781-575-2623
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+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610

 

 

Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Language: English

© UBS 2020. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

 

 

  

Scope of Basel III Pillar 3 disclosures

The Basel Committee on Banking Supervision (the BCBS) Basel III capital adequacy framework consists of three complementary pillars. Pillar 1 provides a framework for measuring minimum capital requirements for the credit, market, operational and non-counterparty-related risks faced by banks. Pillar 2 addresses the principles of the supervisory review process, emphasizing the need for a qualitative approach to supervising banks. Pillar 3 requires banks to publish a range of disclosures, mainly covering risk, capital, leverage, liquidity and remuneration.

This report provides Pillar 3 disclosures for UBS Group as well as prudential key figures and regulatory information for UBS AG standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated in the respective sections under “Significant regulated subsidiaries and sub-groups.” Certain information provided in our Annual Report 2019 or other publications also serves to address Pillar 3 disclosure requirements. Where this is the case, a reference has been included in this report to the UBS publication which provides such information.

As UBS is considered a systemically relevant bank (SRB) under Swiss banking law, UBS Group AG and UBS AG are required to comply with regulations based on the Basel III framework as applicable to Swiss SRBs on a consolidated basis. Capital and other regulatory information as of 31 December 2019 for UBS Group AG consolidated is provided in the “Capital management” section of our Annual Report 2019 and for UBS AG consolidated in the “Capital management” section of the combined UBS Group AG and UBS AG Annual Report 2019, available under “Annual reporting” at www.ubs.com/investors. 

Local regulators may also require the publication of Pillar 3 information at a subsidiary or sub-group level. Where applicable, these local disclosures are provided under “Holding company and significant regulated subsidiaries and sub-groups” at www.ubs.com/investors. 

Significant regulatory and disclosure requirements and changes effective in or from 2019

Significant BCBS and FINMA capital adequacy, liquidity and funding, and related disclosure requirements

This Pillar 3 report has been prepared in accordance with Swiss Financial Market Supervisory Authority (FINMA) Pillar 3 disclosure requirements (FINMA Circular 2016/1 “Disclosure – banks”) as revised on 31 October 2019, the underlying BCBS guidance “Revised Pillar 3 disclosure requirements” issued in January 2015, the “Frequently asked questions on the revised Pillar 3 disclosure requirements” issued in August 2016, the “Pillar 3 disclosure requirements – consolidated and enhanced framework” issued in March 2017 and the subsequent “Technical Amendment – Pillar 3 disclosure requirements – regulatory treatment of accounting provisions” issued in August 2018.

BCBS launches a consolidated framework of its standards

Following a consultation period earlier in the year, the BCBS launched a consolidated version of its global standards in December 2019, bringing together all BCBS global standards for the regulation and supervision of banks. The publication of these standards in a new format primarily focused on reorganizing existing and future requirements. While no new elements were introduced, a number of minor inconsistencies were addressed along with a list of new frequently asked questions and answers added.

Changes to Pillar 1 requirements

Revised Capital Adequacy Ordinance and the Banking Ordinance

As of 1 January 2019, we became subject to the revised Capital Adequacy Ordinance (the CAO) and the Banking Ordinance (the BO), with no material effect on UBS, as the changes were largely previously implemented by too big to fail-related decrees.

Changes to Pillar 3 disclosure requirements

We disclosed the following tables and/or narratives for the first time in 2019:

–     “KM2: Key metrics – TLAC requirements (at resolution group level)” effective 31 March 2019 and applicable for UBS Group AG consolidated, the ultimate parent entity of the defined UBS resolution group, to which, in case of resolution, resolution tools (e.g., a bail-in) are expected to be applied;

–     “TLAC1 – TLAC composition for G-SIBs (at resolution group level)” applicable to UBS Group AG consolidated, effective 30 June 2019;

–     “TLAC2 – Material sub-group entity – creditor ranking at legal entity level” applicable to UBS Americas Holding LLC consolidated, effective 31 December 2019;

–     “TLAC3 – Resolution entity – creditor ranking at legal entity level” applicable to UBS Group AG consolidated at a legal entity level, effective 30 June 2019;

–     “IRRBBA – IRRBB risk management objectives and policies” applicable to UBS Group AG consolidated, effective 30 June 2019;

–     “IRRBB1 – Quantitative information about IRRBB” applicable to UBS Group AG consolidated, effective 30 June 2019; and

–     “IRRBBA1 – Quantitative disclosures relating to the position structure and interest rate reset of IRRBB risk” applicable to UBS Group AG consolidated, effective 30 June 2019.

 

Effective 30 June 2019, we have revised the “CR1 – Credit quality of assets” table to address additional disclosure requirements with regard to the allocation of the accounting provisions for credit losses between the standardized approach and the internal ratings-based approach, as required by the aforementioned BCBS Technical Amendment issued in August 2018.

The “CRB – Additional disclosures related to credit quality of assets” has been amended, effective 31 December 2019, accompanying the revisions related to “CR1 – Credit quality of assets” requiring UBS Group AG consolidated to disclose its rationale for the categorization of accounting provisions into general and specific categories under the standardized approach.

Significant model updates and accounting and methodology changes effective in 2019

Changes to accounting affecting Pillar 1 and Pillar 3 disclosures

Effective from 1 January 2019, we adopted IFRS 16, Leases, fundamentally changing how we account for operating leases when acting as a lessee. Upon adoption, assets and liabilities increased by USD 3.5 billion, with a corresponding increase in risk-weighted assets (RWA) and leverage ratio denominator (LRD).

Exclusion of certain collar financing transactions from credit risk RWA

As part of methodology and policy changes, as of 30 June 2019 we excluded USD 2.1 billion of certain collar financing transactions in the Investment Bank from credit risk RWA due to their non-credit bearing nature. These collar financing transactions remain subject to the market risk framework.

Model updates

In 2019, we have fully phased-in the remaining USD 2.8 billion of RWA increases related to the probability of default (PD) and loss given default (LGD) changes from the implementation of revised models for Swiss residential mortgages. In addition, the credit conversion factor for zero-balance securities-backed lending and margin loan exposures was updated in the second half of 2019, and resulted in a USD 0.8 billion increase in RWA.

Significant BCBS and FINMA requirements to be adopted in 2020 or later

Final guidance

Gone concern loss-abs ☐ rbing capacity requirements

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 to ensure the integrity of systemically important functions in the case of an impending insolvency. In addition, in the event that CET1 capital, low-trigger loss-absorbing additional tier 1 (AT1) or certain low-trigger tier 2 capital instruments are used to meet the gone concern requirements, such requirements may be reduced by up to 2.86 percentage points for the RWA-based requirement and up to 1 percentage point for the LRD-based requirement. As of 1 January 2020, the combined reduction applied for resolvability measures and the aforementioned gone concern requirement reduction for the use of higher quality capital may not exceed 5.34 percentage points for the RWA-based requirement of 13.94% and 1.875 percentage points for the LRD-based requirement of 4.875%. The amount of the rebate for improved resolvability is assessed annually by FINMA, and has been phased in until 1 January 2020. Based on actions we completed by December 2018 to improve resolvability, FINMA granted a rebate on the gone concern requirement of 42.5% of the aforementioned maximum rebate in the third quarter of 2019, which resulted in a reduction of 2.27 percentage points for the RWA-based requirement and 0.80 percentage points for the LRD-based requirement. UBS also qualifies for an additional rebate for the use of low-trigger tier 2 capital instruments to fulfill gone concern requirements, allowing a further reduction of 1.33 percentage points for the RWA-based requirement and 0.38 percentage points for the LRD-based requirements.

®     Refer to the “Capital management” section of our Annual Report 2019, available under ”Annual reporting” at www.ubs.com/investors, for information about the current capital requirements

Revised FINMA circular on credit risk

We have adopted the standardized approach for counterparty credit risk (SA-CCR) as of 1 January 2020. SA-CCR is a comprehensive, non-modeled approach for measuring counterparty credit risk associated with over-the-counter derivatives, exchange-traded derivatives and long settlement transactions that replaces the current exposure method (CEM).

In line with the implementation date for SA-CCR, the FINMA revisions to the capital treatment concerning UBS’s exposures to central counterparties also became effective on 1 January 2020. The final requirements include, among other things, a single approach for calculating capital requirements for exposures arising from UBS’s contributions to the mutualized default fund resources of a qualifying central counterparty (a QCCP), and contain specific guidance regarding multi-level client structures where UBS clears its trades through intermediaries linked to a central counterparty.

 

The capital requirements for investments in funds in the banking book detailed in FINMA Circular 2017/7 “Credit risk – banks” were introduced on 1 January 2020. The standard requires that investments in funds that are held in the banking book are consistently treated with one of the following three approaches, which vary in their degree of risk sensitivity and conservatism: the “look-through approach,” the “mandate-based approach” or the “fallback approach.”

The effects of the adoptions will be presented in our 31 March 2020 Pillar 3 report, which will be available from April 2020.

Swiss Federal Council adopts new rules on gone concern capital for G-SIBs

In November 2019, the Swiss Federal Council adopted amendments to the Capital Adequacy Ordinance, which became effective 1 January 2020. The revisions introduce gone concern capital requirements for Switzerland-based intermediate parent banks of global systemically important banks (G-SIBs) on a standalone basis. As a consequence, UBS AG will be subject to (i) a gone concern capital requirement on its third-party exposure on a standalone basis, (ii) an additional gone concern capital buffer requirement equal to 30% of the Group’s gone concern capital requirement on UBS AG’s consolidated exposure, and (iii) a gone concern capital requirement equal to the nominal value of the gone concern instruments issued by UBS entities and held by the parent bank. A transitional period until 2024 will be granted for the buffer requirement.

Based on current estimates, and once the new requirements have been fully phased in, we expect UBS Group to be required to maintain a gone concern leverage ratio of around 75 to 100 basis points higher than what would be required to meet the Group requirements alone. The actual total loss-absorbing capital Group requirement at the end of the transition phase will depend on a number of components, including the subsidiaries’ loss-absorbing capacity at the time.

The revisions also reduced the gone concern requirement of UBS Switzerland AG to 62% of the Group’s gone concern requirement (before rebate) and increased the minimum gone concern requirement for the Group (after rebate) from 3% to 3.75% (based on leverage ratio denominator), effective 1 January 2022.

Finally, instruments available to meet gone concern requirements remain eligible until one year before maturity; however, the current haircut of 50% in the last year of eligibility is no longer applied under the revised rules.

Basel III finalization and adjustments to market risk framework

In December 2017, the BCBS announced the finalization of the Basel III framework, which we currently expect FINMA to implement later than the originally communicated effective date of 1 January 2022. The most significant changes include:

–     placing floors on certain model inputs under the IRB approach to calculate credit risk RWA;

–     requiring the use of standardized approaches for calculation of the credit valuation adjustment and for operational risk RWA;

–     placing an aggregate output floor on the Group RWA equal to 72.5% of the RWA calculated using a revised standardized approach; and

–     revising the leverage ratio denominator (LRD) calculation and introducing a leverage ratio surcharge for G-SIBs.

 

In January 2019, the BCBS also published the final rules on the minimum capital requirements for market risk (the Fundamental Review of the Trading Book). The revisions include adjustments to the risk sensitivity of the standardized approach, the calibration of certain elements of the framework and adjustments of the internal models approach. The new accord is currently expected to be introduced into national law later than the originally communicated effective date of 1 January 2022.

Leverage ratio treatment

In June 2019, the BCBS concluded to align the leverage ratio measurement of client-cleared derivatives with SA-CCR. This treatment permits both cash and non-cash forms of segregated initial margin, as well as cash and non-cash variation margin, received from a client to offset the replacement cost and potential future exposure for client-cleared derivatives only. This will help to mitigate any potential effect on the leverage ratio denominator from the finalization of the Basel III framework. We expect that the modified standardized approach for counterparty credit risk for leverage ratio purposes will become effective in concurrence with the Swiss timelines for adopting the Basel III final rule.

The BCBS also introduced a new disclosure standard, effective 1 January 2022, which sets out additional requirements for banks to disclose their leverage ratios based on quarter-end and daily average values of securities financing transactions. FINMA has not yet adopted the new disclosure standard.

Net stable funding ratio (NSFR)

Having delayed the introduction of Net Stable Funding Ratio (NSFR) requirements in Switzerland over the previous two years to align with developments in the EU and the US, the Swiss Federal Council communicated its intention in November 2019 to adopt the associated ordinance amendments in early summer 2020, and bring them into force by mid-2021. The Swiss Federal Department of Finance was mandated to finalize the regulatory texts jointly with relevant stakeholders, including affected banks, in the coming months. If implemented as originally proposed in the 2017 consultation, the introduction of NSFR could result in a significant increase in long-term funding requirements on a legal entity level.

®     Refer to the “Treasury management” section of our Annual Report 2019, available under ”Annual reporting” at www.ubs.com/investors,  for more information about the NSFR

 

Pillar 3 disclosure requirements

The BCBS updated the Pillar 3 disclosure requirements, which now include new disclosure requirements on asset encumbrance and, if required by national supervisors at the jurisdictional level, on capital distribution constraints. FINMA has not yet adopted these requirements.

We will disclose “CCR8 – Exposures to central counterparties” in our Pillar 3 reporting beginning with 30 June 2020.

Significant BCBS and FINMA consultation papers

Revisions to market risk disclosure requirements and voluntary disclosure of sovereign exposures

In November 2019, the BCBS issued two consultations to seek public feedback on a set of revised disclosure requirements related to the final revisions of the market risk framework published in January 2019. The first consultative document proposes a number of changes primarily related to the introduction of the “traffic light” approach for trading desks using the internal models approach, as well as enhancements to the disclosure of the trading desk structure. The second consultative document proposes voluntary disclosures related to banks’ exposures to sovereigns building upon the feedback received to the Committee’s December 2017 Discussion Paper on the regulatory treatment of sovereign exposures. Comments on both consultations were due by mid-February 2020.

Limited revisions to the Credit Valuation Adjustment (CVA) risk framework

In November 2019, the BCBS issued a consultation paper proposing a set of targeted revisions to the CVA risk framework published in December 2017. The proposal implements final revisions to the market risk framework and the capital requirements for bank exposures to central counterparties into
the CVA risk framework. It also considers adjustments to the scope of portfolios subject to CVA risk capital requirements and a possible calibration adjustment to the overall capital requirements calculated under the CVA standardized and basic approaches. Comments on this consultation paper were due by the end of February 2020.

Frequency and comparability of Pillar 3 disclosures

The table on the next page summarizes the reporting frequency for each disclosure as per the current FINMA requirements applicable to UBS.

In line with the FINMA-specified disclosure frequency and requirements for disclosure with regard to comparative periods, we provide quantitative comparative information as of 30 September 2019 for disclosures required on a quarterly basis. Where specifically required by FINMA and/or the BCBS, we disclose comparative information for additional reporting dates. The new TLAC2 disclosure is provided for the first time, as of 31 December 2019, in this report without comparative information.

Where required, movement commentary is aligned with the corresponding disclosure frequency required by FINMA and always refers to the latest comparative period. Throughout this report, signposts are displayed at the beginning of a section, table or chart – Annual | Semiannual | Quarterly | – indicating whether the disclosure is provided annually, semiannually or quarterly. A triangle symbol – p  p  p  – indicates the end of the signpost.

®     Refer to our 31 March 2019, 30 June 2019 and 30 September 2019 Pillar 3 reports, available under “Pillar 3 disclosures” at www.ubs.com/investors,  for more information about previously published quarterly movement commentary

®     Refer to our 30 June 2019 Pillar 3 report, available under “Pillar 3 disclosures” at www.ubs.com/investors,  for more information about previously published semiannual movement commentary

 

The following table outlines the annual, semiannual and quarterly disclosure requirements that are satisfied in this report for UBS Group and significant regulated subsidiaries and sub-groups as applicable. For specific disclosures, this report may refer to our Annual Report 2019.

 

FINMA reference	Disclosure title	FINMA reference	Disclosure title
Annual disclosure requirements
OVA	Bank risk management approach	CCRA	Qualitative disclosure related to counterparty credit risk
LI1	Differences between accounting and regulatory scopes of consolidation and mapping of financial statements with regulatory risk categories	SECA	Qualitative disclosure requirements related to securitization exposures
LI2	Main sources of differences between regulatory exposure amounts and carrying amounts in financial statements	MRA	Qualitative disclosure requirements related to market risk
LIA	Explanations of differences between accounting and regulatory exposure amounts	MRB	Qualitative disclosures for banks using the internal models approach (IMA)
PV1	Prudent valuation adjustments (PVAs)	IRRBBA	Interest rate risk in the banking book (IRRBB) risk management objective and policies
GSIB1	Disclosure of G-SIB indicators	IRRBB1	Quantitative information about interest rate risk in the banking book (IRRBB)
LIQA	Liquidity risk management	IRRBBA1	Quantitative disclosures relating to the position structure and interest rate reset of IRRBB risk
CRA	General qualitative information about credit risk	REMA	Remuneration policy
CRB	Additional disclosure related to the credit quality of assets	REM1	Remuneration awarded during the financial year
CRC	Qualitative disclosure requirements related to credit risk mitigation techniques	REM2	Special payments
CRD	Qualitative disclosures on banks’ use of external credit ratings under the standardized approach for credit risk	REM3	Deferred remuneration
CRE	Qualitative disclosures related to internal ratings-based (IRB) models	ORA	Qualitative disclosure requirements related to operational risk
CR9	IRB – backtesting of probability of default (PD) per portfolio

 

 

 

Format of Pillar 3 disclosures

As defined by FINMA, certain Pillar 3 disclosures follow a fixed format, whereas other disclosures are flexible and may be modified to a certain degree to present the most relevant information. Pillar 3 requirements are presented under the relevant FINMA table/template reference (e.g., OVA, OV1, LI1, etc.). Pillar 3 disclosures may also include row labeling (1, 2, 3, etc.) as prescribed by FINMA. Naming conventions used in our Pillar 3 disclosures are based on the FINMA guidance and may not reflect UBS naming conventions.

The FINMA-defined asset classes used within this Pillar 3 report are as follows:

–     Central governments and central banks, consisting of exposures relating to governments at the level of the nation state and their central banks. The European Union is also treated as a central government.

–     Banks and securities dealers, consisting of exposures to legal entities holding banking licenses and securities firms subject to adequate supervisory and regulatory arrangements, including risk-based capital requirements. Securities firms can only be assigned to this asset class if they are subject to a supervision equivalent to that of banks.

–     Public-sector entities, multi-lateral development banks, consisting of exposures to institutions established on the basis of public law in different forms, such as administrative entities or public companies as well as regional governments, the Bank for International Settlements, the International Monetary Fund and eligible multi-lateral development banks recognized by FINMA.

–     Corporates: specialized lending, consisting of exposures relating to income-producing real estate and high-volatility commercial real estate, commodities finance, project finance and object finance.

–     Corporates: other lending, consisting of all exposures to corporates that are not specialized lending. This asset class includes private commercial entities such as corporations, partnerships or proprietorships, insurance companies and funds (including managed funds).

–     Retail: residential mortgages, consisting of residential mortgages, regardless of exposure size, if the owner occupies or rents out the mortgaged property.

–     Retail: qualifying revolving retail exposures, consisting of unsecured and revolving credits to individuals that exhibit appropriate loss characteristics relating to credit card relationships at UBS.

–     Retail: other, consisting primarily of Lombard lending that represents loans made against the pledge of eligible marketable securities or cash, as well as exposures to small businesses, private clients and other retail customers without mortgage financing.

–     Equity, consisting of instruments that have no stated or predetermined maturity and represent a residual interest in the net assets of an entity.

–     Other assets, consisting of the remainder of exposures to which UBS is exposed, mainly non-counterparty-related assets.

Governance over Pillar 3 disclosures

The Board of Directors (the BoD) and senior management are responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information, including Pillar 3 disclosures. In line with BCBS and FINMA requirements, we have a BoD-approved Pillar 3 disclosure governance policy in place, which includes information about the key internal controls and procedures designed to govern the preparation, review and sign-off of Pillar 3 disclosures. This Pillar 3 report has been verified and approved in line with that policy.

 

Risk management framework

Our Group-wide risk management framework is applied across all risk types. The table below presents an overview of risk management disclosures that are provided separately in our Annual Report 2019.  

 

Annual |

OVA – Bank risk management approach
Pillar 3 disclosure requirement		Annual Report 2019 section		Disclosure			Annual Report 2019 page number
Business model and risk profile		Our strategy, business model and environment		–	Risk factors		60–70
				–	Current market climate and industry trends		31–34
		Risk, treasury and capital management		–	Overview of risks arising from our business activities		105–106
				–	Risk categories		107
				–	Top and emerging risks		108
				–	Risk appetite framework		111–114
				–	Risk measurement		116–118
				–	Credit risk – Key developments, Main sources of credit risk, Overview of measurement, monitoring and management techniques		119
				–	Market risk – Key developments, Main sources of market risk, Overview of measurement, monitoring and management techniques		138
				–	Interest rate risk in the banking book		143–146
				–	Other market risk exposures		146–147
				–	Country risk framework		148
				–	Operational risk framework		154
				–	Risk management and control principles		112
Risk governance		Risk, treasury and capital management		–	Risk categories		107
				–	Risk governance		109–110
				–	Interest rate risk in the banking book – Risk management and governance		143
				–	Treasury management – Strategy, objectives and governance		156
				–	Capital management – Capital management objectives, planning and activities		175–176
Communication and enforcement of risk culture within the bank		Risk, treasury and capital management		–	Risk governance		109–110
				–	Risk appetite framework		111–114
				–	Internal risk reporting		115
				–	Operational risk framework		154
Scope and main features of risk measurement systems		Risk, treasury and capital management		–	Risk measurement		116–118
				–	Credit risk – Overview of measurement, monitoring and management techniques		119
				–	Market risk – Overview of measurement, monitoring and management techniques		138
				–	Country risk exposure measure		148
				–	Advanced measurement approach model		155
Risk information reporting		Risk, treasury and capital management		–	Risk governance		109–110
				–	Internal risk reporting		115
				–	Risk management and control principles		112

 

p

Our approach to measuring risk exposure and risk-weighted assets

Depending on the intended purpose, the measurement of risk exposure that we apply may differ. Exposures may be measured for financial accounting purposes under International Financial Reporting Standards (IFRS) for deriving our regulatory capital requirement or for internal risk management and control purposes. Our Pillar 3 disclosures are generally based on measures of risk exposure used to derive the regulatory capital required under Pillar 1. Our RWA are calculated according to the BCBS Basel III framework, as implemented by the Swiss Capital Adequacy Ordinance issued by the Swiss Federal Council and by the associated circulars issued by FINMA.

The table below provides a summary of the approaches we use for the main risk categories to determine the regulatory risk exposure and RWA.

 

 

 

 

  

UBS Group

 

Key metrics of the fourth quarter of 2019

Quarterly | The KM1 and KM2 tables on the following pages are based on the Basel Committee on Banking Supervision (the BCBS) Basel III rules. The KM2 table includes a reference to the total loss-absorbing capacity (TLAC) term sheet, published by the Financial Stability Board (the FSB). The FSB provides this term sheet at www.fsb.org/2015/11/total-loss-absorbing-capacity-tlac-principles-and-term-sheet. 

During the fourth quarter of 2019, our common equity tier 1 (CET1) capital increased by USD 0.9 billion to USD 35.6 billion, mainly due to operating profit before tax, changes in compensation-related regulatory capital accruals, foreign currency translation effects and defined benefit plans. These effects were partly offset by accruals for capital returns to shareholders, share repurchases under our share repurchase program and current tax expenses. Our tier 1 capital increased by USD 1.2 billion to USD 51.9 billion, primarily reflecting the aforementioned increase in our CET1 capital and the issuance of a USD 0.3 billion high-trigger loss-absorbing AT1 capital instrument denominated in Swiss francs.

®     Refer to “UBS shares” in the “Capital management” section of our Annual Report 2019, available under ”Annual reporting” at www.ubs.com/investors  for more information about the share repurchase program

The TLAC available as of 31 December 2019 included CET1 capital, additional tier 1 and tier 2 capital instruments eligible under the TLAC framework, and non-regulatory capital elements of TLAC. Under the Swiss systemically relevant bank (SRB) framework, including transitional arrangements, TLAC excludes 45% of the gross unrealized gains on debt instruments measured at fair value through other comprehensive income for accounting purposes, which for regulatory capital purposes is measured at the lower of cost or market value. This amount was negligible as of 31 December 2019, but is included as available TLAC in the KM2 table in this section.

Risk-weighted assets (RWA) decreased by USD 5.4 billion to USD 259.2 billion, mainly due to decreases in operational risk RWA and market risk RWA. Leverage ratio exposure increased by USD 9 billion during the quarter, predominantly driven by currency effects and on-balance sheet assets (other than SFTs and derivatives), partly offset by a decrease in SFTs and derivatives. Average high-quality liquid assets decreased by USD 1.7 billion, reflecting higher funding consumption by the business divisions and reductions in issued debt, partly offset by higher deposit balances. Average total net cash outflows increased by USD 2.1 billion following a reduction in inflows from secured financing transaction investments, partly offset by higher average inflows from loans. p 

 

 

Quarterly |

KM1: Key metrics
USD million, except where indicated
			31.12.19		30.9.19		30.6.19		31.3.19	31.12.18
Available capital (amounts)
1	Common equity tier 1 (CET1)		35,582		34,673		34,948		34,658	34,119
1a	Fully loaded ECL accounting model CET11		35,538		34,635		34,904		34,613	34,071
2	Tier 1		51,888		50,702		49,993		49,436	46,279
2a	Fully loaded ECL accounting model Tier 11		51,844		50,664		49,949		49,391	46,231
3	Total capital		57,614		56,396		56,345		56,148	52,981
3a	Fully loaded ECL accounting model total capital1		57,570		56,358		56,302		56,103	52,933
Risk-weighted assets (amounts)
4	Total risk-weighted assets (RWA)		259,208		264,626		262,135		267,556	263,747
4a	Minimum capital requirement2		20,737		21,170		20,971		21,404	21,100
4b	Total risk-weighted assets (pre-floor)		259,208		264,626		262,135		267,556	263,747
Risk-based capital ratios as a percentage of RWA
5	Common equity tier 1 ratio (%)		13.73		13.10		13.33		12.95	12.94
5a	Fully loaded ECL accounting model Common equity tier 1 ratio (%)1		13.71		13.09		13.32		12.94	12.92
6	Tier 1 ratio (%)		20.02		19.16		19.07		18.48	17.55
6a	Fully loaded ECL accounting model Tier 1 ratio (%)1		20.00		19.15		19.05		18.46	17.53
7	Total capital ratio (%)		22.23		21.31		21.49		20.99	20.09
7a	Fully loaded ECL accounting model total capital ratio (%)1		22.21		21.30		21.48		20.97	20.07
Additional CET1 buffer requirements as a percentage of RWA
8	Capital conservation buffer requirement (2.5% from 2019) (%)		2.50		2.50		2.50		2.50	1.88
9	Countercyclical buffer requirement (%)		0.08		0.10		0.09		0.10	0.08
9a	Additional countercyclical buffer for Swiss mortgage loans (%)		0.23		0.21		0.22		0.21	0.21
10	Bank G-SIB and/or D-SIB additional requirements (%)		1.00		1.00		1.00		1.00	0.75
11	Total of bank CET1-specific buffer requirements (%)		3.58		3.60		3.59		3.60	2.71
12	CET1 available after meeting the bank’s minimum capital requirements (%)		9.23		8.60		8.83		8.45	8.44
Basel III leverage ratio
13	Total Basel III leverage ratio exposure measure		911,325		901,914		911,379		910,993	904,598
14	Basel III leverage ratio (%)		5.69		5.62		5.49		5.43	5.12
14a	Fully loaded ECL accounting model Basel III leverage ratio (%)1		5.69		5.62		5.48		5.42	5.11
Liquidity coverage ratio3
15	Total HQLA		166,215		167,916		176,173		186,038	173,389
16	Total net cash outflow		124,112		122,025		121,314		121,521	127,352
17	LCR (%)		134		138		145		153	136
1 The fully loaded ECL accounting model excludes the transitional relief of recognizing ECL allowances and provisions in CET1 capital in accordance with FINMA Circular 2013/1 “Eligible capital – banks.”    2 Calculated as 8% of total RWA, based on total capital minimum requirements, excluding CET1 buffer requirements.    3 Calculated based on quarterly average. Refer to “Liquidity coverage ratio” in section 14 of this report for more information.

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Quarterly |

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RWA development in the fourth quarter of 2019

Quarterly | The OV1 table below provides an overview of our risk-weighted assets (RWA) and the related minimum capital requirements by risk type. The FINMA template includes rows that are currently not applicable to UBS and therefore have been left empty.

During the fourth quarter of 2019, RWA decreased by USD 5.4 billion to USD 259.2 billion, mainly due to a decrease of USD 2.8 billion in operational risk RWA and a decrease of USD 2.7 billion in market risk RWA. Information about movements in RWA over the fourth quarter of 2019 is provided on pages 48–49 of our fourth quarter 2019 report, available under “Quarterly reporting” at www.ubs.com/investors, and in the respective sections of this report. More information about capital management and RWA, including details regarding movements in RWA over 2019, is provided on pages 185–187 of our Annual Report 2019, available under ”Annual reporting” at www.ubs.com/investors.  p   

 

Quarterly |

OV1: Overview of RWA
			RWA						Minimum capital requirements1
USD million			31.12.19	30.9.19	30.6.19	31.3.19	31.12.18		31.12.19
1	Credit risk (excluding counterparty credit risk)		121,244	119,969	114,991	118,419	112,991		9,700
2	of which: standardized approach (SA)		28,386	27,786	28,287	28,971	25,972		2,271
2a	of which: non-counterparty-related risk		13,135	12,678	12,912	12,779	9,514		1,051
3	of which: foundation internal ratings-based (F-IRB) approach
4	of which: supervisory slotting approach
5	of which: advanced internal ratings-based (A-IRB) approach		92,858	92,183	86,703	89,448	87,019		7,429
6	Counterparty credit risk2		36,354	37,259	37,487	36,793	34,282		2,908
7	of which: SA for counterparty credit risk (SA-CCR)3		4,699	5,962	5,793	5,183	5,415		376
8	of which: internal model method (IMM)		20,275	19,309	20,133	19,371	17,624		1,622
8a	of which: value-at-risk (VaR)		5,502	5,426	5,453	5,889	5,036		440
9	of which: other CCR		5,879	6,561	6,107	6,351	6,207		470
10	Credit valuation adjustment (CVA)		1,900	2,458	2,553	2,631	2,816		152
11	Equity positions under the simple risk weight approach4		3,261	3,248	3,302	3,960	3,658		261
12	Equity investments in funds – look-through approach5
13	Equity investments in funds – mandate-based approach5
14	Equity investments in funds – fallback approach5
15	Settlement risk		357	347	415	384	375		29
16	Securitization exposures in banking book		633	656	664	703	709		51
17	of which securitization internal ratings-based approach (SEC-IRBA)
18	of which securitization external ratings-based approach (SEC-ERBA), including internal assessment approach (IAA)		598	647	657	696	701		48
19	of which securitization standardized approach (SEC-SA)		35	8	7	7	8		3
20	Market Risk		6,556	9,207	10,977	12,985	19,992		525
21	of which: standardized approach (SA)		419	492	452	643	452		34
22	of which: internal model approaches (IMM)		6,137	8,714	10,526	12,343	19,541		491
23	Capital charge for switch between trading book and banking book6
24	Operational risk		77,542	80,345	80,345	80,345	77,558		6,203
25	Amounts below thresholds for deduction (250% risk weight)4,7		11,361	11,138	11,402	11,335	11,365		909
25a	of which: Deferred tax assets		8,951	8,699	8,853	8,747	8,782		716
26	Floor adjustment8
27	Total		259,208	264,626	262,135	267,556	263,747		20,737
1 Calculated based on 8% of RWA.    2 Excludes settlement risk, which is separately reported in line 15 “Settlement risk.” Includes RWA with central counterparties. The split between the subcomponents of counterparty credit risk refers to the calculation of the exposure measure.    3 Calculated in accordance with the current exposure method (CEM). The RWA under the standardized approach for counterparty credit risk (SA-CCR) will be presented for the first time in the 31 March 2020 Pillar 3 report.    4 Includes investments in funds. Items subject to threshold deduction treatments that do not exceed their respective threshold are risk weighted at 250% (31 December 2019: RWA USD 2,410 million; 30 September 2019: RWA USD 2,439 million; 30 June 2019: RWA USD 2,548 million; 31 March 2019: RWA USD 2,588 million; 31 December 2018: RWA USD 2,583 million) and are separately included in line 25 “Amounts below thresholds for deduction (250% risk weight).”    5 The effect of the adoption of the new regulation for the calculation of RWA for investments in funds introduced on 1 January 2020 will be presented for the first time in the 31 March 2020 Pillar 3 report.    6 Not applicable until the implementation of the final rules on the minimum capital requirements for market risk (the Fundamental Review of the Trading Book).    7 Includes items subject to threshold deduction treatments that do not exceed their respective threshold and are risk weighted at 250%. Items subject to threshold deduction treatments are significant investments in common shares of non-consolidated financial institutions (banks, insurance and other financial entities) and deferred tax assets arising from temporary differences, both of which are measured against their respective threshold.    8 No floor effect, as 80% of our Basel I RWA, including the RWA equivalent of the Basel I capital deductions, do not exceed our Basel III RWA, including the RWA equivalent of the Basel III capital deductions. For the status of the finalization of the Basel III capital framework, refer to the “Regulatory and legal developments” section of our Annual Report 2019 which outlines how the proposed floor calculation would differ in significant aspects from the current approach.

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The table below and on the following pages is provided on a voluntary basis to complement other disclosures provided, is aligned with the principles applied in the OV1 table and presents the net exposure at default (EAD) and RWA by risk type and FINMA-defined asset class, which forms the basis for the calculation of RWA. These exposures are further subdivided into standardized approaches and advanced internal ratings-based (A-IRB) or model-based approaches. For credit risk, the classification defines the method used to derive the risk weight factors, through either internal ratings (A-IRB) or external ratings (standardized approach). The split between standardized approaches and A-IRB or model-based approaches for counterparty credit risk refers to the exposure measure, whereas the split in templates CCR3 and CCR4 refers to the risk weighting approach. Market and operational risk RWA, excluding securitization and re-securitization in the trading book, are derived using model calculations and are therefore included in the model-based approach columns.

The table provides references to sections in this report containing more information about the specific topics.